Cost of Mississippi IGCC Plant Increases as Regulators Open Inquiry
Tamar Hallerman
GHG Monitor
5/24/13
Increasing costs at Mississippi Power’s Kemper County gasification facility were accompanied by abrupt leadership changes this week at the Southern Company subsidiary and an inquiry from state regulators into when executives knew of the overruns. On May 20, Mississippi Power CEO Ed Day abruptly announced his retirement. The utility’s board immediately named Southern Company’s top lawyer, Ed Holland, as his successor, prompting questions about the connection to the recent announcement of more than $540 million in cost overruns at the facility. At the same time, allegations have surfaced that top Mississippi Power executives—including Day—deliberately withheld knowledge of cost overruns at the Kemper facility while asking for rate increases from the state Public Service Commission (PSC). A Mississippi Power spokesman told GHG Monitor that there was “no intentional withholding of information” on behalf of senior staff. “Information was asked for by the Public Service Commission and unfortunately, we did not provide that information in the detail requested,” the spokesperson said. “We will work to ensure that does not occur again.
Sierra Club Calls for Regulatory Review
The 582 MW IGCC project is expected to be the nation’s first large-scale power generation plant to install carbon capture and storage technology. This week’s news, though, prompted project opponents such as the Sierra Club to call for the PSC to conduct a prudency review of the Kemper facility, known internally as Plant Ratcliffe. “We want to know more about this: who’s running the ship, what kinds of cost overruns are truly happening and who’s going to pay for it,” Glen Hooks of the Sierra Club’s Beyond Coal Campaign told reporters during a May 21 conference call. “We want a top-to-bottom review.” An aide for PSC Chairman Leonard Bentz said the Commission expects to hold a prudency review in July.
The Sierra Club—which has been a constant voice against the project since its inception—said it is also pushing the PSC to reverse an interim 15 percent rate increase approved for the utility’s 186,000 customers in March. “No rate increase is warranted until there is a full and fair opportunity to learn what Mississippi Power knew about the economics of Kemper, and whether Mississippi Power should have pulled the plug on Kemper before spending billions of dollars,” said Louie Miller, director of the Mississippi Sierra Club.
Kemper Costs Increase
Cost estimates at the Kemper facility, currently under construction in eastern Mississippi, have increased significantly over the last year. Mississippi Power initially said the plant, which plans on capturing 65 percent of CO2 emissions for local enhanced oil recovery operations, would cost $2.4 billion to build ahead of commercial operations in May 2014. However, the utility later applied for a rate cap increase to $2.88 billion—a request granted by the PSC in 2010.
More recent estimates have put costs closer to $4.3 billion, when incorporating the facility, its CO2 pipeline and its feedstock lignite mine. A settlement agreement finalized between Mississippi Power and the PSC earlier this year allows for the utility to collect $2.4 billion in rate recovery from its customers, as well as issue up to $1 billion in bonds to cover construction and financing costs. While Mississippi Power would be unable to earn a profit that billion-dollar top-off, ratepayers would be required to foot the bill for interest and debt on that money via a mandatory surcharge on electricity bills. The costs beyond that must be absorbed by the company, the PSC said in January.
Hooks said the Kemper plant is a “great example of how the math doesn’t work on [IGCC plants].” “You’re asking now to charge somebody—probably ratepayers—more than $4 billion for this plant that’s less than 600 MW of power. That’s an incredible amount of money for a tiny project like this,” Hooks said. “To make it even worse, the cost increases are being levied on a relatively small group of ratepayers—about 186,000 people in southern Mississippi—so the math there adds up to rate increases that could be as much as 50 or 60 percent on these households.”
A Worthwhile Investment?
During a speech last week, Southern Company’s Senior Vice President and Chief Environmental Officer Chris Hobson said that despite the cost overruns and the battles with the Sierra Club, the utility still stands behind its multi-billion-dollar investment in Kemper, arguing that the plant is economical in the long term, despite cheap natural gas prices. “The beautiful thing about IGCC is that the cost of electricity beats natural gas even today,” Hobson said during his May 14 speech. “Mississippi lignite is a very inexpensive fuel source, so while the capital costs for this kind of project are high, the energy costs going into the future are very low. So even today, with very low natural gas prices, Kemper looks like a very good decision.”
But Hooks said that logic is flawed when accounting for external costs such as the public health and environmental impact stemming from coal use. Southern Company is “selectively talking about what costs are attributable to a plant,” he said. “They’re focusing just on the internal costs of doing business, but what they’re not talking about are the external costs that the rest of society pays in terms of the damage to public health through burning coal and environmental damage.”
