KEMPER COUNTY PLANT AT CENTER OF RATE RECOVERY DEBATE IN MISSISSIPPI

Tamar Hallerman
GHG Monitor
2/1/13

Lawyers for a Mississippi Power customer this week argued before the State Supreme Court that the utility can’t charge him or its nearly 200,000 other ratepayers for capital costs related to its Kemper County carbon capture and storage facility, which is currently under construction, until it is online and producing electricity. As the first energy project in Mississippi to ask for early rate recovery under the state’s construction work in progress (CWIP) law, the $2.88 billion, 582 MW integrated gasification combined cycle facility has become the center of a debate regarding the constitutionality of the 2008 statute.

Michael Adelman, the lawyer for customer Thomas Blanton, told the Mississippi Supreme Court Jan. 28 that CWIP is unconstitutional because it allows the Mississippi Public Service Commission (PSC) to approve rate hikes for customers to pay for a plant that is not guaranteed to come online. That rate increase would constitute a tax and not a rate, Adelman argued, since a product or service, i.e. electricity, is not technically being delivered to the customer, a move he said is illegal under state law. “A rate has to be for a service rendered,” he said. “This is a tax masquerading as a rate.” Adelman said it should be the responsibility of Mississippi Power’s investors to pay for the facility’s costs during construction and not that of the company’s ratepayers. Blanton, a resident of the southeast Mississippi town of Hattiesburg, is asking the state Supreme Court to reject CWIP and subsequently Mississippi Power’s ability to collect money from its ratepayers during Kemper’s construction. According to the utility, the plant is nearly 75 percent complete and scheduled to come online in May 2014, when it will capture 65 percent of CO2 emissions and sell the commodity for enhanced oil recovery operations near the Gulf Coast.

During Monday’s oral arguments, Mississippi Power’s attorney Ricky Cox argued that the rate increase being requested by the utility under CWIP is not a tax and that rates can legally be charged not just for electricity generated, but for any service provided by a utility, which includes building a new plant. “There’s clear authority that utility rates are not taxes,” he said. “This is just another component of a utility’s electric service.” PSC attorney Justin Matheny agreed. He said the Commission has the authority to raise rates on customers not only for electricity but “related services” for a power company. That includes “building a new plant to be able to continue to providing those services into the future,” he said.

Mississippi Power Files for 21 Percent Rate Increase

Days earlier, Mississippi Power filed for a $172 million rate increase with the PSC under the CWIP authority. The utility said Jan. 25 that if the PSC approves the full amount requested, the increase would up customers’ rates by approximately 21 percent, the equivalent of about $20 per month for the average ratepayer. “We have worked hard to keep this increase as low as possible,” Mississippi Power President and CEO Ed Day said in a statement. He added: “This is well under the increase we had anticipated and significantly lower than what opponents to the project claimed.”

That request came less than a day after Mississippi Power and the PSC announced a settlement agreement that would allow the utility to file for a rate increase of up to $172 million on its customers this year to help pay for the IGCC facility. As part of the agreement, the PSC said it would review the request under expedited consideration within 90 days. The agreement limits the amount of rate recovery Mississippi Power can seek from its ratepayers, and subsequently make a profit on, to $2.4 billion—plus other expenses not traditionally included in official cost figures such as the project’s CO2 pipeline and nearby lignite coal mine. The rest of the costs must be footed by the company.

Legislation Aims to Help Mississippi Power

Meanwhile, Kemper’s supporters in the Mississippi statehouse, both chambers of which are controlled by Republicans, aimed to push through legislation to help Mississippi Power pay for the plant. Lawmakers floated a proposal this week that would let Mississippi Power set up a subsidiary to borrow up to $1 billion to cover expenses beyond the $2.4 billion approved for rate recovery. They are also moved forward on a second provision this week that would allow the PSC to approve a multi-year rate plan so rates won’t spike when plant goes online, according to the Associated Press. Committees in both houses of the legislature passed the two bills Jan. 30.

The Sierra Club, a vocal opponent of the project, said the legislation would “effectively result in fewer than 200,000 customers paying for a $3.8 billion experimental coal plant,” the group said in a Jan. 30 release. “The Public Service Commissioners have shown their true colors; they’d rather force Mississippi families to pay an additional billion dollars for the Kemper coal plant than make Mississippi Power own up to its mistakes,” State Director of the Mississippi Sierra Club Louie Miller said in a statement. “Mississippi Power’s allies in the State Capitol are doing everything they can to move this bill before the public can take notice, and the end result will be economic devastation along the coast.” The Sierra Club has a separate ongoing legal challenge against the Kemper facility that it recently appealed to the Mississippi Supreme Court.