What lies ahead for Kemper and Mississippi Power?

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Rogelio V. Solis, AP

In this Oct. 21, 2013 photograph, tire tracks climb up a man-made hill of transported lignite coal from the Liberty Mine, that will be used by Mississippi Power’s Kemper County energy facility near DeKalb.

 

August 21 looms as the next — and potentially most crucial — deadline in a regulatory process for Mississippi Power Co.’s $7.5 billion-plus Kemper County energy facility that has been publicly scrutinized for more than eight years.

Mississippi Power has until that date to file a settlement proposal with the Mississippi Public Service Commission. On July 6, the commission called on the company to ditch its clean coal plans and only operate the plant as a natural gas facility, which the plant has done in part since 2014.

If a settlement proposal is filed by Mississippi Power, a hearing will be set 45 days from the date of the settlement’s filing.

If not, the commission has other avenues it can take to address the plant’s lignite coal gasification operation, which the commission deemed “unproven technology” in June.

Commissioners could pick up where they left off on its review the company’s rate case filing. They could also call for an order to show cause, elevating the risk of decertifying the plant altogether.

Either way, the commission anticipates the culmination of years of heartache for Mississippi Power and the promise of clean coal.

Original plans for Kemper involved never-before-used technology and lignite coal, which is abundant in the region, to produce a synthetic gas.

November 2015 AP file photo

Aerial view of the Kemper County plant

The plant, once complete, was projected to produce 582 megawatts of electricity — a capacity to power 190,000 homes of Mississippi Power customers.

By burning coal the plant was expected to reduce carbon emissions (compared to traditional coal technology) by putting carbon dioxide into a nearby pipeline system. From there, oil companies would be able to purchase the gas to inject into fallow oil fields to bring valuable crude oil to the surface.

The plant and nearby lignite coal mine were originally expected to cost nearly $3 billion, and scheduled for full operation by May 2014.

However, Mississippi Power kept running into issues with the technology, mainly with the plant’s gasifiers, which are meant to produce the synthetic gas. This resulted in years’ worth of delays and billions in cost overruns.

Mississippi Power Co. and its parent, Southern Co., could potentially absorb more than $6.5 billion in losses, according to some estimates.

Meanwhile, Mississippi Power ratepayers are being charged with about $900 million through a 15 percent rate increase approved by the PSC in 2015 to help pay for the natural gas portion of the plant that already produces electricity.

Right now, the plant is capable of producing 730 megawatts, which is more electricity than the original planned 582 megawatts capacity. The higher electricity output is because the plant no longer needs to fuel its gasification and carbon capture and storage technology.

Mississippi Power in a statement said future announcements on the status of the project would be based on the outcome of the Public Service Commission’s action.

Given the weight of the PSC’s order, experts, many of them vocal critics who have followed the plant closely over the years, say Mississippi Power doesn’t have many paths forward.

But what are they?

A settlement

Observers agree that the most likely outcome is that Mississippi Power will settle with the Public Service Commission.

Charles Grayson, a director of Bigger Pie Forum, a free-market think tank, is a consultant for technology-based mergers, acquisitions and business development, and has long been an opponent of the Kemper plant.

Mississippi Power Co.

Kemper County Energy Facility

“We (At Bigger Pie Forum) viewed it as very high operational risks with too small a capacity to ever be economical even if it operated,” Grayson said.

If the company settles, he said it is likely Mississippi Power and its parent, Southern Co., could pay between $6.5 and $6.6 billion in project costs, while Mississippi Power ratepayers could take on even more of an increase — increasing their $900 million cost upwards of $1 billion total — to pay for the working parts of the plant. The plant’s in-service assets include the combined cycle portion of the plant fueled by natural gas; its transmission projects such as lines and substations; and wastewater and natural gas pipelines, a commission filing states.

Grayson said forming a settlement appears to be the most beneficial option for Mississippi Power.

“I don’t see a lot of wiggle room and my guess is Southern (Co.) didn’t see a lot of wiggle room to have capitulated so quickly on this,” Grayson said.

A stalemate 

If the commission, Mississippi Power and other involved parties can’t come to an agreement over the order, the commission can take other actions.

