Summary
This 8-K filing from Southern Company (SO) on December 2, 2016, primarily provides an update on the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project through Mississippi Power. The key takeaway for investors is the expected delay in the project's in-service date from December 31, 2016, to January 2017. This delay is projected to incur additional monthly costs of approximately $25 million to $35 million for base costs, plus an additional $15 million per month for Allowance for Funds Used During Construction (AFUDC), and approximately $3 million per month for carrying costs and other operational expenses. Furthermore, the filing highlights that Mississippi Power may need to repay approximately $250 million in tax benefits related to bonus depreciation if the project is not in service by December 31, 2016. This repayment is expected to be covered by a loan from Southern Company. Investors should note that these cost increases and potential delays are subject to various risks and uncertainties, as outlined in the cautionary note, including integration challenges, equipment failures, and regulatory actions. The company also disclosed an additional $68 million in estimated operations and maintenance costs for the first year of commercial operation, which Mississippi Power will not seek to recover from customers.
Key Highlights
- 1Kemper IGCC project in-service date delayed from December 31, 2016, to January 2017.
- 2Projected additional monthly costs of $25-$35 million for base operations and commissioning activities.
- 3Allowance for Funds Used During Construction (AFUDC) estimated at $15 million per month due to delay.
- 4Potential repayment of approximately $250 million in tax benefits if the project isn't in service by year-end 2016, to be funded by an intercompany loan from Southern Company.
- 5Additional $68 million in estimated first-year operations and maintenance costs disclosed, not to be recovered from customers.
- 6Cost cap for the project remains $2.88 billion, net of DOE grants and excluding certain 'Cost Cap Exceptions'.
- 7Ongoing start-up and commissioning activities, with further evaluation of in-service date and cost estimates expected in early January 2017.