It might be cheaper to run the Kemper Project clean coal power plant’s turbines on natural gas, but Mississippi Power wants customers to pay most of the cost for the coal gasification part of the plant.
The company released an economic viability study Tuesday that shows running Kemper on natural gas would be more cost-effective in low-to-medium natural gas price scenarios. Using lignite coal as a fuel was the most economically viable solution in only three of the nine scenarios run by the utility, all of which required high natural gas prices.
The high gas prices needed to make Kemper’s gasifiers economically worthwhile aren’t likely in the current climate. Thanks to a warm winter, natural gas prices have slid 29 percent this year and could slide further in the worst price decline since 2006. On Thursday at the New York Mercantile Exchange, prices were $2.643 per million British thermal units.
Despite the study, the company plans to press ahead with a proposed rate increase to cover the costs of building the plant’s two gasifiers, which convert lignite mined on site into synthesis gas to fuel the facility’s electricity-generating turbines. A 15 percent rate increase passed in December 2015 to cover the parts of the plant that were in service on natural gas expires in June.
Tom Fanning, CEO of the Southern Company and Mississippi Power’s corporate parent, said Wednesday during an earnings call with investors that the company shouldn’t be penalized due to low gas prices on whether the spending on Kemper was prudent.
“When we had this plant certificated, we all thought that gas prices were going to be double digits and there was some spread that were way higher than where we are now,” Fanning said. “So, just because you have this more recent snapshot (the viability report) of what we believe about the future, which we all know has changed dramatically over time, that does not mean anything about the imprudency of costs incurred.
If Mississippi Public Service Commission rules at a prudency hearing — which would be held after the plant is fully operational — that the company’s spending on plant was prudent, ratepayers could have to pay more than $4.2 billion of the $7.1 billion plant in the form of rate increases.
Just running Kemper on natural gas alone, as Mississippi Power did starting in August 2014, has the benefit of generating more electricity for less money. Kemper has a capacity of 582 megawatts using syngas primarily as a fuel, versus 732 megawatts exclusively on natural gas.
Even if natural gas prices weren’t historically low, Mississippi Power continues to have great difficulties getting the plant up and running on lignite. The company has endured 20 consecutive months with a cost increase for the plant, which was supposed to open by May 2014.
The company said Wednesday that the problem-plagued gasifiers and associated systems won’t be full operational until mid-March. The company says it had to conduct an unscheduled outage earlier this month on one of the plant’s two gasifiers to clean out ash deposits. The outage will cost Mississippi Power $35 million, a bill the company says it won’t pass on to ratepayers.
The problems explain why the utility admitted in an October filing with regulators that operating Kemper on syngas could cost much more to operate and maintain than it originally estimated — up to $1 billion over the first five years the plant is in operation.
The analysis that running Kemper on syngas is more expensive than natural gas isn’t new. In 2012, a critical 2012 AECOM report found Mississippi Power’s natural gas price projections were too high and its estimate of operations and maintenance costs for Kemper were far too low.