8-KEarnings & ResultsRegulation FDOther Events

SOUTHERN CO 8-K Report, Financial Results (Apr 26, 2016)

Filed April 26, 2016For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) filed an 8-K on April 26, 2016, primarily to update investors on the significant cost overruns and ongoing challenges associated with its Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. Mississippi Power, a subsidiary, submitted its monthly status report indicating a further increase in the project's cost estimate, impacting the $2.88 billion cost cap set by the Mississippi Public Service Commission (PSC). The company recorded approximately $53 million ($33 million after-tax) in pre-tax charges during the first quarter of 2016 due to these escalating costs and the revised in-service date projections. While the project is still expected to enter service in the third quarter of 2016, the continued delays and associated expenses highlight the significant financial risks and uncertainty surrounding the Kemper IGCC project, which could materially affect Southern Company's financial performance.

Key Highlights

  • 1Mississippi Power reported an additional $35 million increase in the cost estimate for the Kemper IGCC project, subject to the $2.88 billion cost cap (net of grants and excluding certain exceptions).
  • 2Southern Company and Mississippi Power recorded a total pre-tax charge of approximately $53 million ($33 million after-tax) in Q1 2016 related to the probable losses on the Kemper IGCC project.
  • 3The projected in-service date for the Kemper IGCC remains the third quarter of 2016, with projected costs now extending through September 30, 2016.
  • 4Costs exceeding the $2.88 billion cap are not intended to be sought for rate recovery from customers; these include Allowance for Funds Used During Construction (AFUDC) and other exceptions.
  • 5Each month of delay beyond September 30, 2016, is estimated to add $25 million to $35 million in base costs, plus additional costs for exceptions like AFUDC.
  • 6The company acknowledges significant risks and uncertainties that could lead to further cost increases and in-service date extensions, including potential major equipment failure and system integration issues.
  • 7The ultimate outcome of the Kemper IGCC project and its financial impact remains uncertain.

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