Tuesday, May 6, 2014
JACKSON, Miss. (AP) — Troubles at the Kemper County power plant that Mississippi Power Co. is building are so great that they're dragging down the stock of parent Southern Co.
The company stock has fallen since Atlanta-based Southern disclosed another $196 million in overruns related to higher construction costs and project delays, though share prices rose Monday.
The company says the additional charge is also related to the same factors it discussed in April when it charged off $184 million. The coal-fueled power plant is now projected to cost $5.5 billion.
"We have experienced decreases in construction labor productivity due to a combination of adverse weather, labor turnover and inefficiencies," Southern CEO Tom Fanning told investors Wednesday.
The company also pushed back the completion date of the whole complex until May 2015, although it says it will begin running power turbines this summer using piped-in natural gas.
Mississippi Power says it will pay the additional money — not its 186,000 customers from Meridian to the Gulf Coast. However, the company says it also will lose $120 million to $150 million in tax benefits by not completing the complex this year. Mississippi Power says it may change its rate proposal to recover that money.
"Loss of these tax benefits would require further adjustment to the proposed retail rate recovery plan, which remains subject to approval by the Mississippi PSC," Mississippi Power wrote in an April 29 stock filing.
Company leaders said Congress could still vote to extend the tax benefits into 2015. They also said the issue would be part of settlement talks with the Public Utilities Staff over whether the company spent the first $2.75 billion on the plant prudently. The Mississippi Public Service Commission delayed prudency hearings from May 19 until at least August, in part to allow those talks.
Investor reaction has been negative, with shares dropping. Monday, Swiss investment bank UBS cut Southern's stock to a "sell" rating, citing the trouble at Kemper.
"We believe there is a possibility for further project slippage and the use of the remaining contingency," wrote analyst Julien Dumoulin-Smith.
One problem is that any further delays will cost $25 million a month and the company could have to raise more money through stock sales if overruns keep piling up.
"We're pretty close to the edge," Chief Financial Officer Art Beattie said of the company's capital structure.
Analysts and company officials both agree that risks remain in the startup of the remainder of the plant, which is supposed to gasify lignite coal, remove carbon dioxide and other chemicals, and burn the remaining gas for power.
"The integration of the different systems of Kemper, it's a very complex animal," Beattie said.
Bills for customers have already gone up by 18 percent over two years. Mississippi Power has said it's likely to seek an additional increase of at least 4 percent over 20 years to pay off $1 billion in bonds that the Legislature is allowing the company to issue as part of the settlement.