Mississippi Power Will Absorb Costs for Failed Kemper Gasification Project

A settlement Mississippi Power reached on August 21 with stakeholders of the Kemper County facility will ensure customers won’t be subjected to rate increases associated with the now-abandoned gasification portion of the project. While that will affect revenues, the resolution could soften controversy surrounding the project and avoid protracted legal and financial turmoil, the company said.

Mississippi Power reached the settlement with Denbury Resources—the company under contract to buy all the project’s captured carbon—along with three advocacy groups: the Central Mississippi Building and Construction Trades Council, the East Mississippi Business Development Corp., and the Ministerial Alliance Partnership.

It essentially provides that the annual revenue requirement—which is necessary to cover the power company’s expenses and have the opportunity to earn a fair rate of return—for the 2018 Kemper IGCC–related costs would be $126 million, resulting in no rate increase for customers now or in the future. It also proposes to modify the project’s 2010-awarded certificate of public convenience and necessity to limit the facility to operations of the natural gas combined cycle power plant, which was completed in 2014.

Not a Happy Compromise

According to Moses Feagin, Mississippi Power’s vice president, treasurer, and chief financial officer, the settlement represents a “reasonable compromise of the contested issues concerning the Kemper Project, most importantly avoiding the protracted litigation expected to be associated with a credit rating downgrades that could create additional financial uncertainty for [Mississippi Power].”

But Mississippi Power agreed to the resolution, even though it  “believes the law and traditional ratemaking principles permit recovery of a much higher revenue requirement than is reflected in the Stipulation,” Feagin said in testimony before the PSC. The company would be entitled to a revenue requirement of at least $209 million, much more than the $126 million agreed to, he said.

While attempting to reach the settlement, Feagin testified, several parties rejected the company’s proposals, “despite the significance of [its] concessions, and instead provided counterproposals which would have been even more punitive to the Company.”

Feagin said that Mississippi Power and its parent Southern Co. have to date charged more than $6 billion against earnings for the beleaguered gasification portion. It “seeks to recover only its actual costs related to the assets which are currently serving customers, and have been since 2014,” he added.

The PSC is expected to consider approval of the settlement this fall. If approved, Mississippi Power will also absorb costs associated with the cancellation of the gasification portion, which are estimated at about $100 million to $200 million.

Putting a Lid on its Troubles

Mississippi Power on June 28 suspended operations and start-up of the lignite gasification portion of the Kemper project just days before it was expected to be in service. The company wanted to manage skyrocketing costs,  given the economics of the project, and the PSC’s intent to establish a settlement docket to address matters related to the future operation of the gasifier portion.

The project had achieved integrated operation of both gasifiers this January, including production of power from syngas in both combustion turbines. However, the company experienced numerous challenges during the extended start-up process to achieve integrated operations of the gasifiers on a sustained basis. In total, the plant achieved more than 200 days of syngas operations, demonstrating every major aspect of the first-of-its-kind TRIG technology at a commercial scale, including capture and sale of carbon dioxide.

In the end, Southern Co. determined that the Kemper project wouldn’t be economically viable in the face of projected long-term natural gas prices.

A monthly status report filed with the PSC on June 5 showed that total project costs had crossed $7.5 billion—a figure that factored in mine, carbon dioxide pipeline, and other accounting costs. Total costs exceeded the $2.88 billion cost cap set by the PSC by $3 billion. The combined cycle gas turbine plant was completed three years ago as part of the Kemper project.

Approval of the settlement will be key to provide “stable customer rates” for the Kemper natural gas plant, Mississippi Power said in an August 22 statement. Without regulatory approval, “it is unclear if the company can continue the same level of service and community involvement it has in the past,” it said.

“The company believes this is a fair resolution that will make sure customers are not subjected to a rate increase related to the Kemper gasifier,” said Mississippi Power Chairman, President, and CEO Anthony L. Wilson.

“It is unfortunate that some parties are more interested in proposals that could decrease the strength of the company and place our operations at risk. We stand ready to continue discussions with other parties on this settlement to reach an equitable solution for all.”

 

—Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)

Corrected (Aug. 24): A previous version of this article implied that Denbury Resources built the 61-mile carbon dioxide pipeline from the Kemper Gasification Project. This line was built by Mississippi Power Company and was to be owned and operated by same.