Summary
This 8-K filing from Southern Company (SO) on April 1, 2016, primarily provides an update on the Mississippi Power Company's Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. The report highlights ongoing repairs and modifications to the gasifiers, which could impact the projected in-service date and cost estimates. Mississippi Power previously estimated an in-service date in the third quarter of 2016. Key concerns for investors revolve around potential cost overruns. Extensions to the in-service date beyond August 31, 2016, are estimated to incur additional base costs of $25 million to $35 million per month. Furthermore, costs associated with Cost Cap Exceptions, such as AFUDC, carrying costs, and consulting fees, are not subject to the $2.88 billion cost cap and could also increase, potentially impacting the company's financial performance. The filing emphasizes that the ultimate outcome and final costs remain uncertain due to various risks inherent in this first-of-a-kind technology.
Key Highlights
- 1Mississippi Power submitted its monthly status report for the Kemper IGCC Project through February 2016.
- 2Ongoing repairs to the gasifier refractory lining could delay the projected Q3 2016 in-service date.
- 3Each month of delay beyond August 31, 2016, is estimated to cost an additional $25 million to $35 million in base costs.
- 4Costs exceeding the $2.88 billion cost cap (net of DOE grants) due to "Cost Cap Exceptions" (like AFUDC, carrying costs, operating expenses on placed-in-service assets, and legal/consulting fees) are not included in the cap and could further increase expenses.
- 5AFUDC alone is estimated at $13 million per month for delays beyond August 31, 2016.
- 6Various factors, including labor costs, weather, equipment quality, unforeseen design problems, and operational performance, could lead to further cost increases and schedule delays.
- 7The ultimate outcome and final costs for the Kemper IGCC project remain uncertain.