Deadline looms for Mississippi Power to make case for raising rates

Mississippi Power has a June 3 deadline to file a rate case with the Mississippi Public Service Commission to recoup its costs in the building of the sprawling Kemper energy plant.
Mississippi Power has a June 3 deadline to file a rate case with the Mississippi Public Service Commission to recoup its costs in the building of the sprawling Kemper energy plant.

Seven years after construction began, and at an anticipated cost of $4.3 billion more than originally projected, the Kemper County energy plant now faces a major deadline.

Mississippi Power Co. has until June 3 to lay out its case for raising customer rates to recover those costs.

June 3 is seven years to the day after the Mississippi Public Service Commission gave the go-ahead to start construction in Kemper County, north of Meridian, on this first-of-its-kind facility. The PSC set that June 3 deadline at the end of 2015, when it allowed Mississippi Power a 15 percent rate hike to recover costs for the portion of the plant that is producing electricity with natural gas.

Mississippi Power last said it expects the plant to be consistently producing electricity with lignite coal by May 31, but for the last two years the in-service date has kept moving and the cost keeps growing.

The project is three years behind the original schedule of May 2014. What was estimated to be a $2.9 billion plant when construction began in 2010 has ballooned to $7.3 billion, with costs increasing by millions of dollars each month. From Jan. 1 through May 1, the company’s revised estimated cost of the plant has risen by $174 million, but that cost isn’t part of the total Mississippi Power is currently asking to recover.

Britton has questions

Like many customers of Mississippi Power, PSC Southern District Commissioner Sam Britton is concerned whether Kemper has been built and delivered as promised. He and fellow commissioners Brandon Presley and Cecil Brown will decide if the expense was prudent — or worth the cost — after Mississippi Power files its rate case.

He said what is important to know about the Kemper plant is that when it was approved to be built, the PSC commissioners didn’t say it was prudent.

“They weren’t 100 percent so they didn’t approve prudency,” he said, “but pushed it down the road.”

That road ends June 3, a deadline Britton said is firm.

He has a list of concerns for Mississippi Power officials to address and said, “Those questions will be asked to them and they will be required to give an answer.”

Among them:

▪  Was it prudent to continue construction in the face of rising costs and schedule delays?

▪  Was it prudent to continue when natural gas prices were falling and costs of operation were rising?

▪  Will Kemper produce enough syngas using lignite coal to operate Kemper at full capacity?

▪  Is Kemper only useful using natural gas?

That last question about operating with natural gas is related to an economic-viability analysis released by Mississippi Power in February. It shows lower-than-expected gas prices and higher-than-expected operating costs could make it less expensive to operate the plant on natural gas than on the reserves of lignite coal as planned.

Power of the PSC

Britton, who is about midway through his four-year term as a commissioner, said he is very aware of how important the cost of electricity is to the local economy.

As the deadline nears, he involved the public in the process, pushing for a discovery docket over 180 days — three times the typical 60-day process. Any residential or commercial customer was invited to submit questions about costs and the need for Kemper. The discovery docket will be part of the rate case.

The process was “open but not simple,” Britton said. Chevron submitted so many questions that at times Mississippi Power had to ask for an extension to provide the thousands of pages of documents requested.

Britton said the PSC commissioners are permitted to talk about the process of determining prudency, but as soon as Mississippi Power submits its rate case, that public input ends.

Though many people believes the commissioners are there to “protect” the public from rate hikes, he said that is not the case.

You’re supposed to make just and reasonable decisions that are fair to all concerned.

PSC Commissioner Sam Britton

“You’re supposed to make just and reasonable decisions that are fair to all concerned,” he said.

When the commissioners see what Mississippi Power files in its rate case, they will look first at the prudency of Kemper construction costs, then move on the use and usefulness of the plant. All hearings will be public.

Where Kemper stands

Kemper was one of the most scrutinized projects in the history of the PSC, with many months of review before the agreement was approved in 2012.

Construction now is complete and the plant has been generating electricity since 2014, fueled primarily by natural gas rather than the billions of tons of lignite surrounding the plant.

The company said the goal is to operate on 100 percent synthetic gas, or syngas. The plant uses two gasifiers to convert lignite mined at the site into a synthetic gas using high pressure and heat.

A major milestone occurred Jan. 29, when Mississippi Power achieved integrated operation of both gasifiers and the production of electricity from syngas in both combustion turbines.

The coal-burning plant is designed to capture 65 percent of the carbon dioxide it produces, which is about the same amount as a natural gas plant. The company and others in the industry have been calling it “clean coal.”

However, that company has said that new technology also has seen ongoing challenges with ash removal and gas cleanup.

The rate case

How many days or months Mississippi Power has to produce electricity with lignite to fulfill its obligations to its customers and the PSC is not spelled out, Britton said.

Both he and Southern Co., parent company of Mississippi Power, have indicated the rate-review hearings could be contentious.

Britton said he remains committed to protecting ratepayers from unnecessary costs.

Southern Co. said it believes all costs to date at Kemper have been “prudently incurred and expended in the best interests of its customers.”

In its 2016 annual report, Southern Co. said it expects the rate case to request recovery of the full cost of building the plant, and defer until after the commission makes its ruling additional costs that aren’t included in this rate review and are not required to be paid by the company as part of the $2.88 billion cost cap.

“The company also expects that timely resolution of the 2017 Rate Case will likely require a negotiated settlement agreement,” the report says. If an agreement can’t be reached, the company said, “it is reasonably possible that full regulatory recovery of all Kemper IGCC costs will not occur,” and in that case legal challenges may be filed.

The outcome

Britton said, “The fate of Kemper is going to be tied to Southern Co.,” which contracted with Mississippi Power to build the Kemper plant.

“Southern Co. has a responsibility in this process of delivering Kemper as promised,” Britton said. “Up to this point, Southern Co. has assumed responsibility and paid $2.8 billion in cost overruns related to Kemper and has continued to voice their financial support of Mississippi Power.”

What the PSC wants, he said, is affordable, reliable power.

Kemper plant, then and now

Then: Its estimated cost was $2.9 billion when approved for construction in 2010.

Now: The price tops $7 billion.

Then: In 2008, Mississippi Power said lignite coal was by far the lowest-cost fuel alternative, with natural gas 400 percent more expensive than lignite. Using lignite would save customers about $3 billion over the life of the plant, the company said.

Now: Results of an economic-viability analysis show the plant can operate more economically on natural gas.

Then: When construction began in 2010, the plant was projected to be complete by 2014.

Now: The latest projection is May 31, 2017.