AT THE MAJOR CCS PROJECTS: KEMPER, HECA

Tamar Hallerman
GHG Monitor
04/27/12

AT KEMPER: MISS. PSC REISSUES RATE RECOVERY

The Mississippi Public Service Commission voted this week to reissue $2.88 billion in rate recovery to Mississippi Power’s Kemper County carbon capture and storage project, the latest move in a legal and regulatory battle that has put the future of one of the country’s furthest-along CCS projects in question. The Commission voted along party lines 2-1 to re-approve rate recovery for the new-build Integrated Gasification Combined Cycle project, which has been under construction in the eastern portion of the state for nearly two years. The ruling maintains the $2.88 billion ‘hard cap’ on construction costs, which accounts for potential cost overruns that are common with deploying newer technologies, while also keeping in place the project’s $2.4 billion ‘soft cap’ approved in spring 2010.

Commissioners reportedly met for five minutes April 24 to issue their ruling and did not take public comment on the matter, according to the Mississippi chapter of the Sierra Club, which sued the PSC over the 582 MW Integrated Gasification Combined Cycle project. The meeting came just over a month after the Mississippi Supreme Court unanimously ruled that the PSC violated state law in its previous rate recovery approval when it failed to provide “substantial evidence” that Kemper would benefit ratepayers before granting the $2.88 billion cap.  While the Supreme Court required the PSC to conduct a more thorough vetting of the project’s rate recovery proposal, it did not specify whether the body had to fully reconsider the project’s rate recovery proposal via a rehearing, a move that the Sierra Club pushed for.

In a statement accompanying the Commission’s majority order, PSC Chairman Leonard Bentz, a Republican, said that Kemper is the best option available in the state for electricity generation. “The Commission continues to find, based on re-examination of the records in this proceeding, that the Kemper Project is the best overall alternative to meet the identified need, and to provide reliable energy and capacity at a low, stable-fuel price, provided by lignite, for the next several decades,” Bentz said.

‘Bailout’ of Mississippi Power

Director of the Mississippi chapter of the Sierra Club Louie Miller criticized the PSC for not opening up the meeting to public input, a move he said was not legal nor in accordance of what the Mississippi Supreme Court required under its order.  “The bottom line is that they have done little more than slap some lipstick on the pig and send it back out. They have yet to answer any of the questions that were specified by the court or supplement the record with any information that addresses the court’s or our regional concerns,” he said in an interview with GHG, calling the reissuement of rate recovery a “bailout” for Mississippi Power, a subsidiary of Southern Company.

Miller argued that a rehearing of the case is necessary in order open up the case for more evidence. The Sierra Club has argued that recent factors should be taken into consideration as the PSC reexamines rate recovery, including the cheaper price of natural gas compared to when the PSC initially approved the proposal in 2010. In his dissenting order on the ruling, Democratic Commissioner Brandon Presley said that taking new and updated evidence is “appropriate” and would be beneficial to the case. “Reopening the record for further evidence with regard to issues such as natural gas prices, construction cost overruns, environmental regulation risks, advances in demand side management and energy efficiency measures, the progress of TRIG [capture] technology in China… and the impact of the Commission’s decision on the Daniel scrubbers issue would seem to be the more just response,” he said. “Many of these issues cannot be addressed by the Commission’s independent monitoring processes alone. Supplementing the record with additional testimony and evidence is consistent with the Court’s order and is an appropriate response to the Court’s reversal and remand.”  

However, the 133-page major order issued by the Commissions’ two Republicans said that the PSC had heard plenty of evidence over the case in its initial rate recovery consideration of the project. The order said the PSC’s initial consideration of rate recovery “represents the most thoroughly analyzed certificate petition ever presented to the Commission” and said that it was “unnecessary” to reopen proceedings to additional information regarding project finances and market conditions. “We find that the record…is complete, negating the need for the Commission to hold additional hearings, request additional evidence or further supplement the record… the decision of the Commission to render a decision on the record as currently comprised without holding additional proceedings on remand is fully within the discretion of the Commission under Mississippi law,” the majority order said. Bentz added in an accompanying statement that the meeting was not intended to be a rehearing. “Fundamentally, the order today has not changed from the previous order and decision of the Commission to approve the IGCC Kemper Plant. What we did today was clarify our original decision, as requested by the Supreme Court. They asked us for more detail, and we gave it today,” he said.