One option is the commission can restart its process of reviewing the company’s rate case filing. Hearings on the filing are scheduled for Oct. 5, with a final order expected by Nov. 4, a commission filing states.

Public Service Commission

PSC Commissioner Cecil Brown

The commission could also call for an order to show cause. Public service commissioner Cecil Brown — in recent remarks at the Neshoba County Fair — said Mississippi Power could come back and argue why they should continue working on the plant and ask for a rate increase of whatever amount they believe they are entitled to recover.

“While there is no guarantee that we would honor any portion of their request, they are free to make their case,” said Brown, who represents the commission’s central district.

The filing states this process potentially could result in the commission revoking the plant’s operating certificate, and Southern and Mississippi Power covering the project’s $7.5 billion total price tag.

Grayson said that if the whole plant is decertified and blocked from operating, Southern could possibly operate the plant in one of their other subsidiaries, such as Alabama Power, and sell its power into the wholesale market for a few years until Alabama Power or another customer may need that power. They could also sell the plant for a lesser value to a customer who needs the capacity because it is very new, he said.

The U.S. Department of Energy provided $407 million in financing for the Kemper plant.

The plant was designed to convert lignite coal into a synthesis gas by feeding coal into gasifiers, technology also known as Transport Integrated Gasification or TRIG.

The plant was to produce the synthesis gas, remove emissions from the gas such as carbon dioxide and then send the “cleaned” syngas to a combined-cycle generating plant to make electricity. This process is known as Integrated Gasification Combined Cycle.

Richard Sun, a Jackson investor and business adviser who has also been a critic of the plant, said the plant’s gasifiers may be technology so specialized that re-purposing them could be very difficult for Mississippi Power.

After that, the lignite and mining equipment could be sold off in liquidation. The mine and gasifiers could also go back to a Southern Co. subsidiary, he said.

Years of court battles

Whether Mississippi Power settles or not, the company could also be tied up in expensive legal fights for years to come.

Treetop Midstream Services, a Mississippi-based oil company, filed a lawsuit against Mississippi Power and Southern Company last year over the cost it incurred for building a $100 million pipeline and other damages.

Treetop claimed fraudulent misrepresentation, concealment, civil conspiracy and breach of contract by the power companies.

Other parties involved in the project could follow suit. For example, Plano, Texas-based North American Coal Corp. or its subsidiary, Liberty Fuels Company, which runs the mine adjacent to the plant called Liberty Mine, could make a similar claim.

Denbury Resources Inc., which was under contract to purchase 100 percent of the captured carbon dioxide from Kemper, also has a 61-mile, carbon dioxide pipeline in place.

Additionally, Alan Nussbaum, an investor in Atlanta-based Southern Co., in March asked a Delaware court for documents to determine whether Southern Co.’s officers and directors mismanaged the company, committed fraud or breached trust between the company and its stockholders.

Environmental cleanup

Mississippi Power

A dragline excavator seen at Liberty Mine, adjacent to the Kemper County energy facility.

Some groups say there will also be challenges dealing with the environmental effects of the plant and the grounds surrounding it.

One of them is the Sierra Club, which reached a multi-million-dollar settlement with Mississippi Power in 2014 after a six-year battle.

The settlement called on Mississippi Power to halt its coal operations or switch to natural gas at two power plants in Mississippi and one in Alabama, and create a $15 million fund promoting energy efficiency in its service area.

Meanwhile, the Sierra Club dropped regulatory challenges before the Public Service Commission and legal appeals pending in local and state courts.

Louie Miller, state director of the Sierra Club’s Mississippi Chapter, said he would not be surprised to see the mine close, as he doesn’t see operating it as valuable or practical in this case.

The mine was designed to supply the facility with lignite coal, which is difficult to transport long distances because it contains volatile material making it susceptible to spontaneous combustion. This same volatile characteristic makes lignite easier to convert into syngas.

Miller wants to see the mine reclaimed in an environmentally-sensitive way via a reclamation plan filed with the commission, the Mississippi Department of Environmental Quality or both. The plan should address how they are going to reclaim the area that has been mined, and the disposal of the resulting coal pile, he said.

