MISS. POWER SAYS $160M IN COST INCREASES LIKELY AT KEMPER

Tamar Hallerman
GHG Monitor
7/3/13

The early results of a new review performed at the troubled Kemper County gasification facility, under construction in eastern Mississippi, has found that the cost of the project is set to increase by at least $160 million, Mississippi Power said this week. “Management currently is reviewing additional cost pressures associated with ongoing construction activities, inventory necessary to mitigate startup risk, startup energy costs and other startup activities, as well as productivity. After a preliminary review of these items, the company has identified a minimum of approximately $160 million in likely cost increases,” Mississippi Power, a subsidiary of the Atlanta-based utility giant Southern Company, said in a written statement provided to GHG Monitor this week. Mississippi Power said the internal project review will be completed later this month and underscored that its shareholders would absorb any cost increases at the 582 MW facility, which will also capture 65 percent of CO2 emissions for local enhanced oil recovery operations.

If confirmed by the company, the cost increase could further bump up the price of the project to nearly $4.5 billion when including the cost of the facility, an adjacent lignite mine and the CO2 pipeline connecting Kemper to Denbury Resources’ preexisting Green Pipeline for EOR operations. Southern had already announced in April that its shareholders would absorb $540 million in cost increases to cover additional piping and materials, productivity decreases and unexpected engineering and support work. The utility is working to bring Kemper in-service by May 2014 in order to receive more than $133 million in federal investment tax credits that expire at the end of that month. In a statement this week, Mississippi Power said the May 2014 completion date “remains achievable.” The company recently hired construction workers to pull overnight shifts to help complete the facility on time.

Sierra Club Calls for Rate Increase Reversal

The new cost increase is the latest obstacle for Kemper, which in addition to cost and schedule concerns has faced an ongoing legal and regulatory challenge from the Mississippi chapter of the Sierra Club. The environmental group has argued that the gasification project is too expensive to be passed onto ratepayers—especially when compared to the much cheaper price of new natural gas generation. In addition to several pending legal challenges against the project, the Sierra Club has pushed the Mississippi Public Service Commission (PSC) to hold a prudency review of the project and reverse an 18 percent rate increase approved earlier this year for the utility’s nearly 200,000 customers to cover the facility. The Sierra Club unveiled two billboards near the Kemper site this week calling on the PSC to do so. “The Commission should repeal the Kemper rate hikes now, and have a full accounting of who knew about the cost overruns and when. The stakes are too high to take Mississippi Power’s word,” Mississippi Sierra Club Director Louie Miller said in a statement.

Southern Has Defended Mgmt. of Project

Mississippi Power has seen dramatic leadership changes over the last several months amid allegations that top officials withheld information of cost overruns from state utility regulators while requesting rate increases. The chairman of the PSC recently said the body would be holding a prudency review of the project later this summer, but the Associated Press reported earlier this week that the review would be postponed until next year. Meanwhile, the credit ratings agency Standard & Poor’s recently downgraded Southern’s outlook from “stable” to “positive” due mainly to Kemper’s woes.

Southern Company CEO Thomas Fanning, though, has defended the company’s investment in IGCC and management of Kemper. “OK, we missed this one, but we did $13 billion in environmental equipment where we came up with our own technologies, which you’ve got to look [at] as the body of work,” he told GHG Monitor last month. He said the project has remained fiscally prudent throughout its development and construction. “We think it’s been 100 percent prudent, especially given the fact that we’ve taken, on our own, any cost overruns,” he said. Following a January settlement agreement with the PSC, Mississippi Power is only allowed to recover $2.6 billion of the facility’s capital costs from its ratepayers and can issue an additional $1 billion in bonds to help pay for the facility, which it can’t make a profit on.