AT THE MAJOR CCS PROJECTS: KEMPER

Tamar Hallerman
GHG Monitor
06/29/12

AT KEMPER: PSC DENIES RATE INCREASE TO COVER CAPITAL COSTS

The Mississippi Public Service Commission late last week denied a rate increase request from Mississippi Power to help pay for construction costs on its 582 MW Kemper County integrated gasification combined cycle project. In an unexpected move at its June 22 public meeting, the Commission unanimously denied the utility, a subsidiary of Southern Company, a rate increase totaling more than $55 million. The panel’s three commissioners said they would vote down any rate increases for Mississippi Power’s nearly 200,000 customers until a pending legal challenge from the Sierra Club is complete. “I believe it to be prudent for this Commission to deny any means of cost recovery from ratepayers until the Mississippi Supreme Court makes their ruling,” Commission Chairman Leonard Bentz said in a statement following the hearing. The Mississippi chapter of the Sierra Club currently has a case pending in front of a county chancery court contesting the Commission’s reissuing of $2.88 billion of rate recovery for the project in April without opening the case up to new evidence. If the environmental group loses that case, it will likely be appealed to the Mississippi Supreme Court and could take months to conclude.

The Commission denied Mississippi Power a rate increase under the state’s Construction Work in Progress (CWIP) mechanism, which allows utilities to charge ratepayers for plants under construction if approved by the PSC. The company sought to raise electric bills by more than 13 percent this summer and downgrade costs to roughly 6 percent above current rates later in the year in order to earn the money to pay for construction, translating to roughly a $15 to $20 increase per month for consumers. Mississippi Power said that it was “extremely disappointed” by the PSC’s action, saying in a company statement that customers would have saved hundreds of millions in interest over the life of the plant under that rate structure. “The actions today do not negate the need for the Kemper facility,” the company said. In the meantime, the utility said that construction will continue while officials review the order and determine steps forward.

Sierra Club Cheers Decision

The Mississippi Sierra Club commended the decision, calling it a “smart move.” “The Commission finally acted in the best interests of Mississippi Power ratepayers,” Director Louie Miller said in a statement, adding: “A lot of folks will be breathing easier on July 1, knowing that their rates aren’t going to go up to pay for this boondoggle.” He credited the ruling in part to project’s announced cost estimate increases. Earlier this month, Mississippi Power reported that the Kemper County plant, at about 31 percent complete, was running roughly $360 million—or about 15 percent—above its initial $2.4 billion cost estimate. That approximation puts the utility within $110 million of its $2.88 billion ‘hard cap’ for rate recovery. “Mississippi Power told us that they had the experience and expertise to guarantee the project and bring it on budget. Today, Mississippi Power reps testified under oath that they cannot guarantee the plant will work on day one, and they cannot guarantee there will not be more cost overruns. It’s clear that this plant is an unmitigated disaster, and that Mississippi Power misled the public and the Commission,” Miller said.

Opponents of the project billed the rate increase proposal as the first of many from Mississippi Power. “This is the proverbial tip of the rate increase iceberg. This is the beginning of many rate increases,” Miller said in a conference call with reporters earlier this month. The Sierra Club has estimated that the project will ultimately lead to a 45 percent rate increase for area consumers, but Mississippi Power said that amount will likely be closer to a 33 percent increase.

Miller renewed calls for new rate recovery hearings on the project that take into account new evidence. “The Commission still hasn’t considered the new evidence that shows the plant is not the best deal for ratepayers; they’ve been ignoring natural gas prices, and have not held new hearings on the proposed plant,” he said.

Republican Commissioners Say They are Still Supportive

The PSC’s determination came as a surprise to many given that the panel’s two Republican commissioners have voted consistently in favor of the project up until that point. But in statements released following Friday’s hearing, the two commissioners said that even though they voted against the rate increase temporarily, they are still supportive of the project overall. “I still believe the plant is needed and will benefit the customers of Mississippi,” Bentz said, adding that he thinks the plant is the “best option” for Mississippi Power’s customers. Commissioner Lynn Posey, a Republican representing the state’s central district, asked for swift consideration of the Sierra Club’s pending case. “I am still in support of the Kemper County Plant, and believe that CWIP will ultimately save the ratepayer millions of dollars. However, I do not believe it is in the best interest of the ratepayer to increase rates while there is legislation pending before the Mississippi Supreme Court,” he said.

The IGCC project—also known as Plant Ratcliffe—has been under construction in eastern Mississippi for the last two years and is expected to come online in spring 2014 and capture 65 percent of its CO2 emissions. It is the furthest-along large-scale CCS project for power generation in the Department of Energy’s demonstration project portfolio. Mississippi Power said that it has spent more than $1.1 billion on construction to date and confirmed contracts for an extra $1.5 billion, and that the CWIP funds are necessary to keep the project moving forward. The Kemper County project has garnered nearly $700 million in government grants, tax incentives and loan guarantees—including $270 million in funding under the Department of Energy’s Clean Coal Power Initiative and $133 million in federal investment tax credits. It plans on selling its captured CO2 for enhanced oil recovery operations in the area.