GHG Reduction Technologies Monitor Vol. 9 No. 18
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GHG Reduction Technologies Monitor
Article 8 of 14
May 13, 2014

UBS Downgrades Southern Co. Stock Rating to ‘Sell,’ Cites Kemper Project

By Mike Nartker

Abby L. Harvey
GHG Monitor
5/9/2014

Swiss investment bank UBS downgraded Southern Company’s stock rating to ‘sell’ earlier this week, stating that trouble at the Kemper County Energy Facility could cause the “possibility for further project slippage and the use of the remaining contingency.” Kemper, a coal gasification and carbon capture project located near Meridian, Miss., is a project of Mississippi Power, a subsidiary of Southern Company. Stock in the company has fallen since the announcement last week that the company had incurred another $196 million in overruns on the project.

In a filing with the Securities and Exchange Commission, Southern Company stated, “Many factors affect the opportunities, challenges, and risks of Mississippi Power’s business of selling electricity. These factors include Mississippi Power’s ability to maintain a constructive regulatory environment, to maintain and grow energy sales given economic conditions, and to effectively manage and secure timely recovery of prudently-incurred costs. These costs include those related to projected long-term demand growth, increasingly stringent environmental standards, reliability, fuel, capital expenditures, restoration following major storms, and the completion and operation of ongoing construction projects, primarily the Kemper IGCC.” Regardless of USB’s downgrading of Southern Company stock, the stock is still listed as a “hold” stock by 11 out of 14 analyst firms. One firm rates the stock as a “strong buy,” while UBS and one other list it as “sell.”

Construction Issues Contribute to Increase

The latest overrun at Kemper comprises of $61 million tied to construction issues identified as decreases in construction labor productivity on the project due in large part to adverse weather, unexpected excessive craft labor turn-over and unanticipated installation inefficiencies; and $135 million related to the delay of the projected in-service date. This is in addition to the $184 million in overruns reported earlier, resulting in $380 million in total overruns thus far this year. The plant, which was slated to begin full operation later this year, will not hit that point until next spring. However, operation of the combined cycle and associated common facilities will begin later this year. Due to these start-up delays, it is speculated that Southern may have to start selling stock to make ends meet if costs continue to pile up. The company says it will lose up to $150 million in tax benefits due to the delay of full operations.

 

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