MISSISSIPPI POWER DELAYS KEMPER’S IN-SERVICE DATE

Utility Blames Construction Slip on Weather, Lower Labor Productivity

Tamar Hallerman
GHG Monitor
10/4/13

Mississippi Power’s flagship carbon capture and storage facility at Kemper County will not make its planned May 2014 in-service date, the utility told state regulators this week. Instead, the 582 MW integrated gasification combined cycle facility will come online “later in 2014,” Mississippi Power said in its latest report to the Mississippi Public Service Commission. “While not knowing a revised in-service date at this time, in its commitment to transparency, the company is informing the PSC of information in advance of completing the detailed review,” Mississippi Power said. The Southern Company subsidiary attributed the delay to “abnormally wet weather and lower-than-planned construction labor productivity.”

The utility must now repay the Internal Revenue Service $133 million to cover soon-to-be-expired tax credits as a result of the construction delay. The U.S. government awarded the incentives to the project in 2009 as part of a program to encourage advanced coal generation. However, Mississippi Power had to bring Kemper online before the credits expire in May 2014. The utility said that the added expense of the forfeited tax credits would not impact its nearly 200,000 ratepayers nor would it need to be written off, although it did not elaborate further.

Mississippi Power had been racing in recent months to meet the May 2014 deadline in order to take advantage of the government tax credits, adding an overnight shift of construction workers earlier this spring to get Kemper online on time. The utility had recently announced that both of the plant’s combustion turbines, as well as its auxiliary boiler, had undergone first fire. But the project’s independent monitor, Burns and Roe Enterprises, Inc., predicted earlier this spring that the project would not come online on time, due in part to late deliveries of construction materials, shortages of craft labor and “loss of productivity” due to extended work hours. Mississippi Power had lost some time during initial construction work, when it had to make multiple changes stemming from the fact that it had started building the IGCC plant before it had fully wrapped up final design work.

Project Setbacks

The announcement is another setback for Kemper, which is expected to become the nation’s first large-scale power generation plant with CCS technology to come online. Capital costs at the pioneering facility—which will capture roughly 65 percent of CO2 emissions onsite for enhanced oil recovery operations in Texas—have ballooned in recent months to $4.75 billion. Southern Company shareholders have been forced to absorb nearly $1 billion in cost overruns over the last several months because Mississsippi Power is limited in what it can collect in rate recovery from its customers under a January settlement agreement with the PSC.

Mississippi Power warned in an Oct. 2 Securities and Exchange Commission filing that Kemper could still see additional schedule delays or capital cost increases “as a result of factors including, but not limited to, labor costs and productivity, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, or contractor or supplier delay or non-performance under construction or other agreements.” “Furthermore, Mississippi Power could also experience schedule extensions associated with start-up activities for this ‘first-of-a-kind” technology,” the utility added.

Project opponents like the Sierra Club have been pushing the PSC to rule during an upcoming review that Mississippi Power has not been prudent in its spending related to Kemper. They want regulators to shift the entire cost of the facility to Southern’s shareholders. The environmental group warned that Mississippi Power may ask the PSC to charge its customers in order to recoup the cost of the lost tax credits. “When Mississippi Power reported the first multi-million dollar cost overrun to the Public Service Commission, it also reported a scheduling delay of multiple months. The company has never managed to close the gap and now will miss the deadline to receive federal grant money,” Louie Miller, director of the Mississippi Sierra Club, said in a statement. “This is Mississippi Power’s expensive mistake and it must take responsibility. It is unfair to go so far as to talk about charging customers for the money lost because of Mississippi Power’s bad business decisions to continue to build this boondoggle plant.”