“It’s not going to be cheap to do this, but these are things that have to be done in order to make that site whole again,” Miller said. “You’ve got the heavy metals that could leach out of that lignite pile, and all those things are currently contained that are going to have to be addressed.”

Miller said North American Coal could potentially move the coal pile up to its Red Hills Mine more than an hour away in Ackerman. However, doing so would be expensive because of its moisture content and weight. Plus, the Red Hills mine may already be supplying a sufficient amount of lignite.

Similarly, he said MDEQ would have to address the plant’s environmental permits. On July 11, MDEQ spokesman Robbie Wilbur said the department had not received any request to modify or terminate the permits at the Kemper site.

“The existing permits will have to be modified or terminated as appropriate to account for any significant change in circumstances,” Wilbur said in an email. “If the mine ceases operation, it will have to be closed and reclaimed in accordance with the mining permit and applicable regulations. A permanent change in fuel used at the power plant may require a modification to the facility’s air permit.”

Miller said other steps to take in the future could involve replanting surface vegetation over the reclaimed area and road closures.

“It presents a number of questions that I would assume the commission will first bite at, from a standpoint of what is negotiated, and what gets allowed into the rate base and what doesn’t,” Miller said.

The case for a rate increase

In addition to the Kemper settlement, the Public Service Commission could consider Mississippi Power’s request to update its rates, which are affected by the Kemper plant.

Mississippi Power

Mississippi Power’s Kemper County energy facility on July 14 began producing syngas for the first time. The syngas is being flared as part of the start-up testing operation.

Mississippi Power on June 5 filed a rate case request with the commission, starting the formal process of updating what it can charge customers for its services. The filing requested to continue its current rates for 11 months starting Aug. 1. Public Service Commissioner Cecil Brown a day later said he was concerned project construction would drag on for another 11 months with cost overruns.

The commission on June 21 announced they were drafting an official order advising the company to only use natural gas to power the Kemper County energy facility, to not put the costs of its gasifier technology on the shoulders of ratepayers, nor increase their rates. This order was made official on July 6.

Mississippi Power suspended its lignite coal gasification construction at the plant on June 28, pending the outcome of settlement talks. The commission has also held off on reviewing its rate case filing.

Generally, utilities cannot recover project costs unless the commission determines them to be prudent.

The Public Service Commission has stated in filings that Kemper’s gasifier technology is not and will not become “used and useful in serving Mississippi customers,” adding that the gasification technology is not operating nor is likely to do so in the near future.

David Newell, president of the Central Mississippi Building & Construction Trade Council, said in a statement that, regardless of the final outcome of the plant, the project also had its positives.

“I think we need to recognize that hundreds of Mississippi workers and their families benefited from the construction jobs at Kemper,” Newell said. “Supply businesses, contractors, and other operations connected to the project realized economic benefits. I believe that this project, no matter its final disposition, has benefited the Mississippi economy.”

Rep. C. Scott Bounds, R-Philadelphia, in his remarks at the Neshoba County Fair last week, said he also recognizes the economic benefits of Mississippi Power pursuing lignite coal operations at the plant.

Fred Anklam Jr., Mississippi Today

Rep. Scott Bounds, R-Philadelphia

“I’ve been supportive of the Kemper project since its inception in 2006,” Bounds said. “They have come along. They have built something here in rural Mississippi utilizing … resources and lignite coal to burn clean; catch CO2; and generate electricity.”

He said the public service commission’s order has had the adverse effect of 200-plus people losing their jobs in the past few weeks.

“I would encourage them to rethink that decision,” Bounds said.

  • Liz Cleveland

    Was this new source of power needed by MPCO to service their customers? Or was there another reason they initiated such a risky and expensive investment? Seems that wind generated power would be more efficient and environmentally friendly especially in the gulf and coastal areas.

  • FredFlintstone

    So, MS Power rate payers would be better off just to pay the 200 people Rep Bounds says will go without a job versus running Kemper. Rep. Bounds job is to represent his constituents…but this is just politics and is not good business sense. If Mr. Bounds wants those 200+ people employed, maybe he should go out and create a business to employ them with his own CAPITAL or he should sit down and shut up and let the MS Power rate payers not suffer at the hands of crony capitalist.