SOUTHERN CEO ON KEMPER: COMPANY MAY HAVE ‘MISSED THIS ONE’

Tamar Hallerman
GHG Monitor
6/21/13

Southern Company’s chief executive said this week that the utility giant may have “missed this one,” when referring to the company’s troubled Kemper County gasification plant in Mississippi, but defended the company’s management of the $4.3 billion carbon capture and storage project. On the sidelines of an Energy Information Administration conference in Washington, Southern Company CEO Thomas Fanning declined to say when asked by GHG Monitor whether the utility giant will invest in other integrated gasification combined cycle projects given its recent experience with the 582 MW Kemper plant. However, he did emphasize the importance of investing in advanced coal technologies such as IGCC. “This is a technology that’s important for America, and Southern Company has a long history of providing leadership in these areas. I think it’s important for us to step forward and for corporate America to take these reasonable risks. 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 said.

Southern announced a new partnership with the engineering and construction contractor KBR last fall aimed at marketing its Transport Integrated Gasification (TRIG) technology being used at Kemper. Company officials at the time said they were aiming to sell the technology to power companies internationally that use low-rank coal, especially in emerging economies like China and India. Fanning said he was confident in the technology’s future and said the technical knowledge gained at Kemper could have other applications elsewhere in the United States. “This may be the way forward for coal in America. We’re proud to really champion that effort,” he said, adding that power generated from IGCC plants like Kemper is likely cost competitive with nuclear, considered one of the cheapest forms of generation once capital costs are out of the way.

Fanning Said Project Has Remained ‘Prudent’

Much of the concern about Kemper has stemmed from its spiraling capital costs, recent delays and pending legal and regulatory challenges as construction moves into its final year. Costs at the facility have increased to roughly $4.3 billion, nearly $2 billion above initial estimates for the IGCC facility, which will also capture 65 percent of carbon emissions for nearby enhanced oil recovery operations. Southern subsidiary Mississippi Power, the utility managing the plant, has also seen dramatic leadership changes over the last several weeks amid allegations that top officials withheld information of cost overruns from state utility regulators while requesting rate increases. The chairman of the Mississippi Public Service Commission (PSC) said the body would be holding a prudency review of the project later this summer. Meanwhile, the credit ratings agency Standard & Poor’s recently downgraded Southern’s outlook from “stable” to “positive” due mainly to Kemper’s woes.

Fanning told GHG Monitor that the project has remained 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 $2.4 billion of the facility’s capital costs from its nearly 200,000 ratepayers in Mississippi (with a few technical exceptions). Beyond that, Southern’s shareholders must absorb any outstanding cost overruns at the facility. Fanning said that fact underscores the project’s fiscal prudency. “Our Mississippi customers [are] going to get exactly what we said they would get as of the settlement agreement, so any cost overrun won’t impact Mississippi customers at all. Not one dime,” he said. Fanning contested recent allegations from project opponents that company officials withheld key cost information from regulators. “That’s not true,” he said.

Sierra Club Highlights ‘Factual Discrepancies’

Meanwhile, this week the project’s most vocal opponent, the Sierra Club’s Mississippi chapter, further publicized what it said were “troubling factual discrepancies” between what Mississippi Power and the PSC have stated publicly. Based on what it said was a timeline prepared by Mississippi Power, the environmental group said it filed a new motion with the Mississippi Supreme Court June 19 asking the body to direct the PSC to update public records about what it knew regarding cost overruns at the facility when it approved the project’s separate certificate, which the environmental group is challenging in court.

The Sierra Club said the timeline indicates that the PSC knew about hundreds of millions of dollars of cost overruns at Kemper in spring 2012, but reapproved the plant’s certificate anyway—after the Supreme Court had earlier overturned the plant’s original $2.88 billion certificate—without making the information public or taking new evidence. “The ratepayers, who Mississippi Power expects to pay the tab, have been kept in the dark about the disastrous cost overruns at Kemper. This latest revelation just confirms that the PSC acted improperly and should not have reauthorized the plant without following the letter of the law,” Mississippi Sierra Club Director Louie Miller said in a statement.