8-KRegulation FDOther Events

SOUTHERN CO 8-K Report, Regulation FD Disclosure (Apr 3, 2017)

Filed April 3, 2017For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

This 8-K filing from Southern Company (SO) primarily provides an update on the status of Mississippi Power's Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. The report details a slight increase in the project's cost estimate, primarily due to schedule extensions and start-up related expenses. Mississippi Power has completed necessary corrective actions for a gasifier tube leak and expects the remainder of the Kemper IGCC to be placed in service by the end of April 2017. The filing also reiterates the project's cost cap and outlines potential risks and uncertainties that could impact future costs and in-service dates.

Key Highlights

  • 1Mississippi Power expects the Kemper IGCC project to be placed in service by the end of April 2017, following completion of outage work on gasifier 'A'.
  • 2The project's cost estimate has increased by approximately $70 million, including $45 million for schedule extensions, $15 million for start-up fuel, and $10 million for outage work and maintenance.
  • 3The project remains subject to a cost cap of $2.88 billion, net of $245 million in U.S. Department of Energy grants, with specific exceptions for costs like Allowance for Funds Used During Construction (AFUDC) and certain other items.
  • 4Potential further cost increases and/or extensions of the in-service date could arise from integration difficulties, equipment failures, unforeseen engineering issues, and operational performance challenges.
  • 5Additional costs of $25 million to $35 million per month could be incurred for each month the in-service date extends beyond April 30, 2017, excluding costs related to Cost Cap Exceptions.
  • 6AFUDC and other carrying costs are estimated at approximately $16 million per month, plus an additional $3 million per month for consulting and legal fees, for each month beyond the projected in-service date.
  • 7The filing includes a cautionary note regarding forward-looking statements and highlights various risks that could materially affect actual results.

Frequently Asked Questions

Mississippi Power now expects the remainder of the Kemper IGCC project to be placed in service by the end of April 2017. This follows the completion of corrective actions for a tube leak in one of the syngas coolers.

The cost estimate has increased by approximately $70 million. This increase is attributed to approximately $45 million for extending the projected schedule to April 30, 2017, $15 million for start-up fuel, and $10 million primarily for outage work and operational maintenance.

The cost cap set by the Mississippi PSC is $2.88 billion, net of $245 million of grants from the U.S. Department of Energy. It excludes the cost of the lignite mine and equipment, carbon dioxide pipeline facilities, Allowance for Funds Used During Construction (AFUDC), and certain general exceptions like change of law and beneficial capital.

Potential risks include difficulties integrating systems for sustained operations, sustaining nitrogen supply, major equipment failure, unforeseen engineering or design problems, and operational performance issues. The filing also mentions that any extension beyond the April 30, 2017, in-service date could add $25 million to $35 million per month in base costs, excluding costs related to the Cost Cap Exceptions like AFUDC.