8-KOther Events

SOUTHERN CO 8-K Report, Corporate Update (Aug 22, 2017)

Filed August 22, 2017For Securities:SOSOJESOJFSOJCSOJDSOMN

Summary

Southern Company (SO) disclosed significant developments regarding the Kemper County integrated coal gasification combined cycle (IGCC) project via its subsidiary Mississippi Power. A settlement agreement has been reached with key stakeholders, moving away from the original coal gasification plan towards operating the facility solely on natural gas. This settlement aligns with a prior Mississippi Public Service Commission (PSC) order that mandated the pursuit of a settlement without increasing customer rates, focusing on rate reductions for residential customers, and removing customer cost risk associated with the gasifier. Investors should note that while the settlement avoids rate increases for customers and removes their financial risk related to the gasifier, Mississippi Power expects to incur additional pre-tax costs between $100 million and $200 million related to the cancellation of the gasification component. The Mississippi PSC is expected to review and potentially approve this settlement in the fourth quarter of 2017. The ultimate financial impact and regulatory outcome remain subject to the PSC's final decision and other potential factors.

Key Highlights

  • 1Mississippi Power has reached a settlement agreement to operate the Kemper County facility as a natural gas plant, abandoning its original IGCC design.
  • 2The settlement, consistent with a Mississippi PSC order, ensures no rate increase for customers and aims for residential rate reductions.
  • 3Customer cost risk associated with the gasifier portion of the Kemper IGCC project will be removed.
  • 4Mississippi Power will not seek recovery for the costs of the gasifier, and the facility's certificate of public convenience and necessity (CPCN) will be modified for natural gas-only operation.
  • 5Mississippi Power anticipates incurring pre-tax costs of $100 million to $200 million due to the gasifier cancellation, which will not be recovered from customers.
  • 6The Mississippi PSC is scheduled to consider the settlement approval in the fourth quarter of 2017.
  • 7The ultimate outcome is subject to PSC approval and other potential regulatory or legal proceedings.

Frequently Asked Questions

The main outcome is that Mississippi Power will convert the Kemper County facility to operate solely on natural gas, abandoning the original integrated coal gasification combined cycle (IGCC) plan. This was agreed upon with various stakeholders and is consistent with a Mississippi PSC order.

No, the settlement agreement explicitly states that there will be no rate increase for Mississippi Power customers in 2018 related to Kemper IGCC costs. The agreement encourages a rate reduction focused on residential customers.

Mississippi Power expects to incur additional pre-tax costs estimated between $100 million and $200 million related to the cancellation of the gasification portion of the Kemper IGCC. These costs will not be recovered from customers.

The Mississippi PSC is expected to consider and potentially approve the Kemper Settlement Agreement in the fourth quarter of 2017. However, the ultimate outcome is not yet determined and is subject to their decision.