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Southern Company Kemper Project Hearing Slated for December

The fate of electric utility firm The Southern Company’s SO Kemper Project continues to remain uncertain as the company and the Public Utilities Staff failed to reach a settlement regarding the rate issue. Concurrently, Mississippi Public Service Commission (MPSC) scheduled the hearings for the project to commence from Dec 4.

Notably, few days back Southern Company requested the Public Service Commission to reassess the service agreement of the Kemper plant as the company managed to reach an accord with all other parties but the Public Utilities Staff. 

Looking Back

Mississippi Power, subsidiary of Southern Company and in charge of the Kemper Project, has spent years in the construction of the project based on clean coal gasification technology. The Kemper plant had been central to ex-President Obama’s Climate Plan and was designed to reduce up to 65% of carbon dioxide emissions. Notably, the project also received the support of President Trump.

However, the project has been facing continuous criticism owing to its poor execution, cost overruns and multiple delays. The plant is already three years behind schedule and is over $4 billion beyond the stipulated budget. The overall cost of the plant was estimated to be around $3 billion in 2010. However, with several delays adding to the project’s cost, the current price tag of the plant has ballooned over $7.3 billion. In the past 18 months, the company has announced 10 delays due to project management problems. The project found it difficult to get its two gasifiers to operate consistently. Mississippi Power has been unable to make the project economically viable in the face of volatile natural gas prices.

Mississippi regulators, who do not wish ratepayers to incur additional costs, ordered the company not to increase the rates for Mississippi Power customers. In fact, they want the company to lower the rates, if feasible. MPSC have been encouraging rate reductions to eliminate ratepayers risk for gasifiers’ assets. 

In June, MPSC issued an ultimatum ordering Southern Company to redesign plans and run the Kemper Project solely on natural gas.  This left the management in a dilemma in regard to its investment costs retrievement.

Thereafter, the company suspended all coal gasification operations at its Kemper plant. Since the company could no longer retrieve the project’s massive costs from ratepayers, management was of the opinion that the move would enable it to lower additional costs required for the further development and improvement of gasification units.

What Lies Ahead? 

The company believes that it has complied with all the requirements of Public Service Commission including the operation of the plant solely as a natural gas facility. Southern Company has also decided against rate increase for customers.  The company now thus wants the MPSC to re-evaluate the settlement agreement.

Mississippi Power announced plans to keep the rates unchanged; however the Public Utilities Staff are demanding a reduction in rates. If the agreement doesn’t get reconsidered, both the parties are set to explain their positions on the rate case in the hearing that starts from Dec 4. The final decision on which is expected by January. If Mississippi Power fails to get a favorable judgment, the company which is already grappling with weak financials, is likely to suffer additional losses.

Zacks Rank

Southern Company is one of the largest generators of electricity in the nation along with the likes of Exelon Corporation EXC, RWE AG RWEOY and Duke Energy Corporation DUK. Over the year, shares of Southern Company have lost more than 4% against roughly 5.2% gain recorded by the industry.

However, the company managed to beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters, with an average beat of 0.86%. The company carries a Zacks Rank #3 (Hold).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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