Report: Mississippi Power’s Kemper Project Will Be Over-Budget and Behind Schedule

A new report from the Institute of Energy Economics and Financial Analysis (IEEFA) challenges claims by Mississippi Power Co. (MPC) that its 582-MW Kemper Integrated Gasification Combined Cycle (IGCC) plant under construction in Kemper County, Miss., is 70% complete, and suggests that the project is over budget and behind schedule in several respects.

MPC, a Southern Co. subsidiary, said on Nov. 13 in a statement the Kemper County facility was "more than 70 percent complete" and had achieved several "major milestones" in recent weeks. Those milestones included the start of a project to fill the reservoir that will hold the plant’s cooling water with treated effluent from the City of Meridian, Miss., and delivery of the plant’s two largest pieces of equipment. The main electrical building was also connected to the plant’s switchyard last week.

But the "Kemper IGCC Project Cost and Schedule Risk Report" cites monthly company reports and a September 2012 independent monitor’s report by URS and prepared for the Mississippi Public Service Commission (MPSC) when it claims Kemper is only about 40% to 45% complete. IEEFA conducts research and analyses on financial and economic issues related to energy and the environment. The institute’s declared mission is to "accelerate the United States’ transition to a diverse, sustainable and profitable energy economy and to reduce the nation’s dependence on coal and other non-renewable energy resources."

 In its report, the group suggests compares the Kemper IGCC project to the only other U.S. IGCC project (Duke Energy’s 618-MW Edwardsport facility project, which is under construction in Indiana), and says that there is a "substantial risk that the cost of the Kemper Project for ratepayers will continue to increase and that the Project’s in-service date will be significantly delayed beyond the May 2014 date that the Company now claims."

According to the report, as of July 2012, the overall project was reportedly 38% complete. Engineering was 87% complete, construction 30% complete, actual concrete foundation work 77% complete, and steel work  39% complete. By September, "progress has not caught up to the planned schedule," the report says. " Additionally, because it involves new technology at a commercial scale, "technology applications create a substantial risk of additional schedule delays, particularly during pre-operational testing and startup, as the recent experience of the Edwardsport IGCC project [which uses a different IGCC technology] in Indiana indicates." Duke’s most recent estimate for the Edwardsport in-service date submitted to the Indiana Utility Regulatory Commission on Oct. 31 was delayed by eight months, to May 2013, mostly due to unanticipated equipment problems and challenges during testing and startup.

The MPSC in June unanimously denied MPC’s request to recover financing costs for the $2.88 billion plant. The vote came just weeks after URS Corp. estimated in its May 2012 independent monitor report that the project could face a cost overrun of $366 million. The MPSC had previously capped the direct construction costs for the project at $2.88 billion—20% above the company’s $2.4 billion estimate in 2010. Costs were bound to increase, the IEEFA’s report claims, because the MPSC did not cap costs such as those required for the lignite mine that will provide fuel to the plant, as well as for a pipeline that will transport captured carbon dioxide emissions, and financing costs. Those uncapped costs have increased by as much as 50% since the MPSC certified the Kemper Project in 2010, the report says, citing the September 2012 independent monitor report, and could reach $600 million.

MPC in a Nov. 13 statement said that the most recent  MPSC’s independent monitor report claimed that the "Kemper County energy facility is the most economic option when compared to converting this facility to natural gas or building a new natural gas plant at one of the company’s existing facilities." But the IEEFA report directly challenges that claim, saying MPC’s analysis was based on projected natural gas prices that are "significantly higher than current projections and futures prices."

MPC spokesperson Jeff Shepard told POWERnews that the company remained confident and recently confirmed its cost and schedule projections for the Kemper County energy facility via a report from Burns and Roe, the MPSC’s staff monitoring firm. "It’s important to note that URS, the Commission’s independent monitoring firm, recently filed a report that stated that they believe the facility has a 72 percent probability to be less than or equal to $2.88 billion,” Shepard said.

The MPC’s Shepard added that the IEEFA report, widely promoted by the Sierra Club, was another example of an "out-of-state, special interest group’s attempt to stop this project. The project is creating jobs and will provide low-cost electricity to benefit Mississippi Power customers for decades," he said.

"As the project nears completion, the company will continue to assess both costs and schedule and will continue to submit monthly reports to the Commission and Public Utilities Staff reflecting any adjustments as warranted."

Sources: POWERnews, IEEFA, MPC

—Sonal Patel, Senior Writer (@POWERmagazine)

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