Settlement Allows Mississippi Power to Request Higher Rates for Kemper Coal Plant

Mississippi regulators last week approved a settlement with Mississippi Power that will allow the Southern Co. subsidiary to seek higher customer rates for rising costs associated with its 582-MW Kemper integrated gasification combined cycle (IGCC) plant under construction in Kemper County. On the day following that ruling, the utility asked the state for permission to recover $172 million for the 2013 regulatory year.

The Jan. 24 settlement resolves a dispute stemming from the Mississippi Public Service Commission’s (MPSC’s) unanimous denial in June 2012 by its three commissioners of a requested 15.7% rate hike to recover financing costs for the plant. The MPSC had denied the company any cost recovery until legal challenges concerning the plant’s certificate of public convenience and necessity had been resolved. This involved a lawsuit against the MPSC brought by the Sierra Club, which was at the time pending in the Harrison County Chancery Court. The utility later asked the Mississippi Supreme Court to review and remand the MPSC’s denial of its rate request.

Last December, the Harrison County Chancery Court affirmed the MPSC’s decision to grant the Kemper IGCC plant the contested license, but the Sierra Club earlier this month appealed that court’s decision to the state’s Supreme Court, where it is pending.

Meanwhile, on Thursday, the commissioners voted 2–1 to approve a settlement that resolves the rate hike dispute but which reverses course and caps Mississippi Power’s return at $2.4 billion (plus applicable costs as determined by the agency) on the cost of building the plant. The MPSC has estimated the plant will cost $2.88 billion, and the agency’s independent monitor has suggested the project could face a cost overrun of $366 million.

Commissioners also agreed to consider a new request filed by the utility to charge customers for up to $172 million while building the plant—overturning its previous ruling to deny rate increases until the legal challenge from the Sierra Club was resolved—and to reach a decision within 80 days. Under the settlement, the utility may also now seek a new state law that will mandate the use of securitized bonds to cover any additional costs of the plant, beyond the capped $2.4 billion.

The day after the MPSC’s settlement with the utility, Mississippi Power said it had filed a request to recover $172 million—representing a 21% adjustment on total retail revenues. If approved, the hike will go into effect in April 2013. It could mean the typical residential customer using 1,000 kWh a month would see an increase "of less than" $1 a day on bills in 2013. The company said the overall average rate effect of the Kemper project will be about 25%.

“We have worked hard to keep this increase as low as possible,” said Mississippi Power President and CEO Ed Day in a statement on Friday. “This is well under the increase we had anticipated and significantly lower than what opponents to the project claimed,” said Day.

The Kemper project, meanwhile, is 75% complete and is scheduled to begin operating in May 2014.

Sources: POWERnews, MPSC, Mississippi Power Co.

—Sonal Patel, Senior Writer (@POWERmagazine)

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