Kemper Project Loses Key Power Buyer Due to Delays, High Costs
South Mississippi Electric (SME), an electric cooperative that has been Mississippi Power Co.’s (MPC’s) long-time backer in the development of the Kemper energy facility, has pulled out of the project, citing delays in project schedule and increased participation costs as reasons for its withdrawal.
The cooperative that generates and transmits electricity for 11 member cooperatives entered into an asset purchase agreement with MPC in 2010 for the purchase of 17.5% of the lignite-fired integrated gasification combined cycle (IGCC) plant that is under construction in Kemper County, Miss. However, the purchase share was later reduced to 15% due to increased costs.
Still, that 15% share was projected to be about $600 million in fixed asset costs as of March 2016.
“Updated studies now show that SME’s costs of participation in the project have increased to the point that the rate impacts necessary for ownership would not best serve the needs of SME’s 11 Member cooperatives or their combined 419,000 members. The Asset Purchase Agreement permits termination of SME’s participation in the project due to the delay in closing,” SME said in a statement on May 20.
“We entered into the purchase agreement in 2010,” said Jim Compton, SME general manager and CEO. “Since then, there have been multiple changes in the project, and also changes in our power supply needs. The board determined that proceeding to closing was not in [SME’s] best interests, and we needed to let MPC know so that alternate plans could proceed.”
MPC said on May 20 it was disappointed to learn of SME’s decision to end its participation in the project. The company intends to return $275 million of deposits received from SME with interest in connection with the termination of the agreement.
The company said it is now evaluating its alternatives related to the investment and related costs associated with the 15% ownership interest in Kemper. “The ultimate outcome of this activity cannot be determined at this time,”
“SMEPA has been a long-time partner of Mississippi Power, and despite their decision on Kemper, we anticipate serving South Mississippi together for many years,” the company said.
Compared to the $2.2 billion originally estimated in 2004, total costs for the nation’s only large-scale integrated carbon capture and sequestration project under construction have now almost tripled.
Considering total exemptions and exceptions that total about $1.2 billion, the company estimated the project’s total costs stand at about $6.1 billion.
On Feb. 12, the Mississippi Supreme Court on ruled that the Mississippi Public Service Commission erred in granting Mississippi Power rate increases in 2013 and 2014, and ordered that the increases be refunded to the utility’s ratepayers. It also threw out a 2013 agreement on the total costs that Mississippi Power would be allowed to recover for the plant.
—Sonal Patel, associate editor (@POWERmagazine, @sonalcpatel)
Editor’s note (May 27): Adds details of the Mississippi Supreme Court’s ruling on Feb. 12.