Electric power association pulls out of deal with flagship Southern Co. coal project

By Daniel Cusick | 05/22/2015 08:04 AM EDT

An agreement by Mississippi electric power cooperatives to cost-share 15 percent of Mississippi Power Co.’s $6.2 billion “clean” coal plant in Kemper County has been scuttled after the cooperatives’ power purchasing entity decided the power to be delivered from the Kemper plant would be too costly.

Article updated at 4:12 p.m. EDT.

An agreement by Mississippi electric power cooperatives to cost-share 15 percent of Mississippi Power Co.’s $6.2 billion "clean" coal plant in Kemper County has been scuttled after the cooperatives’ power purchasing entity decided the power to be delivered from the Kemper plant would be too costly.

Cost overruns for the Kemper County Energy Facility, which will use integrated gasification combined cycle technology to convert coal to gas while also capturing a portion of the plant’s carbon dioxide emissions, have become a deep thorn for Mississippi Power and its parent, Atlanta-based Southern Co., which has heavily promoted the technology.


The current $6.2 billion price tag for the plant is approaching three times what the plant was initially projected to cost, and Southern has absorbed several billion dollars on its balance sheet to keep the project on track. When fully operational, the plant would be the first coal plant in the United States to capture the majority of its carbon dioxide.

In a new setback for Southern and Mississippi Power, the South Mississippi Electric Power Association’s board Wednesday voted to opt out of its 15 percent ownership stake in the project, citing "delays in project schedule, changing needs, and increased participation costs."

South Mississippi Electric (SMEPA) officials said new estimates show its costs of participating in the Kemper project "have increased to the point that the rate impacts necessary for ownership would not best serve the needs of SME’s 11 member cooperatives or their combined 419,000 members."

Under its agreement with Mississippi Power, SMEPA is entitled to withdraw its ownership promise due to delays in closing the deal, Jim Compton, the cooperative’s general manager and chief executive officer, said in a statement.

"We entered into the purchase agreement in 2010," Compton noted. "Since then, there have been multiple changes in the project, and also changes in our power supply needs. The board determined that proceeding to closing was not in SMEPA’s best interests, and we needed to let [Mississippi Power] know so that alternate plans could proceed."

According to Mississippi Power, SMEPA’s 15 percent stake in the Kemper plant was projected to be roughly $600 million in fixed asset costs as of March 2016, when the plant is expected to be nearing completion. Under terms of the agreement, Mississippi Power will refund $275 million in deposits made by Southern Mississippi Electric toward Kemper, plus interest.

Mississippi Power to evaluate next moves

It remains unclear what the decision will mean for Mississippi Power and Southern, whose stock value and reputation both in Mississippi and nationally are riding partly on the completion and successful operation of the 582-megawatt coal burner that will rely on locally sourced lignite coal.

In a statement, Mississippi Power executives said they were disappointed by Southern Mississippi Electric’s decision to back out of the project, adding "SMEPA has been a long-time partner of Mississippi Power, and despite their decision on Kemper, we anticipate serving South Mississippi together for many years."

Mississippi Power also said it was evaluating its alternatives with respect to SMEPA’s decision and related costs associated with the ownership interest in the Kemper County facility, also known as Plant Ratcliffe.

SMEPA buys or generates power for retail cooperatives serving 55 counties in southern and western Mississippi. The co-op currently purchases more than a quarter of its electricity from Mississippi Power. But its generation portfolio has shifted in recent years to other suppliers, including its own gas, coal and nuclear plants.

In an editorial, the Daily Leader newspaper of Brookhaven, Miss., which receives its power from an SME-member co-op, yesterday backed the board’s decision to exit the Kemper agreement. "While the Kemper experiment may eventually work, it now seems ridiculous to spend $6.2 billion to construct a lignite power plant when natural gas facilities can be purchased for much less," the newspaper’s editorial board said.

Kemper’s escalating costs have created broader headaches for Mississippi Power, which remains mired in a rate case disagreement that has wound its way to the Mississippi Supreme Court.

In February, the high court ruled that the state Public Service Commission had erred in approving an 18 percent rate hike on Mississippi Power’s 186,000 customers and ordered the utility to refund an estimated $257 million in additional revenues it had received since 2013. Mississippi Power has asked for a rehearing in that case in hopes of reinstating the original rate hikes.

In lieu of a court reversal or settlement, Mississippi Power has filed a new rate case before the Public Service Commission that could see Mississippi Power customers face rate hikes of between 22 and 41 percent (EnergyWire, May 18). Mississippi regulators had earlier imposed a $2.88 billion cap on rate recovery for Kemper, and utility officials have said they do not want to raise rates any more than necessary to complete the project.

Also last month, the engineering and consulting firm that had served as an independent monitor of the Plant Kemper project for state regulators terminated its 4-year-old contract with the Mississippi Public Utilities Staff. The firm, POWER Burns and Roe, said it was ending the contract for internal business reasons (EnergyWire, May 15).