What is the current status and expected in-service date for the Kemper IGCC Project?

As of January 31, 2017, Mississippi Power expects the Kemper IGCC Project to be placed in service in late February 2017. While integrated operation of gasifiers and turbines was achieved on January 29, 2017, a one-week outage is required for repairs and modifications to ensure sustained operations.

How has the cost estimate for the Kemper IGCC Project changed?

The December 2016 monthly status report indicates an approximate $51 million increase in the cost estimate subject to the $2.88 billion cost cap. This includes adjustments for startup fuel, outage work, and projected schedule costs through February 28, 2017.

What are the potential financial implications of further delays or cost overruns?

Extensions beyond February 28, 2017, could incur additional base costs of $25 million to $35 million per month, plus further costs for 'Cost Cap Exceptions' such as AFUDC. Any material changes to the estimated costs, net of grants and excluding exceptions, will be reflected in financial statements and could be material.

How is the economic viability of the Kemper IGCC Project being assessed?

Mississippi Power is updating its economic viability analysis due to increased operating expense projections and lower long-term natural gas forecasts. This analysis compares the Kemper IGCC's life cycle economics to a natural gas combined cycle unit, and the current outlook suggests a negative impact on its viability.

SOUTHERN CO 8-K: Regulation FD

Summary

This 8-K filing from Southern Company (SO) on January 31, 2017, primarily provides an update on the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project managed by its subsidiary, Mississippi Power. The report details a further delay in the project's in-service date, now anticipated for late February 2017, necessitating a one-week outage for repairs and modifications to ensure sustained operations. This schedule adjustment leads to an approximate $51 million increase in the cost estimate subject to the $2.88 billion cost cap. Furthermore, the filing indicates that updated operating expense projections and lower long-term natural gas forecasts are negatively impacting the project's economic viability analysis. While integrated operation of both gasifiers and combustion turbines has been achieved, the project continues to face challenges in achieving sustained operations. Investors should monitor potential further cost increases, schedule extensions, and the results of the economic viability analysis, as these could materially affect Southern Company's financial performance and regulatory outcomes.

Key Highlights

1Kemper IGCC Project's in-service date delayed again to late February 2017 due to the need for repairs and modifications to ensure sustained operations.
2An approximate $51 million increase in the project's cost estimate, subject to the $2.88 billion cost cap, is reported for December 2016 and projected costs through February 28, 2017.
3Mississippi Power achieved integrated operation of both gasifiers and combustion turbines on January 29, 2017, but identified a need for a one-week outage for further improvements.
4Revised operating expense projections and lower projected long-term natural gas costs are negatively impacting the Kemper IGCC's economic viability analysis.
5Potential for further cost increases and/or in-service date extensions remains due to integration difficulties, system issues, and operational performance challenges.
6Monthly costs for schedule extensions beyond February 28, 2017, are estimated at $25 million to $35 million in base costs, plus additional costs for 'Cost Cap Exceptions' like AFUDC.

SOUTHERN CO 8-K Report, Regulation FD Disclosure (Jan 31, 2017)

Summary

Key Highlights

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