Legal & Regulatory

Regulators Back Settlement for Costs of Failed Kemper IGCC Project

Shareholders of Mississippi Power will have to absorb the majority of outstanding costs resulting from the scuttled Kemper County coal gasification project, as the state’s Public Service Commission (PSC) on February 6 approved a settlement for the remaining liabilities associated with the much-touted “clean coal” plant.

Mississippi Power in a statement said it “is pleased with this final order from the Public Service Commission, which effectively settles all costs associated with the Kemper County energy facility.” Anthony Wilson, the company’s CEO, in a statement after today’s vote said, “The economics really didn’t work out and the technology was hard to perfect.”

The PSC in 2017 told Atlanta-based Southern Co. to end construction at Kemper. The gasification project, touted as the future of coal, never was operational, as costs ballooned from an original price tag of $2.9 billion to about $7.5 billion. The settlement agreement, which was reached last year pending approval, means Mississippi Power, a subsidiary of Southern Co., and its shareholders will absorb about $6.4 billion in losses. The utility’s residential customers can now expect savings of about $3 per month on their bills, though they will continue to pay for the part of the Kemper plant burning natural gas.

“Throughout the settlement process, Mississippi Power has met each directive from the Commission and has worked with key parties to ensure our customers are shielded from any increase in rates related to Kemper,” the utility said in its statement. “We look forward to the continued operation of this efficient natural gas facility, which has been serving our customers for more than three years.”

Today’s agreement ends years of squabbles surrounding the project, which was hyped as a way to burn coal more cleanly, while the plant captured carbon dioxide. Mississippi Power never was able to get the technology to work reliably. The 582-MW Kemper County energy facility was designed as an integrated gasification combined cycle (IGCC) plant, which would convert locally mined lignite to synthesis gas, using novel TRIG technology to capture up to 65% of its carbon emissions. Several technical hurdles continually delayed the project; it originally was scheduled to be placed into service in May 2014. The project’s costs steadily rose, topping $7.5 billion when factoring in in mine, carbon dioxide pipeline, and other accounting costs.

The utility on June 28 of last year announced construction of the nearly complete IGCC portion of the plant would be immediately halted. Mississippi Power then said it would continue running a combined cycle gas turbine plant that was completed as part of the project in 2014.

Mississippi Power said changes in the federal corporate tax structure, as part of the government’s tax overhaul late last year, will lessen the amount if collects from customers in 2018, to $99 million from a previous level of $113 million. Mississippi Power also has agreed to pay off the failed project’s costs over eight years, instead of a possible 20, which also should save customers money over time. The company in today’s settlement also agreed to forgo recovery of more than $50 million in other costs.

“We have agreed to recover less costs for the plant, but also our tax rates are lower, so we’re passing that on as well,” said Mississippi Power spokesman Jeff Shepard after today’s decision.

Opponents of the settlement could still take legal action, although the Sierra Club already has settled with the utility. Another opponent, Thomas Blanton, a Hattiesburg, Mississippi oilman, on Tuesday did not say whether he would sue. Blanton in 2015 won a state Supreme Court verdict that forced the utility to issue refunds to ratepayers.

Mississippi Power in 2006 announced it would build the IGCC plant. It started construction in 2010, moving up its timeline in an effort to qualify for federal tax credits, although only about 10% of the plant’s design was complete. The U.S. Securities and Exchange Commission late last year closed an investigation into claims the utility misled investors about the project’s cost and timeline.

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine)

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