Southern Co. to File Rate Case for Kemper IGCC, Already Economically Unviable in Face of Cheap Gas 

Southern Co. announced yet another lag beyond a new in-service date for its Kemper County integrated gasification combined cycle (IGCC) project. Along with concerns about delays and mounting cost increases afflicting the plant’s coal gasification component are how it will be used in the face of cheap gas prices.

The company’s subsidiary Mississippi Power last said the first-of-its-kind project should begin operations by May 31. On May 31, however, the utility announced that the facility “is not currently fully operational.” It also said it would delay a monthly project status report that was due on June 1 to the Mississippi Public Service Commission (MPSC). It plans to submit the report on June 5 instead, because “the company continues to assess the project’s schedule and cost.”

On June 5, the company is also likely to make a rate filing for the project. It is expected to request an accounting order to defer all costs incurred after the project is operational, that are not subject to a cost cap, and are not already included in rates.

Mississippi law allows Mississippi Power to file both a traditional rate case and an alternative multi-year rate mitigation plan. The company has said that if timely resolution of the 2017 rate case isn’t reached, a negotiated settlement would be an acceptable outcome.

The 582-MW Kemper County energy facility is designed as an IGCC to convert locally mined lignite to synthesis gas, using novel TRIG technology to capture up to 65% of its carbon emissions. But owing to a number of technical hurdles, the project has been delayed nearly three years. It was originally projected to be placed into service in May 2014.

Meanwhile, costs associated with the delays have mushroomed. The project’s original cost estimate outlined in a 2012 certificate of public convenience and necessity order was $2.4 billion, net of $245 million in grants awarded to the project by the Energy Department under the Clean Coal Power Initiative Round 2. That figure didn’t include the cost of the lignite mine and equipment or the cost of the carbon dioxide pipeline facilities.

Total project costs have now climbed to $7.2 billion.

On February 22, Mississippi Power said an updated economic viability analysis of the project—which was required by the 2012 MPSC order—suggested that “projected long-term natural gas prices, and to a lesser extent an increase in operating costs of the project, negatively impact the economic viability of Kemper.” The analysis, posted by the MPSC on June 2, shows that the Kemper IGCC is only economic in higher natural gas scenarios. Under medium and low natural gas price scenarios, the existing Kemper natural gas combined cycle gas turbine (CCGT), which has been generating power since August 2014, has “a lower net present value of life cycle costs than the Kemper IGCC.”

When Southern Co. first filed for a certificate of public convenience and necessity with the MPSC in January 2009, the company did not anticipate a proliferation of cheap gas, Southern Co. President and CEO Thomas Fanning explained in a February call with investors. “When we had this plant certificated, we all thought that gas prices were going to be double digits and there was some spread that were way higher than where we are now.”

Mississippi Power declined to comment on the status of the plant. However, in a more recent earnings call on May 3, Fanning noted that the more recent delays involved improvements to gasification reliability as the company worked towards reaching sustained operations using both gasifiers to produce power.

In that call, as Fanning responded to a question about whether the plant could ultimately end up being just a CCGT, he affirmed there’s a possibility, depending on “deliberations in the state of Mississippi.”

The gas plant remains a “hedge,” he added. “And along the way, as we have built into the technology the ability to operate under dual fuels, we’ve been able to demonstrate the ability to deliver whatever energy is the cheapest. So there is a possibility you could do that, we’ll just have to see.”

 

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

CORRECTION: On June 2, POWER published this story with the following lead: “Announcing yet another lag beyond a new in-service date for its Kemper County integrated gasification combined cycle (IGCC) project, Southern Co. may raise discussions with regulators about the possibility of scrapping the project’s gasification component.” While POWER highlighted the “possibility” of these discussions, Southern Co. on June 6 pointed out that this information is unverified.