Sierra Club Appeals Certificate

Despite the PSC’s majority order, the battle over the project appears far from over. On April 26, the Sierra Club filed an appeal to the Mississippi Supreme Court, asking for a rehearing on the project and a stay on Kemper’s construction. “In that stay we’re specifying to the Court to halt construction, but Mississippi Power can keep building as long as they do so on their own nickel and assume their own risk, not at the ratepayer’s expense, for this boondoggle,” Miller said.

In its appeal, the Sierra Club emphasized what it identifies as inconsistencies in the voting records of the two Republican Commissioners who voted in favor of Kemper’s construction. “In April 2010 all of the members of the Commission voted unanimously that the Kemper plant as proposed by Mississippi Power could not be approved because it was too risky for ratepayers. Commissioners Bentz and Posey, however, said that the project could proceed if it did not cost more than $2.4 billion.  Less than a month later, and without explanation, Bentz and Posey voted to allow Mississippi Power another $480 million in cost overruns,” the Sierra Club said.

Miller said he expects the Supreme Court to step in and require the PSC to hold a rehearing on the project. “I think the Mississippi Supreme Court is not going to look kindly on the fact that the PSC and Mississippi Power have essentially argued that this is not a judicial matter and that they have no standing in which to order them to do anything,” he said.

Mississippi Power Moves Ahead on Construction

Meanwhile, Mississippi Power said it would continue moving ahead on project construction. “We are pleased the process is moving forward, and yes, construction is continuing as planned,” Mississippi Power Spokesman Jeff Shepard told GHG. The Kemper project is set to capture 65 percent of its CO2 emissions from its lignite coal feedstock for use in enhanced oil recovery. It broke ground in late 2010 and is expected to come online in 2014. It is the furthest-along large-scale CCS project for power generation in the Department of Energy’s demonstration project portfolio. Mississippi Power said that it has spent $1.1 billion on construction to date and confirmed contracts for an extra $1.5 billion, and that losing rate recovery approval for the project could ultimately kill the venture. The project has garnered nearly $700 million in government grants, tax incentives and loan guarantees—including $270 million in funding under the Department of Energy’s Clean Coal Power Initiative.

AT HECA: SCS ENERGY TO SUBMIT AMENDED PERMIT APPLICATION

SCS Energy, the independent power producer and new owner of the Hydrogen Energy California (HECA) CCS project in southern California, said it will submit an amended project permit application to the California Energy Commission early next week. Since formally acquiring the project from previous owners BP and Rio Tinto last summer, SCS has spearheaded several major design changes to the poly-generation project. Project engineers decided to keep the original Integrated Gasification Combined Cycle plant with pre-combustion capture design, which will to convert coal and petroleum coke to hydrogen to make electricity. SCS also kept plans to capture 90 percent of the plant’s CO2 emissions for use in area enhanced oil recovery operations. However, SCS made major changes in deciding to use some of the plant’s hydrogen to produce urea fertilizer, as well as its decision to negotiate a ‘dispatchability’ component for its power purchase agreement, which allows a portion of the plant’s electricity produced to be used for baseload generation, while another percentage of output could be ramped up as needed depending on area demand for electricity.

Those changes helped raise HECA’s price tag to roughly $3.9 billion, which will be incorporated in the amended permit application, SCS spokesperson Tiffany Rau said. “Since taking over the project, SCS has modified the former HECA design to improve its economic viability and better serve market needs, while continuing to adhere to the strictest environmental standards,” she said. HECA is set for a site 25 miles west of Bakersfield and will produce roughly 300 MW of electricity and pipe roughly three million tons of CO2 annually to the nearby Elk Hills oil field for enhanced oil recovery. Construction on the project is expected to begin next spring, with plans to bring the plant online by fall 2017, SCS Energy said. The project received $408 million from the Department of Energy’s Clean Coal Power Initiative.