Abby L. Harvey
GHG Monitor
5/29/2015
The cost overages and delays that have plagued Southern Company’s Kemper County Energy Facility have now cost the project a significant buyer. South Mississippi Electric Power Association (SMEPA), an electric cooperative that had been pursuing a 15 percent ownership of the new-build coal-fired power plant, announced last week that it would be pulling out of the Asset Purchase Agreement with Southern Company subsidiary Mississippi Power. "We entered into the purchase agreement in 2010,” said Jim Compton, general manager and CEO of SMEPA in a release. “Since then, there have been multiple changes in the project, and also changes in our power supply needs. The board determined that proceeding to closing was not in SMEPA’s best interests, and we needed to let MPC know so that alternate plans could proceed.”
The project’s current price tag sits slightly more than $6.2 billion. Once completed, the facility will utilize Mississippi lignite, a low-rank brown coal, to produce electricity. The plant will employ a custom integrated gasification combined cycle (IGCC) system and carbon capture and storage technology to produce electricity from the coal with carbon emissions roughly equal to that of natural gas. After several reported delays, the plant is currently expected to reach full operation in 2016.
Under the purchase agreement, SME was expected to contribute approximately $600 million of the cost of the project at its completion. At this time, the cooperative has contributed $275 million to Mississippi Power, which will have to be returned with interest. “Mississippi Power is currently evaluating its alternatives related to the investment and related costs associated with the 15 [percent] Undivided Interest. The ultimate outcome of this matter cannot be determined at this time,” according to a May 21 Mississippi Power filing with the U.S. Securities and Exchange Commission. “SMEPA has been a long-time partner of Mississippi Power, and despite their decision on Kemper, we anticipate serving South Mississippi together for many years,” Mississippi Power said in a release.
Stock Rating to be Evaluated
Following the announcement by SME, Fitch Ratings announced that it would review its ratings for Southern Co. and Mississippi Power. “Fitch believes that finding another partner to replace SMEPA could be challenging for Mississippi Power given the low wholesale price environment and the construction issues/delays the project has faced,” the company wrote in a release. “A one-notch downgrade for Mississippi Power is likely. However, a two-notch downgrade cannot be ruled out at this time.”
