What is the current status of the Kemper IGCC Project?

As of January 2017, Mississippi Power's monthly status report indicates the expected in-service date for the remainder of the Kemper IGCC project has been extended to mid-March 2017. There has also been an approximate $35 million increase in the cost estimate subject to the $2.88 billion rate cap.

What are the main reasons for the cost increase and delay?

The $35 million cost increase is primarily attributed to the extension of the project's schedule, potential improvement projects that may be completed after initial operation, and costs related to start-up fuel, modifications, and readiness for operational startup.

What are the financial implications if the Kemper IGCC project is delayed further beyond mid-March 2017?

Any extension beyond mid-March 2017 is estimated to incur additional base costs of approximately $25 million to $35 million per month for start-up labor, materials, fuel, and operational resources. Additionally, costs not subject to the $2.88 billion cap, such as AFUDC (estimated at $16 million per month), carrying costs, and consulting fees, would also increase.

What are the risks associated with the Kemper IGCC project's completion and operation?

The filing outlines several risks, including difficulties in integrating systems for sustained operations, maintaining nitrogen supply, major equipment failure, unforeseen engineering or design problems, and operational performance issues. These factors could lead to further cost increases and delays.

SOUTHERN CO 8-K: Regulation FD

Summary

This 8-K filing from Southern Company (SO) provides an update on the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project, primarily through the submission of Mississippi Power's monthly status report for January 2017. The report highlights continued challenges with the project's in-service date and cost estimates. Notably, the expected in-service date has been extended to mid-March 2017, with an associated increase in costs subject to the $2.88 billion rate cap. This increase is attributed to schedule extensions, potential improvement projects, and start-up related expenses. Investors should be aware that further cost increases and delays are possible due to various operational and integration risks. The filing also details the substantial monthly costs associated with any further extensions beyond mid-March 2017, which are not fully captured by the $2.88 billion cap. These include Allowance for Funds Used During Construction (AFUDC) and other operating expenses. The ultimate outcome and financial impact remain uncertain.

Key Highlights

1Mississippi Power submitted its January 2017 monthly status report for the Kemper IGCC Project.
2The expected in-service date for the Kemper IGCC project has been extended to mid-March 2017.
3The cost estimate subject to the $2.88 billion rate cap has increased by approximately $35 million.
4The $35 million cost increase is due to schedule extension, potential improvement projects, and start-up related costs.
5Gasifier 'B' required an outage for ash removal, though the remainder of the project is still expected to be in service by mid-March.
6Potential additional costs of $25 million to $35 million per month are estimated for any extension beyond mid-March 2017, excluding AFUDC and other non-capped costs.
7Significant risks for further cost increases and delays are identified, including system integration issues and equipment failures.

SOUTHERN CO 8-K Report, Regulation FD Disclosure (Mar 2, 2017)

Summary

Key Highlights

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