Since 2008, Mississippi Power insisted the Kemper Project clean coal power plant was intended to run on lignite coal as an environmentally friendly way of achieving “fuel diversity” and take advantage of abundant reserves mined on the site.
Now, in a major reversal from earlier documents that authorized construction, the utility claims the first-of-its kind, $6.253 billion integrated coal gasification facility in eastern Mississippi is a “dual fuel” power plant capable of generating electricity from natural gas or synthesis gas made from lignite coal by the gasifier. It’s been running on natural gas since last August and the gasifier isn’t scheduled to go online until the first half of 2016, two years behind schedule.
“Change might not be the right word. It’s taking advantage of an opportunity,” Mississippi Power CEO Ed Holland said after last month’s hearing at the Mississippi Public Service Commission. “The opportunity is there because gas prices are much lower than anyone predicted at the time the Kemper Plant was built.
“The beauty of it is — while gas prices are low, and we don’t have the gasifier and the gas cleanup in operation — we can burn natural gas in the plant and it’s providing economical power to our customers, saving them over $15 million over the past year in fuel costs.”
The use of natural gas for primary power generation at Kemper — even as a temporary measure before the gasifier enters service — is a major shift in the company’s tone. According to the second certificate of convenience and necessity issued in 2012 that allowed Mississippi Power to continue construction, natural gas was mentioned as unsuitable as the fuel for a new power plant because of a history of volatility of natural gas prices since deregulation in the 1970s and “an upward trend in prices.” A previous certificate issued in 2010 was struck down by the Mississippi Supreme Court.
There’s also another advantage to running the combined cycle plant on natural gas, as it generates more electricity — 730 megawatts versus 582 megawatts — than on synthesis gas alone. In its request to build the plant in 2008, the utility said only 88 megawatts of the plant’s 582 megawatt capacity would come from natural gas, which would only be used during peak generating times.
A filing before the PSC by Entegra Power Group says the break-even point for ratepayers on Kemper, running on synth-gas, would require natural gas prices at $11 to $12 per million British Thermal Units. Today’s prices aren’t even close to that mark, falling to $2.663 per million BTUs on the New York Mercantile Exchange, according to the Wall Street Journal.
The PSC also said in the 2012 certificate that without a new coal-fueled facility, the utility would have to rely on natural gas for 70 percent or more of its generating capacity and that “maintaining long-term fuel diversity is critical to keeping MPCo’s (Mississippi Power) prices to customers low and stable over the next several decades.”
Last month, the company received an 18 percent, $159 million “emergency” rate increase after the utility told the PSC it’d run out of money in November without one. That replaced another, identical increase approved in 2013 recently struck down by the Mississippi Supreme Court.
A 700 megawatt capacity combined cycle natural gas plant could’ve cost around $700 million, or about $1 million per megawatt. In comparison, Kemper’s cost per megawatt makes it one of the most expensive power plants built in the United States.
Mississippi Power could have acquired several natural gas plants that came up for sale in the state. Entergy paid $206 million for a 450 megawatt facility in Hinds County near Jackson in 2012. The South Mississippi Electric Power Association, a nonprofit power cooperative, turned a lease on part of an 837 megawatt natural gas plant near Batesville into a purchase for more than $277 million, or about $332 per kilowatt.
Holland still believes the company will be vindicated in the future.
“In 2009, when they considered whether we should build a new gas plant or buy and existing gas plant out there, the Commission looked at 18 different alternatives and their finding, consistent with ours, that the customer, in the short term, would be better off by building or buying a combined cycle,” Holland said.
“Over the 40-year life of the plant, we would be far better off by building the Kemper facility than we would’ve been had we built a gas plant. Over time, the wisdom of the commission and our decision to build the Kemper facility will be proven to be the right one.”