Summary
Southern Company (SO) filed an 8-K on July 28, 2015, primarily to disclose updated cost estimates and a resulting charge related to its Kemper County Integrated Coal Gasification Combined Cycle (IGCC) project. Mississippi Power, a subsidiary, submitted a monthly report indicating the total estimated cost subject to the $2.88 billion cost cap (net of grants and excluding certain exceptions) had risen to approximately $4.96 billion as of June 30, 2015. Consequently, Southern Company and Mississippi Power recorded a pre-tax charge of approximately $23 million ($14.2 million after-tax) for the estimated probable losses in the second quarter of 2015. The company stated it does not intend to seek rate recovery for costs exceeding the $2.88 billion cost cap, net of grants and exceptions. This filing highlights significant cost overruns and potential financial strain on the Kemper IGCC project, which is a first-of-its-kind technology. Investors should note that future cost increases and delays are possible due to various factors including labor, weather, equipment, design issues, and start-up challenges. The ultimate outcome remains uncertain and could have material impacts on the companies' financial statements. The cautionary note emphasizes that actual results may differ from forward-looking statements due to numerous risks and uncertainties.
Key Highlights
- 1Total estimated cost for the Kemper IGCC project subject to the $2.88 billion cost cap (net of grants, excluding exceptions) reached approximately $4.96 billion as of June 30, 2015.
- 2Southern Company and Mississippi Power recorded a pre-tax charge of approximately $23 million ($14.2 million after-tax) in Q2 2015 for estimated probable losses on the Kemper IGCC project.
- 3Mississippi Power will not seek rate recovery for costs exceeding the $2.88 billion cost cap, net of grants and exceptions.
- 4The filing acknowledges potential future cost increases and delays due to factors like labor, weather, equipment, design problems, and start-up complexities.
- 5The ultimate outcome of the Kemper IGCC project's costs and in-service date remains uncertain and could materially impact financial statements.
- 6The report references prior disclosures regarding the Kemper IGCC project in the companies' 10-K and 10-Q filings for additional context.