Even three months ago, it was inconceivable that Mississippi Power and parent Southern Co. would agree to pick up the costs of the gasifier at the Kemper energy facility and not increase rates for customers.
That happened Monday when Mississippi Power Co. filed a settlement agreement with the Mississippi Public Service Commission and Southern Co. agreed to write off more than $6 billion of the cost of Kemper.
“That’s about the same as the general fund budget for the entire state of Mississippi for one year,” said Anthony Wilson, president and chief executive officer of Mississippi Power.
What the commissioners asked for in a July 6 order was for Mississippi Power to work toward a resolution of Kemper and a settlement between the parties. Despite these and other concessions by Mississippi Power, that settlement didn’t come by Monday’s filing deadline.
The sticking point comes down to rates. The Public Utilities Staff, which is separate from the Public Service Commission and works through the governor’s office, submitted its proposed settlement objecting to a list of millions in costs from Mississippi Power.
One of the issues the staff raised would cost Mississippi Power $250 million to $300 million, Wilson said. He said that would be “devastating” to the company.
“We are not seeking to take advantage of the ending of this project at all,” he said. “We’re just trying to end the project and maintain our ability to do what we’ve always done for the last 100 years.”
Wilson said Mississippi Power put before the commissioners exactly what they asked for. First and foremost was to remove the risk of the gasifiers from ratepayers, he said. Put another way, he said the commissioners told the company, “We’re not going to allow you to put that in your rates, therefore you can never collect any money for it.”
The company also discontinued work on the gasification portion of Kemper and agreed to operate it on natural gas, never charging the customers for any of the gasification facilities. The commissioners directed Mississippi Power to ask for no rate increase and to consider lowering rates for residential customers.
Mississippi Power proposed in its filing keeping rates at current levels to help restore the company’s credit rating and its finances. Wilson said he thought the utilities staff would concur that Mississippi Power was doing what the commissions asked for and agree to the settlement.
“We’re still here,” he said. “I was very surprised.”
By Friday, the commissioners are expected to set a date for a public meeting to determine the status of the settlement and move it forward.
“The commission is seeking a global settlement for this. Not one piece at a time, but a global settlement of about a $7.5 billion dollar project,” Wilson said.
“Frankly I think we have a very strong case for a bigger ask than what we ultimately put before the commission,” he said. Mississippi Power could have pursued about $3.5 billion of “stranded costs,” he said, but he believes that would have been long and arduous.
“I don’t think it would have been good for our customers. I don’t think it would have been good for our state,” he said. “This would have dragged on for a long time.”
Ultimately it still may come down to a lengthy legal battle. “It could. I certainly hope not,” he said. Wilson prefers to find a compromise and said, “We felt like what the commission gave us was a framework for that compromise.”
Mississippi Power proposed the lignite facility as a hedge for natural gas prices, where were rising in 2008. The decision to proceed with the construction of Kemper was made “in concert with the staff and commission, I might add,” Wilson said. Construction began in 2010 and was expected to take four years and about $2.4 billion. With the project three years behind schedule and about $5 billion over the original budget, the PSC pulled the plug in June.
Meanwhile, Kemper is running on natural gas as it has since 2014 and he said there is interest from Japan in getting the Kemper gasification facility operating. He doesn’t know if an agreement could be reached to complete the facility before it’s too late, Wilson said.
“I don’t know that it’s likely,” he said, “but it’s possible.”
Once the equipment starts deteriorating, the company would reach the point of abandonment, he said, take the pieces that work, sell what they can and decide what to do with the infrastructure that is left.
Wilson said the $7 billion spent at Kemper by Southern Co. is probably the biggest economic development investment in the history of Mississippi. It came during the height of the recession and gave the company a generating plant off the Coast after Hurricane Katrina damaged both facilities in South Mississippi.
It would have been great had Kemper succeeded, he said. Mississippi has 400 years worth of lignite, according to one study he read, and lignite is abundant throughout the world. In the end, the technology did work, he said. The two units operated for 200 days combined, but not consistently and simultaneously. It was new technology and there wasn’t anywhere to call and ask how to solve a problem, he said. When the cord was pulled on the project in June, he said the engineers who had worked to find solutions and get it operating had to go over and turn off the unit.