Miss. Power, utility regulators ready to battle over Kemper costs

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A view of the Kemper County energy facility from earlier on its construction.

Mississippi Power has laid out its game plan for resolving the Mississippi Public Service Commission’s issues with the Kemper County energy facility, detailing what it believes should be the final costs and customer rates for the plant moving forward.

In a proposed settlement filed with the commission on Monday, Mississippi Power said it wants to recover around $250 million more than the commission had in mind for operating the natural gas portion of the plant, also known as a combined cycle gas turbine plant.

Mississippi Power and the Mississippi Public Utilities Staff, an entity separate from the Public Service Commission that provides investigative and advisory services to the commission, are still working out which project costs will be placed in the rate base, which is a major factor in determining what Mississippi Power customers will pay for the plant’s services from at least Jan. 1 to Dec. 31, 2018.

Virden Jones, executive director of the public-utilities staff, said the rate base could decide customers’ rates for the next three years, though it would be revisited annually to accommodate smaller updates, he said.

Mississippi Power is proposing an average total rate base ranging from about $915 million and $960 million while staff is proposing an average total rate base of about $760 million, according to Public Service Commission filings.

The mismatch is most noticeable when looking at the two proposals calculating the plant’s average rate base price on its own: Mississippi Power proposes the value of the plant is worth almost $1.1 billion, while the public utilities staff proposes its value is more than $819 million.

“It’s been a long drawn out process,” Jones said. “ … They’re wanting for us to allow them to recover a larger cost for the combined cycle gas turbine. We feel like that ($250 million) is excessive, and we’re recommending a lower price be recovered.”

The disagreement means more negotiations will be needed to settle the fate of the $7.5 billion-plus Kemper County energy facility.

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.

The settlement proposal filed by Mississippi Power, a unit of Atlanta-based Southern Company, says the company will steer the plant away from its clean coal technology by only operating the plant as a natural gas facility, which the plant has done in part since 2014. The commission ordered the shift on July 6, and Mississippi Power’s proposal indicates it is not fighting that decision.

Under the plan, the company promises not to charge ratepayers for the costs of its problematic gasifier technology nor increase their rates.

In the meantime, Jones said Mississippi Power and utilities staff have until December to come to an agreement on the 2018 rate base.

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

Mississippi Power in the filing says costs for the operating parts of the plant are deemed prudent under the law “if there has been no showing of serious doubt concerning the costs incurred.”

Jones said the commission and staff has yet to make a decision of prudence on the latest estimates.

“The company considers all costs incurred to be prudent,” Jones said.

Mississippi Power in a statement describes their proposal as a “a multi-party settlement agreement” filed with the Public Service Commission that “fully complies with the Commission’s directives to settle the Kemper issue.”

Mississippi Power Co.’s plant has been publicly scrutinized for more than eight years due to missed deadlines and cost overruns related its original clean coal technology.

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

The coal plant was projected to produce 582 megawatts of electricity — a capacity to power 190,000 homes and 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.

Public Service Commission spokesman Daniel Forde said in a statement late Monday that the commission this week will review all filings, order a meeting to update the commission on the status of negotiations and provide direction by August 25.