Summary
Southern Company (SO) filed an 8-K on April 28, 2015, primarily to update investors on the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) project, a significant undertaking by its subsidiary Mississippi Power. The report indicates that as of March 31, 2015, the estimated costs subject to the Mississippi Public Service Commission's (PSC) $2.88 billion cost cap (net of grants and excluding certain exceptions) for the Kemper IGCC project had reached approximately $4.94 billion. This implies a substantial overrun against the established cap.
Key Highlights
- 1Kemper IGCC project costs subject to the $2.88 billion cost cap reached $4.94 billion as of March 31, 2015.
- 2Mississippi Power does not intend to seek rate recovery or joint owner contributions for costs exceeding the $2.88 billion cost cap (net of grants and excluding exceptions).
- 3Southern Company and Mississippi Power recorded pre-tax charges of approximately $9 million ($5.6 million after-tax) in Q1 2015 due to previous cost estimate changes for Kemper.
- 4The filing reiterates that future cost increases or delays for the Kemper IGCC project could arise from various factors, including labor, weather, supply chain issues, design problems, and start-up activities.
- 5Any further changes in estimated costs to complete and start-up the Kemper IGCC project that are subject to the cost cap are expected to be material to Southern Company's and Mississippi Power's financial statements.
- 6The ultimate outcome of the Kemper IGCC project's financial implications remains uncertain.
- 7The report includes a cautionary note regarding forward-looking statements and factors that could cause actual results to differ materially from projections.
Frequently Asked Questions
The primary purpose of this 8-K filing is to provide an update on the cost status of the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) project by Mississippi Power, a subsidiary of Southern Company, as of March 31, 2015. It highlights that project costs subject to a specific regulatory cap have significantly exceeded that cap.
As of March 31, 2015, the estimated costs for the Kemper IGCC project that are subject to the Mississippi Public Service Commission's (PSC) $2.88 billion cost cap (net of DOE grants and excluding certain exceptions) were approximately $4.94 billion. This indicates a substantial overrun against the capped amount.
Mississippi Power has stated that it does not intend to seek any rate recovery or joint owner contributions for costs related to the Kemper IGCC project that exceed the $2.88 billion cost cap (net of DOE grants and excluding specified exceptions).
In the first quarter of 2015, Southern Company and Mississippi Power recorded total pre-tax charges to income of approximately $9 million ($5.6 million after-tax) related to the estimated probable losses on the Kemper IGCC project, stemming from previous changes in cost estimates.