REGULATORS APPROVE RATE INCREASE FOR KEMPER COUNTY PLANT

Tamar Hallerman
GHG Monitor
3/8/13

State regulators approved a 15 percent rate increase this week for Mississippi Power customers to begin paying off the construction debt on the utility’s Kemper County integrated gasification combined cycle facility. The Mississippi Public Service Commission (PSC) approved the increase 2-1 during a March 5 hearing, allowing the Southern Company subsidiary to collect roughly $125 million in rate recovery this year to begin paying off construction debt on the $2.88 billion project. The rate increase will begin kicking in for the utility’s roughly 186,000 customers in southern Mississippi next month, the PSC said. The PSC also agreed to a 3 percent rate increase for Mississippi Power’s customers in 2014, and will soon consider a proposal to lock in that rate through the end of the decade. Mississippi Power spokeswoman Cindy Duvall said the company is “pleased” with the determination. “By taking advantage of our fuel savings, the Commissioners have lowered the overall cost of the increase to customers while allowing the revenue needed for Kemper and our ongoing operations,” she said.

The state chapter of the Sierra Club, which has been consistently against the plant from the beginning, said that nearly three dozen customers testified against the rate increases during the PSC hearing. Director Louie Miller called the PSC’s ruling “shameful.” The PSC is “back to rubber stamping Mississippi Power’s requests, and this time, it’s a major cost increase for struggling families on the Coast,” he said in a statement. “This is only to pay for construction finance charges of the plant, a small slice of the full cost of the Kemper boondoggle. At the end of the day, this rate increase will hurt our economy and people trying to make ends meet.” The NGO has advocated for Mississippi Power to switch the plant’s feedstock from lignite coal to natural gas.

Mississippi Power said the increase approved this week would have a net rate impact of approximately 12 percent for its customers in 2013 because the company is lowering the amount charged for fuel and other base rates, translating to a monthly increase of about $19 for the average customer. The amount being collected by the utility is ultimately less than the initial rate recovery requested. The utility filed for a 21.6 percent rate bump in January, which would have netted the company $172 million through the end of the year.

PSC Denied Rate Increase Last Summer

This is the second time the PSC has considered rate increases regarding the Kemper plant. The PSC denied the utility a rate increase to pay for the project in June until a pending legal challenge from the Sierra Club questioning the plant’s certificate ended. But the PSC and Mississippi Power reached a settlement agreement in January allowing the latter to seek a rate increase regardless of the Sierra Club’s ongoing case against the project. Meanwhile, Republican Gov. Phil Bryant signed a pair of bills last week blessing the agreement, allowing Mississippi Power to sell up to $1 billion in bonds to cover any costs above the $2.4 billion approved in the settlement. Bryant also greenlighted a measure giving the PSC power to approve multi-year rate plans for the facility through 2020. The Sierra Club has said it is considering challenging the settlement agreement in court. The NGO also appealed its case against the project’s certificate to the Mississippi Supreme Court late last year after a lower court upheld the rate recovery.

The 582 MW IGCC facility is the state’s first new power plant in three decades, according to local media reports. Known internally as Plant Ratcliffe, the Kemper facility is currently under construction in eastern Mississippi and roughly three-quarters complete. Mississippi Power received a $270 million Department of Energy grant under the Clean Coal Power Initiative to capture 65 percent of carbon emissions for storage via enhanced oil recovery, as well as $133 million in federal investment tax credits. It is the furthest-along large-scale CCS project for power generation in DOE’s demonstration project portfolio, but has faced consistent political, legal and regulatory scrutiny in Mississippi since its inception.

In addition to a challenge against its rate recovery certificate and potentially its settlement agreement with state regulators, the Kemper plant is also at the center of a third legal battle. The state Supreme Court heard oral arguments earlier this year surrounding the constitutionality of the Construction Work in Progress law that has acted as the financial underpinning for the Kemper project after a Mississippi Power customer sued. Lawyers for southern Mississippi resident Thomas Blanton argued that the statute is unconstitutional because it allows the PSC to approve rate hikes for projects not guaranteed to come online. Since a product or service like electricity is not being delivered during construction, Blanton’s lawyer argued Jan. 28, it constitutes a tax and not a rate and is subsequently illegal. Kemper County is the first energy project in Mississippi to take advantage of the statute since it was passed by the state legislature in 2008.