Summary
This 8-K filing from Southern Company (SO) on October 28, 2016, primarily provides an update on the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. Mississippi Power has submitted its monthly status report, indicating continued testing and commissioning activities. The project is nearing its expected in-service date of November 30, 2016. However, the company has reported additional costs subject to the Mississippi Public Service Commission's (PSC) $2.88 billion cost cap, bringing the total estimated cost subject to the cap to approximately $5.49 billion. This revised estimate has resulted in pre-tax charges of $63 million ($39 million after-tax) for the third quarter of 2016.
Key Highlights
- 1Kemper IGCC Project nearing expected in-service date of November 30, 2016, with initial testing using clean syngas underway.
- 2Additional estimated costs of approximately $29 million subject to the $2.88 billion cost cap have been reported for the Kemper IGCC in September 2016.
- 3Total estimated Kemper IGCC cost subject to the $2.88 billion cost cap, net of DOE grants and excluding certain exceptions, was approximately $5.49 billion as of September 30, 2016.
- 4Southern Company and Mississippi Power recorded $63 million ($39 million after-tax) in pre-tax charges during Q3 2016 due to the revised cost estimate.
- 5Mississippi Power does not intend to seek rate recovery for costs exceeding the $2.88 billion cost cap (net of grants and excluding cost cap exceptions).
- 6Potential for further cost increases and/or extensions of the in-service date exists due to ongoing integration, testing, and potential unforeseen issues.
- 7Monthly costs of $25-$35 million are estimated for each month of delay beyond November 30, 2016, for base costs, excluding additional costs for exceptions like AFUDC.
Frequently Asked Questions
The Kemper IGCC Project is in the final stages of construction, commissioning, and start-up. Initial testing using clean syngas has begun, and the expected in-service date is November 30, 2016. The project is experiencing ongoing integration of systems for dual gasifier operation.
Yes, Mississippi Power has reported additional estimated costs subject to the $2.88 billion cost cap. As of September 30, 2016, the total estimated cost subject to the cap is approximately $5.49 billion. This led to a $63 million pre-tax charge in the third quarter of 2016.
No, Mississippi Power has stated it does not intend to seek rate recovery for any costs related to the Kemper IGCC construction that exceed the $2.88 billion cost cap, net of initial DOE grants and excluding certain specified exceptions.
Risks include difficulties in integrating systems for sustained operations, potential major equipment failures, unforeseen engineering or design problems, and operational performance challenges. Each month of delay beyond November 30, 2016, is estimated to cost an additional $25 million to $35 million in base costs, excluding costs related to exceptions like AFUDC.