8-KOther Events

SOUTHERN CO 8-K Report, Corporate Update (Mar 16, 2017)

Filed March 16, 2017For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing from Southern Company (SO) addresses significant updates regarding the Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project, primarily through its subsidiary Mississippi Power. The report indicates that the project's expected in-service date in mid-March 2017 has been missed due to recent issues with gasifier "A", following prior maintenance on gasifier "B". This delay is expected to result in additional base costs of approximately $25 million to $35 million per month, excluding further costs related to extended outage activities and cost cap exceptions. Investors should note that further cost increases and schedule extensions remain possible due to various operational and technical challenges. The filing also reiterates the $2.88 billion cost cap set by the Mississippi Public Service Commission (PSC), which excludes certain costs like the lignite mine, CO2 pipeline, AFUDC, and specific exceptions. The delay beyond March 15, 2017, will also increase costs for these excluded items, such as AFUDC at an estimated $16 million per month. The ultimate financial impact and operational outcome of the Kemper IGCC project remain uncertain.

Key Highlights

  • 1Kemper IGCC project in-service date delayed beyond mid-March 2017 due to tube leaks in gasifier "A".
  • 2Estimated additional base costs of $25 million to $35 million per month for the extension beyond March 15, 2017.
  • 3Costs for Allowance for Funds Used During Construction (AFUDC) estimated at $16 million per month due to the delay.
  • 4The $2.88 billion cost cap set by the Mississippi PSC remains in effect, with certain exclusions (mine, CO2 pipeline, AFUDC, etc.).
  • 5Further cost increases and schedule extensions are possible due to ongoing integration, operational, and potential equipment issues.
  • 6Updates to the schedule and cost estimate will be reflected in the February 2017 Monthly Status Report, expected by early April 2017.
  • 7The ultimate outcome of the project and its financial impact remain uncertain.

Frequently Asked Questions

The project's in-service date has been delayed beyond mid-March 2017 due to the discovery of tube leaks in one of the syngas coolers for gasifier "A", requiring an immediate outage for corrective actions. This follows recent outage work performed on gasifier "B".

Beyond the $2.88 billion cost cap (which has specific exclusions), the extension of the in-service date beyond March 15, 2017, is estimated to add approximately $25 million to $35 million per month in base costs. Additionally, costs for excluded items like AFUDC are estimated at $16 million per month, and other carrying costs are approximately $3 million per month.

Yes, the filing explicitly mentions several risks that could lead to further cost increases and schedule extensions. These include difficulties in system integration, maintaining nitrogen supply, major equipment failures, unforeseen engineering or design problems, and challenges in meeting operational performance parameters set by the Mississippi PSC.

Specific updates to the schedule and cost estimate for the Kemper IGCC are expected to be reflected in the Kemper IGCC Project Monthly Status Report through February 2017. Mississippi Power anticipates filing this report by early April 2017.