Mississippi Power Appeals PSC Denial of Cost Recovery for Kemper IGCC in State High Court

Mississippi Power on Monday asked the Mississippi Supreme Court to review the June 22 unanimous denial by three commissioners of the Mississippi Public Service Commission (MPSC) of the company’s request to recover financing costs for its 582-MW Kemper County Integrated Gasification Combined Cycle (IGCC) plant.

The MPSC voted to deny the controversial rate hike of 15.7% for the Southern Co. subsidiary’s residential customers over a course of six months for the $2.88 billion plant that is under construction and slated to be completed by May 2014.

The vote came just weeks after URS Corp., which acted as an independent monitor of the project at the MPSC’s behest, estimated in a May 2012 report that the project could face a cost overrun of $366 million.

The vote also closely followed the Mississippi Supreme Court’s March ruling that reversed an order by the MPSC granting the IGCC plant a certificate of public convenience and necessity. In May 2010, when the MPSC previously approved Mississippi Power’s request to build the plant, it capped cost recovery at $2.4 billion—some $800 million less than what the utility had originally sought.

That order also required the company to pay all construction costs. Just a few weeks later in 2010, however, the MPSC voted 2–1 to ease restrictions, ruling that construction costs passed on to ratepayers could be no more than $2.88 billion. The regulatory body also said that costs could go no higher unless the utility could show that costs for concrete, steel, and other building materials had increased.

Following the Supreme Court’s remand in March, the MPSC issued a final order granting a new certificate of public convenience and necessity to Mississippi Power on April 24, approving “prudent” preconstruction costs. Two days later, however, the Sierra Club filed an appeal and motion for stay. Both legal challenges remain pending in court.

According to Mississippi Power, the MPSC’s June 22 ruling denies the company any cost recovery until the legal challenges by the Sierra Club are resolved. The decision “effectively denies the company’s ability to collect financing costs of the Kemper plant while under construction making the project significantly more expensive for customers,” it said on Monday. Its appeal to the state Supreme Court, which “includes a motion for interim rate relief, is necessary to save customers millions of dollars in interest costs,” it added.

“The collection of interest costs for the plant during construction will accomplish two important objectives,” said Moses Feagin, vice president and chief financial officer. “One, to lower the overall cost of the plant for our customers, and two, to reduce the potential rate shock they would have otherwise experienced.”

The company says that the MPSC authorized the company to begin collecting financing costs during construction in its 2010 order. But since the June 22 denial, “Mississippi Power has received a credit rating downgrade with a negative outlook. Timely recovery of financing costs is critical to the company’s ability to maintain financial health and have access to capital needed in its everyday operations as well as in emergency situations when customers need it most.”

The 582-MW Kemper County plant and Duke Energy’s 618-MW Edwardsport coal-fired plant under construction in Knox County, Ind., are the only two IGCC projects under construction in the U.S.

Duke’s $3.4 billion project has faced similar cost overruns and delays, as well as legal challenges and an ethical scandal. The company, which last week completed a $32 billion merger with Progress Energy, had originally estimated project costs at $1.985 billion. The plant, which is nearly complete, is expected to begin operations in late 2012 or early 2013.

An April settlement proposed to end five years of litigation among the Indiana Office of Utility Consumer Counselor (OUCC), the Duke Energy Industrial Group (which consists of six of the utility’s large industrial customers), Nucor Steel, and Duke Energy put a cap on project costs to be included in electric rates at $2.595 billion through June 30. But an order from the Indiana Utility Regulatory Commission (IURC) after that date could allow the utility to recover additional financing costs until customer rates are revised, as Duke noted.

Hearings on the proposed settlement are scheduled to begin on July 16. Citizen and environmental groups that have already filed testimony with the commission have opposed the proposed settlement, saying the $2.595 billion "hard cap" on construction costs is nothing more than a "firm floor" that offers consumers little protection.

"The proposed Settlement Agreement offers no protection for ratepayers against the likelihood that the Edwardsport Project will not operate at or near the annual 84 percent availability (and approximate annual 82-83 percent capacity factors) that the Company has claimed since 2007 that it would achieve,” says David Schlissel, President of Schlissel Technical Consulting Inc. in pre-filed testimony.

“Ratepayers also could be required to pay costs incurred to fix problems identified after the Edwardsport Project is declared ‘in-service’ that are due to [Duke’s] gross management or mismanagement of design, engineering, construction and/or start-up or commissioning or to the mismanagement of its contractors or subcontractors during the Project.”

Sources: POWERnews, Mississippi Power, MPSC, URS, IURC, Citizens Action Coalition

—Sonal Patel, Senior Writer (@POWERmagazine)