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Former regulator: Kemper Project costs passed on to Alabamians

By   /   February 1, 2016  /   News  /   No Comments

Photo by Mississippi Power

OVERHEAD VIEW: The Kemper Project’s multi-billion dollar cost has been a source of contention. How those costs are being spread out is the latest controversy.

The Southern Company is spreading the costs of Mississippi Power’s Kemper Project “clean coal” power plant to at least one of its other subsidiaries, says a onetime member of the Alabama Public Service Commission.

Former PSC Commissioner Terry Dunn told Watchdog that a 5 percent rate increase for Alabama Power customers that went into effect on Jan. 1, 2014 was probably designed to help raise cash for Kemper.

Photo by the State of Alabama

Former Alabama PSC commissioner Terry Dunn

Dunn, who was defeated in a runoff in 2014 by former Greene County Commissioner Chip Beeker, said he couldn’t get a solid reason from Alabama Power executives on why they needed a $248 million increase. He said there was no tangible asset such as a new power plant or grid upgrades that was part of the justification for the rate hike.

Snyder told Mississippi Watchdog that the “increased cost of doing business and environmental mandates” was the reason for what is now a 3 percent increase. In January, the company lowered its rates by 2 percentage points because of what company spokesman Michael Sznajderman called “fuel cost adjustments,” related to the falling price of natural gas and coal.

Alabama Power’s rate increase in 2014 was the first one since 2011.

“I’ll be damned if Alabama ratepayers are going to foot the bill for the construction overruns at Kemper plant in Mississippi just to make sure Southern Company’s bottom line looks good to shareholders,” Dunn said. “My job is to make sure Alabama ratepayers are treated fairly.” Southern is the parent company of both Mississippi Power and Alabama Power.

The Alabama PSC did not respond to a request for comment about Dunn’s allegation.

According to Dunn, who was defeated in his 2014 re-election bid and is seeking to return to the PSC this year, Alabama Power officials said about $75 million of the rate increase would be aimed at environmental compliance costs.

“When I came into office in 2010, the first questions I asked them was how were they were on environmental regulations, and they said they were way out in front,” Dunn said. “They’d already spent $3.1 billion that the ratepayers had paid.”

Related: Kemper Project costs increase by $62 million; now up to nearly $6.5 billion

Mississippi Power is set to have to pay back more than $234 million in IRS Phase II investment tax credits if the gasifier, which converts lignite coal into a natural gas-like substance to be burned in the facility’s turbines, and its associated carbon capture system aren’t fully operational by April 19.

Mississippi Power spokesman Jeff Shepard told Mississippi Watchdog that the company will not meet the deadline.

“We have received estimates from onsite personnel about our progress in putting Kemper in service,” Shepard said. “During these discussions, we now know Kemper will have an ‘in service’ date of past April 19.”

He blamed “ongoing start-up, commissioning and operational readiness activities such as rework and increased labor support.”

Shepard also said the company will have to put the tax credits on its balance sheet as a liability in the third quarter of this year.

Besides an Alabama rate increase, another way the company might recover some of that money is via federal grants. Republican Sen. Thad Cochran said in a news release in December that up to $160 million in clean coal money could be given to Mississippi Power for Kemper.

The total cost of the plant is up to $6.49 billion. The company said in its last 8-K statement filed with the U.S. Securities and Exchange Commission that it’s re-evaluating the startup schedule for Kemper after “challenges” required repair and modification to the refractory linings in the gasifier.

Related: Expert: More delays likely for Kemper Project

The company says it won’t seek, in the form of further rate increases, to collect all costs in excess of the $2.88 billion cap, part of an agreement reached with the PSC designed to limit further rate increases on the utility’s 187,000 customers in south Mississippi.

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This story was changed to reflect the amount Alabama Power spent on environmental compliance and the name of Alabama Power spokesman Michael Sznajderman

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Steve Wilson is a writer and a journalist whose work has appeared on Fox News, the Huffington Post and the Daily Signal. He serves as the Mississippi reporter for Watchdog.org. Beginning his career as a sports writer, he has worked for the Mobile Press-Register (Ala.), the LaGrange Daily News (Ga.), Highlands Today (Fla.),McComb Enterprise-Journal (Miss.), the Biloxi Sun Herald(Miss.) and the Vicksburg Post (Miss.) His bachelor's degree is in journalism with a minor in political science from the University of Alabama. He served four-plus years in the United States Coast Guard after his high school graduation and is a native of Mobile, Ala. Steve can be reached at [email protected]