Summary
Southern Company (SO) filed an 8-K on May 1, 2017, primarily to disclose updated cost and schedule information regarding the Kemper Integrated Coal Gasification Combined Cycle (IGCC) project. Mississippi Power, a subsidiary, continues to face challenges in bringing the remainder of the Kemper IGCC plant into sustained operation. Despite achieving integrated operation of gasifiers and electricity production from syngas, ongoing issues with ash removal and gas cleanup systems have delayed the full in-service date. This update indicates that the project's in-service date has been pushed to the end of May 2017, and a further cost increase of approximately $38 million subject to the regulatory cost cap has been recognized. Consequently, Southern Company and Mississippi Power recorded pre-tax charges of approximately $108 million ($67 million after-tax) in the first quarter of 2017 to account for estimated probable losses. The company reiterates its commitment not to seek rate recovery for costs exceeding the $2.88 billion cost cap, net of grants and excluding certain exceptions. However, potential further cost increases and schedule extensions beyond May 2017 remain a significant risk, with estimated additional base costs of $25 million to $35 million per month if the in-service date is further delayed, in addition to costs not subject to the rate cap.
Key Highlights
- 1Kemper IGCC project faces further delays, now expected in-service by end of May 2017 due to ash removal and gas cleanup system issues.
- 2An additional $38 million in costs subject to the $2.88 billion regulatory cost cap recognized for the Kemper IGCC project.
- 3Southern Company and Mississippi Power recorded $108 million ($67 million after-tax) in pre-tax charges in Q1 2017 for estimated probable losses on Kemper.
- 4The company maintains its stance not to seek rate recovery for costs exceeding the $2.88 billion cost cap (net of grants, excluding exceptions).
- 5Potential for significant additional costs ($25M-$35M per month) if the in-service date extends beyond May 2017, with further costs not subject to the cap.
- 6Despite operational challenges, the plant has produced CO2, electricity, sulfuric acid, and ammonia of acceptable quality under off-take agreements.