What is the primary reason for this 8-K filing?

This 8-K filing is primarily to provide an update on the status of Mississippi Power Company's Kemper County Integrated Coal Gasification Combined Cycle (Kemper IGCC) project, highlighting challenges during its start-up and commissioning phase and evaluating potential impacts on the schedule and costs.

What is the current cost cap for the Kemper IGCC project, and what does it exclude?

The cost cap set by the Mississippi PSC is $2.88 billion, net of $245 million in DOE grants. This cap excludes costs associated with the lignite mine, CO2 pipeline facilities, Allowance for Funds Used During Construction (AFUDC), and certain other exceptions like change of law, force majeure, and beneficial capital.

What are the potential financial implications of delays in the Kemper IGCC project's in-service date?

Any extension of the in-service date beyond June 30, 2016, is estimated to result in additional base costs of approximately $25 million to $30 million per month for start-up activities. Additionally, costs not subject to the $2.88 billion cap, such as AFUDC, are estimated to increase by about $13 million per month for delays beyond this date. Further cost increases for remediation of equipment or design issues are also possible.

When can investors expect more definitive updates on the Kemper IGCC project's timeline and costs?

Mississippi Power expects to file its Kemper IGCC Project Monthly Status Report through December 2015 by early February 2016, which should provide specific updates to the projected in-service date and related cost estimates.

SOUTHERN CO 8-K: Regulation FD

Summary

Southern Company (SO) filed an 8-K on January 5, 2016, primarily to disclose an update regarding Mississippi Power Company's Kemper County Integrated Coal Gasification Combined Cycle (Kemper IGCC) project. The filing details challenges encountered during the construction, commissioning, and start-up phases, particularly related to gasifier refractory lining repairs and operational readiness. These issues are causing management to evaluate the project's schedule and potential cost implications. While the Mississippi Public Service Commission (PSC) has a cost cap of $2.88 billion (net of DOE grants and excluding certain exceptions), any delays beyond June 30, 2016, could result in additional base costs of approximately $25 million to $30 million per month for start-up activities. Furthermore, extensions would increase costs for items not subject to the cap, such as Allowance for Funds Used During Construction (AFUDC), estimated at $13 million per month. Investors should closely monitor upcoming reports for definitive updates on the in-service date and final cost, as further changes could be material.

Key Highlights

1Mississippi Power Company is evaluating the construction, commissioning, and start-up schedule for the Kemper IGCC project due to challenges in gasifier repairs and operational readiness.
2A cost cap of $2.88 billion, net of DOE grants, is in place, excluding certain exceptions like Allowance for Funds Used During Construction (AFUDC).
3Extensions beyond the previously disclosed first-half 2016 in-service date could incur additional base costs of $25-$30 million per month.
4AFUDC costs are estimated at approximately $13 million per month for any delays beyond June 30, 2016, and are not subject to the primary cost cap.
5The company will provide specific updates on the in-service date and related cost estimates in the Kemper IGCC Project Monthly Status Report through December 2015, expected by early February 2016.
6Further cost increases and/or extensions may arise from various factors including labor, weather, equipment issues, design problems, and start-up complexities of the first-of-a-kind technology.
7The ultimate outcome and financial impact of these challenges are uncertain and could be material to Southern Company's and Mississippi Power's financial statements.

SOUTHERN CO 8-K Report, Regulation FD Disclosure (Jan 5, 2016)

Summary

Key Highlights

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