Southern Company Announced Cost Overrun at Kemper County Plant



Capital spending plan

Southern Company (SO) continues to focus on its generation facilities for capacity addition. It intends to spend $18 billion over the next three years. Apart from developing new generation facilities, Southern Company plans to add more renewable projects in its wholesale business.

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Southern Company plans to spend $2.3 billion over the next three years on its generation segment. Its Kemper County coal plant and units three and four of the Vogtle nuclear plant are under construction. Southern Company announced another cost addition of $142 million on its Kemper County power plant. This incremental cost has pushed total costs of the plant above $6.6 billion. The cost overruns have dragged SO’s earnings by $0.12 per share in 4Q15.

The settlement of the Vogtle nuclear plant in late last year relieved Southern Company of a significant burden. The Vogtle plant’s project delays and frequent cost overruns were serious concerns for Southern Company. Now that Westinghouse Electric Company has taken over the project, Southern Company management thinks that it is in great shape to be operational in 2019-2020.

Fuel mix

Southern Company significantly reduced its coal usage for power generation during the fourth quarter. Coal usage declined to 23% in 4Q15 compared to 31% in 4Q14. Lower natural gas prices encouraged utilities (VPU) to switch from other fuel sources to gas. During fiscal 2015, natural gas (UNG) usage increased 7% for power generation at Southern Company compared to 2014. Utilities like NextEra Energy (NEE) and Exelon (EXC) have a higher weight compared to natural gas in the companies’ fuel mixes.


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