Increased cost projections for a much-anticipated integrated gasification combined-cycle IGCC being built in its Mississippi Power utility subsidiary, has caused Southern (NYSE:SO) to take an after-tax charge, the company said April 29.
Southern reported first-quarter 2015 earnings of $508m, or 56 cents a share, compared with earnings of $351m, or 39 cents a share, in the first quarter of 2014.
The first-quarter results for 2015 include a $6m after-tax charge related to an increased construction estimate for Mississippi Power’s Kemper IGCC project. The first-quarter results for 2014 included a $235m (27 cents per share) after-tax charge for the Kemper IGCC project. Excluding these items, Southern earned $514m, or 56 cents per share, during the first quarter of 2015 compared to $586m, or 66 cents per share, in the first quarter of 2014.
Mississippi Power said in March that it has successfully performed “first fire” at the gasifiers that will convert lignite coal to synthesis gas, or syngas, for use in power generation. The 582-MW project is scheduled for completion in the first half of 2016.
The Mississippi Supreme Court has taken issue with certain cost recovery approved for the project by the Mississippi Public Service Commission. The court noted in February that Mississippi Power first asked the commission to approve the Kemper project at a projected net cost of $2.2bn. But in a monthly status report to the PSC dated Feb. 3, 2015, Mississippi Power now projects the costs at more than $6.172bn, a 281% increase from the original net cost estimate.
A number of business groups have recently filed briefs with the Mississippi Supreme Court arguing that Mississippi Power should not be forced to file a traditional rate case, Southern Chairman, President and CEO Thomas Fanning said during an April 29 earnings conference call.
Without a settlement with the state, the utility would file for a conventional rate increase through the PSC this year, Fanning said.
The Kemper forecast overall is encouraging becaue the project is essentially in startup right now, Fanning said.
Southern earnings for the first quarter of 2015 were positively influenced by retail revenue effects at Southern’s traditional operating companies, offset by milder winter weather compared to 2014 and increased operating and maintenance expenses.
“We are encouraged by positive customer growth during the first quarter of 2015, along with strong industrial sales and an economic development pipeline that remains robust,” said Fanning. “In the meantime, we remain focused on our core business strategy of providing clean, safe, reliable and affordable electricity to customers throughout the Southeast.”
First-quarter 2015 operating revenues were $4.18 bn, compared with $4.64bn for the same period in 2014, a decrease of 9.9% quarter over quarter.
Kilowatt-hour sales to retail customers in Southern Company’s four-state service area decreased 1.2% in the first quarter of 2015 compared with the first quarter of 2014. Due primarily to milder winter weather than in 2014, residential and commercial energy sales decreased 4.2% and 1.1%, respectively, while industrial energy sales increased 1.9%.
Total energy sales to Southern Company’s customers in the Southeast, including wholesale sales, decreased 3.3% in the first quarter of 2015 compared with the same period in 2014.