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Southern Falls on Kemper Project Costs Overruns: Atlanta Mover

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April 24 (Bloomberg) -- Southern Co., the second-largest U.S. power company, fell the most in three months after escalating costs at a coal-gasification plant in Mississippi caused it to reduce quarterly earnings by $333 million.

Southern, based in Atlanta, declined 1.3 percent to $48.03 at the close in New York, the largest decrease since Jan. 7.

Costs for the Kemper power plant, now under construction, increased 19 percent to $3.42 billion from a January estimate of $2.88 billion, the company said in a filing yesterday. Southern can’t recover the difference from ratepayers under a settlement it reached with Mississippi regulators earlier this year.

While the added cost doesn’t meaningfully affect Southern’s earnings outlook or balance sheet, it “raises legitimate questions around Southern management’s ability to effectively manage the development of new generation technologies,” Neil Kalton, a senior analyst with Wells Fargo Securities, said in a note to clients today. Kemper is one of two multibillion-dollar power plants Southern is building, alongside the Vogtle nuclear reactors in Georgia.

The plant, which uses technology to gasify coal to burn the fuel with fewer emissions, is “in the final stages of construction” and remains on track to begin commercial service May 2014, as planned, Southern Chairman and Chief Executive Officer Thomas Fanning said in a phone interview today. Costs were driven higher by the need for more and better quality piping as well as added labor to keep the project on schedule.

First-quarter net income fell to $81 million, or 9 cents a share, from $368 million, or 42 cents, a year earlier, Southern said in a statement today. Excluding one-time items, per-share profit was one cent less than the 50-cent average of 15 analysts’ estimates compiled by Bloomberg.

Duke Energy Corp. is the largest U.S. power company by market value.

To contact the reporter on this story: Julie Johnsson in Chicago at jjohnsson@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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