8-KEarnings & ResultsRegulation FDOther Events

SOUTHERN CO 8-K Report, Financial Results (Feb 2, 2016)

Filed February 2, 2016For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This SEC filing by Southern Company (SO) provides an update on the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project, primarily focusing on revised cost estimates and the expected in-service date. Mississippi Power, a subsidiary of Southern Company, submitted its monthly status report which detailed further cost increases and a delay in the project's operational start. These updates have led to the recognition of pre-tax charges to income for estimated probable losses related to the Kemper IGCC. Investors should note that the total estimated cost subject to the Mississippi PSC's cost cap has significantly exceeded the initial $2.88 billion limit. While Mississippi Power does not intend to seek rate recovery for costs exceeding this cap (net of grants and excluding certain exceptions), the company recorded substantial pre-tax charges in the fourth quarter of 2015 due to these revised estimates. The filing also highlights potential ongoing risks and uncertainties that could lead to further cost increases and delays, impacting future financial performance.

Key Highlights

  • 1Kemper IGCC Project faced further cost increases and schedule delays, pushing the expected in-service date to the third quarter of 2016.
  • 2Mississippi Power reported an additional $110 million increase in estimated costs subject to the $2.88 billion cost cap for the Kemper IGCC for December 2015.
  • 3The total estimated Kemper IGCC cost subject to the cost cap, as of December 31, 2015, was approximately $5.294 billion, significantly exceeding the $2.88 billion cap.
  • 4Southern Company and Mississippi Power recorded a total pre-tax charge of approximately $183 million ($113 million after-tax) for probable losses on the Kemper IGCC in Q4 2015.
  • 5Mississippi Power does not intend to seek rate recovery for costs exceeding the $2.88 billion cost cap, excluding specific exceptions.
  • 6Potential additional costs of $25-$35 million per month are estimated for extensions beyond August 31, 2016, for base costs, with additional costs for Cost Cap Exceptions (like AFUDC) also possible.
  • 7The filing reiterates significant risks and uncertainties that could lead to further cost increases and delays for the Kemper IGCC project.

Frequently Asked Questions

The main reason for this 8-K filing is to provide an update on the revised cost estimates and expected in-service date for the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project by Mississippi Power, a subsidiary of Southern Company. This update includes recognition of significant charges to income due to estimated probable losses associated with the project.

The filing indicates an additional increase of approximately $110 million in estimated costs subject to the cost cap for the Kemper IGCC for December 2015. The project is now expected to be placed in service during the third quarter of 2016, a delay from previous expectations.

As of December 31, 2015, the total estimated Kemper IGCC cost subject to the $2.88 billion cost cap (net of grants and excluding certain exceptions) was approximately $5.294 billion. This figure significantly exceeds the established cost cap, and Mississippi Power has stated it does not intend to seek rate recovery for costs above this cap, excluding specific exceptions.

As a result of the revised cost estimates, Southern Company and Mississippi Power recorded total pre-tax charges to income of approximately $183 million ($113 million after-tax) during the fourth quarter of 2015 to account for estimated probable losses on the Kemper IGCC project.