Summary
This 8-K filing from Southern Company (SO) provides a critical update on the status of Mississippi Power's Kemper County Integrated Coal Gasification Combined Cycle (IGCC) Project. The most significant development is Mississippi Power's decision to suspend operations and start-up activities on the gasifier portion of the Kemper IGCC as of June 28, 2017, due to "current circumstances" and "uncertainty as to the future of the gasifier portion." This suspension means the project will not be placed in service by the end of June as previously anticipated. Further, the filing indicates potential increases to the project's cost estimate, with approximately $11 million added during May and June related to repairs. More concerning for investors, Mississippi Power is facing significant unrecovered costs, with approximately $3.4 billion in Kemper IGCC costs not yet reflected in customer rates as of May 31, 2017. The company intends to pursue settlement alternatives and other cost recovery options, but warns that if these costs are not ultimately recovered through rates, Southern Company and Mississippi Power would need to recognize a material charge to income in the second quarter of 2017.
Key Highlights
- 1Mississippi Power has suspended operations and start-up activities on the gasifier portion of the Kemper IGCC project due to uncertainty about its future.
- 2The expected in-service date for the remainder of the Kemper IGCC project will be delayed beyond the previously anticipated end of June 2017.
- 3An additional $11 million in cost increases were incurred in May and June 2017 for repairs to the Kemper IGCC project.
- 4Approximately $3.4 billion in Kemper IGCC costs are currently not reflected in Mississippi Power's retail and wholesale rates.
- 5Southern Company provided Mississippi Power with $1.0 billion in equity contributions between June 28-30, 2017, which were used for debt repayment.
- 6A material charge to income in Q2 2017 is possible for Southern Company and Mississippi Power if the $3.4 billion in unrecovered Kemper IGCC costs are not approved for rate recovery.