Southern Co. subsidiary Mississippi Power said Tuesday it won’t back down from a civil lawsuit filed in early June by Treetop Midstream Services alleging that the company misrepresented the construction timeline for its Kemper County Energy Facility.
“Mississippi Power plans to vigorously defend these allegations and will respond to the complaint,” Mississippi Power spokesman Jeff Shepard said in a written statement.
Treetop filed a civil suit in a Georgia state court in early June naming Southern Co., Mississippi Power, and Sothern Co. Services, another Southern Co. subsidiary, as defendants. The lawsuit accuses the defendants of fraudulent misrepresentation, fraudulent concealment, civil conspiracy, and breach of contract. Treetop is seeking “compensatory and punitive damages in excess of the minimal jurisdictional requirements of this Court,” according to the suit.
The project, a new-build, post-combustion CCS facility near the city of Meridian, has been producing energy with natural gas since August 2014. Once fully operational, the plant will use Mississippi lignite, a low-rank brown coal, to produce electricity. It will employ a custom integrated gasification combined cycle (IGCC) system and CCS technology to produce electricity from the coal with carbon emissions roughly equal to that of natural gas. The CCS and IGCC portions of the plant are not yet online.
Treetop had a contract with Southern Co. to purchase 30 percent of the carbon captured at the facility. Because Southern did not disclose to Treetop several issues that would result in a multiple-year delay of operations, the company paid nearly $100 million to build a CO2 pipeline that has yet to be used – and now, following the early June termination of the offtake contract, will not be, according to the lawsuit.
Treetop is a subsidiary of Tellus Energy, a domestic oil and gas exploration and production company. Treetop specifically processes, treats, markets, and transports hydrocarbons.
According to the June 9 court document, Treetop entered into a contract in 2011 with Southern Co. that included several time-based clauses. Treetop was required to build its own pipeline and have it completed six months before the Kemper facility was to come online. The contract had a May 11, 2015, termination date, which would have allowed Treetop to back out of the agreement if it became clear the project would not be completed in a reasonable time.
Treetop met with Southern Co. representatives every month beginning in 2012 to discuss the project’s construction schedule, according to the filing. During those meetings, Treetop was assured that the project was advancing as planned and would be completed by the May 2014 estimated start date.
However, Southern knew at the time that the initial start date was not feasible, Treetop alleged. “Moreover, the Southern Company Defendants insisted that in order for Treetop to meet its contractual obligation to complete its pipeline at least six (6) months before the Start Date of the Facility, Treetop needed to finish construction of the pipeline in November 2013,” the lawsuit says.
Treetop began construction of the CO2 pipeline in March 2013, operating under the belief that the facility would be running by May 2014.
In October 2013, as the pipeline was under construction, Southern for the first time admitted to both the U.S. Securities and Exchange Commission and Treetop that the project would not be completed in May 2014, pushing back the start date to the fourth quarter of that year.
Assured that the facility would be completed in 2014, well before the May 2015 termination date for the contract, Treetop pushed on with the construction of its pipeline. “By misrepresenting and concealing from Treetop the actual status of construction at the Facility, the Southern Company Defendants robbed Treetop of its valuable termination rights under the Offtake Agreement,” the company asserted.
“By this time, Treetop had already expended tens of millions of dollars constructing its pipeline and preparing its oil fields for receipt of C02 from the Facility. However, the Southern Company Defendants assured Treetop that the Facility would still be completed in 2014, and as a result, Treetop was required to finish its pipeline and finalize preparing its oil fields to receive C02 from the Facility,” the suit says.
The pipeline was completed in November 2013, on time for the initial May 2014 facility start date.
Treetop’s last straw came on June 3, 2016, when Southern Co. terminated Treetop’s offtake agreement, leaving the company with a $100 million “pipeline to nowhere,” the company says.
“Mississippi Power and Treetop have been in ongoing discussions about several aspects of the contract, but were unable to reach a mutually agreeable solution. We exercised our right to terminate the contract on June 3 because we believed the ongoing discussions with Treetop yielded no beneficial path forward for the company and our customers,” Shepard said of the contract.
Denbury Resources will now receive 100 percent of the CO2 captured at Kemper instead of the 70 percent as initially contracted.
It has not been a good few weeks for Mississippi Power. On top of the lawsuit, a scathing article containing many of the same allegations of potential fraud noted in the suit appeared in The New York Times Tuesday, just days after the company announced that its price estimate for the project has once again crept up.
“Rather than educate readers on the worldwide benefits of this cutting-edge, first-of-its-kind facility, today’s New York Times article on the Kemper project provides a negative recap of previously disclosed developments that have already been addressed,” the company said in a press release published after the article.
Much of the NYT article, as well as portions of the Treetop lawsuit, cites information provided by a Kemper engineer turned whistleblower, Brett Wingo, who has released e-mails, documents, and recorded conversations since being fired by Mississippi Power.
The company added that the information contained in the article is almost entirely old news. “The only element of today’s story that is actually new to the public discussion is the content from the former employee’s secret recordings of private conversations with current company employees. In drawing from the recordings, the Times captured specific phrases from sometimes years-old conversations – without providing appropriate context – to achieve a pre-determined objective and tone.”
Southern Co. also states that Wingo’s allegations have been investigated through the company’s internal employee concerns process and by outside counsel. “The investigations into Wingo’s concerns both reached the same conclusion – that his concerns were unsubstantiated and not otherwise supported by the facts,” the release says.
The projected price tag for Kemper now sits at $6.75 billion after a new budget overage of $9.8 million, the company reported Friday in a monthly filing with the Securities and Exchange Commission. The project was initially billed at $2.4 billion. The price increase is “related to operational readiness and challenges in start-up and commissioning activities,” according to the filing.
The company has stuck with its latest scheduled in-service date, projected for the third quarter of 2016, more than two years overdue. Treetop, presumably, is doubtful.
