Tamar Hallerman
GHG Monitor
07/06/12
AT KEMPER: CREDIT RATINGS AGENCY DOWNGRADES MISS. POWER
Fitch Ratings has downgraded Mississippi Power’s credit rating following a state Public Service Commission (PSC) ruling last month to deny the utility a rate increase to pay for its 582 MW Kemper County integrated gasification combined cycle plant. Fitch downgraded Mississippi Power from an ‘A’ to an ‘A-’ and revised the utility’s ratings outlook from ‘stable’ to ‘negative’ this week. Fitch said the downgrades were driven by the Mississippi PSC’s decision last month to deny the utility’s more than $55 million rate increase request under the construction work in progress (CWIP) mechanism. In what was considered by many to be a surprise decision, the PSC ruled 3-0 that it would not be prudent to allow the utility to receive CWIP funding during ongoing litigation from the Sierra Club. However, the Commission’s two Republicans said that they are overall supportive of the IGCC project, which has been under construction in eastern Mississippi for the last two years and is expected to come online in spring 2014.
Fitch said it was “surprised” by the PSC vote and that uncertainty surrounding Mississippi Power’s ability to recover costs under CWIP caused it to downgrade the utility’s credit rating. It said that pending litigation could take months to resolve, potentially affecting the project timeline, while the inability to secure a rate increase raises the risk of rate shock for Mississippi Power’s customers once instated. “Kemper IGCC is a relatively large and complex project for a utility of Mississippi Power’s size, and the delay in recovery of financing costs has already caused significant stress on Mississippi Power’s credit metrics,” Fitch said in a release this week. Fitch also said it was “concerned” about the project’s escalation of capital costs. Last month, Mississippi Power reported that the Kemper County plant, at about 31 percent complete, was running roughly $360 million—or about 15 percent—above its initial $2.4 billion cost estimate. That approximation puts the utility within $110 million of its $2.88 billion ‘hard cap’ for rate recovery, a reality that Fitch said introduces uncertainty into the project’s standing.
Mississippi Power Anticipated Downgrade
Mississippi Power spokesman Jeff Shepard said the utility is “disappointed” in the move but that it anticipated the action following the PSC ruling last month. “While a cost impact to customers of today’s downgrade is expected, the extent of the impact is unknown at this time,” he said in a statement. “In 2010, we stressed that we would not begin construction of the project unless we were able to receive rate recovery of the financing cost of the plant during construction. Timely recovery of financing costs is critical to our ability to reduce the overall cost of the project to our customers, to complete the project and to maintain the financial health of the company.” Shepard said that the utility is reviewing its options on a path forward.
AT SECARB: PARTNERSHIP WAITS FOR PERMISSION FROM STATE TO INJECT
The Southeast Regional Carbon Sequestration Partnership (SECARB) is aiming to begin injection and monitoring work at a CO2 storage site near Alabama’s Mobile Bay in the coming weeks but must first earn a greenlight from state regulators. The regional partnership, one of seven sponsored by the Department of Energy, is planning to inject 100,000 to 150,000 tonnes of CO2 annually into a saline formation near the Citronelle oil field in Southern Alabama. However, participants must first wait for final approval to inject from the Alabama Department of Environmental Management, Kimberly Sams, assistant director of Geoscience Programs at SECARB, told GHG Monitor, a decision that is expected in the coming weeks. “It’s just a waiting game at this point,” Sams said. All of the equipment at the storage site is ready to inject aside from a final booster pump—which will be connected to the injection well upon approval, she said.
SECARB will monitor the CO2—which is being fed from Southern Company’s 25 MW carbon capture test facility at Plant Barry roughly 12 miles away—once injected. Plant Barry has been capturing CO2 and venting it into the atmosphere since last summer, and Denbury’s CO2 pipeline is commissioned and in place, Sams said. Injection operations are expected to take two to three years, with monitoring work extending beyond that point.
Project Caught Amid UIC Class Debate
If granted approval to inject from the Alabama Department of Environmental Management, the move will bring an end to the project’s preliminary regulatory process. SECARB officials considered retooling project last year after applying for an Environmental Protection Agency Underground Injection Control Class V permit—typically reserved for shallow disposal wells and some pilot geologic sequestration projects. Once the partnership applied, Sams said the project got caught in a debate between national and state regulators surrounding whether the project should instead be permitted as a Class VI well for geologic storage, considered a more involved undertaking. If the project received a Class VI permit, Sams said, the partnership would have considered alternative options for projects. However, the project was ultimately given a Class V permit due to the experimental nature of the project, Sams said.
Cranfield Work Continues
If SECARB is able to move forward with the Citronelle monitoring work, it will be the partnership’s second Phase III large-scale project in operation. Work continues at the partnership’s Cranfield, Miss. site, which is injecting 1.5 million tons of CO2 captured from the nearby Jackson Dome, a naturally occurring source of CO2, into the oilfield via a Denbury Resources pipeline. Sams said that between the two monitoring projects, the Citronelle field test is the more complex. “Of the two large-scale projects we’re doing, this is the most complicated and life-like,” she said. “If you are truly going to go and commercialize the technology, a lot of the things that are coming out of this particular project—out of the management of it, the risk assessment and some of the agreements that are in place between the different operating companies, those sorts of things are going to be helpful moving forward if this is going to be applied commercially,” she said.
This story has been revised to reflect the following correction.
