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PSC’s Britton: $2.88 billlion cap on Kemper Project isn’t a guarantee for utility

By   /   March 21, 2017  /   News  /   No Comments

Photo by Mississippi Power

GASIFIER: The Kemper Project’s troubled gasifier turns lignite coal mined on site into synthesis gas to fuel the facility’s electricity-generating turbines.

Mississippi Public Service Commissioner Sam Britton said the existence of a $2.88 billion cap on capital costs for the Kemper Project clean coal power plant doesn’t mean Mississippi Power will necessarily get to charge ratepayers for that full amount.

The cap — which was instituted in a deal reached with Mississippi Power and the PSC — limits the amount the company can seek from its 186,000 customers through rate increases. Additional costs are the responsibility of the company under the cap, designed to protect customers from additional rate increases caused by cost overruns.

The company has said repeatedly in its financial statements, including the most recent one, that it would not seek capital cost recovery from ratepayers above the $2.88 billion cap, except for exceptions and allowance for funds used during construction (AFUDC). That implies that the utility will seek at least that much from ratepayers and possibly more, when costs outside the cap are added.

The PSC has the ability to rule that additional costs — such as AFUDC and operations costs — above the cap are “prudent,” which would allow them to be passed on to ratepayers.

But Britton, the lone Republican on the three-member commission, told the Stennis Capitol Press Forum in Jackson on Monday that not only is that not a sure thing, but getting the full $2.88 billion for the embattled project depends on the company delivering on its promises.

“We need to keep focused on what is most important and that is: Has Kemper been built and delivered as promised?” Britton said. “That answer right now is no. Kemper has not been built and delivered as promised. If Kemper doesn’t deliver as promised, the utility company pays the costs.”

He also said the possible bankruptcy of Mississippi Power won’t figure into the commission’s thinking when members consider whether the utility’s 186,000 ratepayers in south Mississippi or the utility’s parent company, the Southern Company, will pay for most of the Kemper Project in a prudency proceeding.

Photo by Steve Wilson

EXPLANATION: Mississippi Public Service Commissioner Sam Britton said the $2.88 billion cost cap on Kemper isn’t a guarantee of what the utility might receive from ratepayers.

Britton also said the PSC intends to ask tough questions on whether it was prudent for the utility:

  • To continue despite delays and cost increases
  • To continue despite low natural gas prices
  • To continue building and startup of Kemper considering rising operations and maintenance costs.

Britton’s district will be the one most affected by possible rate increases stemming from the $7.138 billion plant.

According to the second certificate of convenience and necessity issued in April 2012 that authorized construction and operation of the plant, the cap cannot be breached or the certificate becomes void. According to the certificate, the company could not seek to recover costs exceeding the cost cap unless “the commission has scrutinized those costs for prudency.”

Those costs will be scrutinized starting June 3, when a new rate request is due from Mississippi Power. That’s the expiration date for the 15 percent increase approved by the commission in December 2015. That hike was intended to cover capital costs on the parts of the plant already in service, such as the electricity-generating turbines running on natural gas since August 2014.

REPORT: Kemper Project is more economically efficient to run on natural gas

Britton said the future financial viability of Mississippi Power won’t come into play when he decides whether Kemper costs were prudently incurred.

“It’s not our responsibility as the PSC to ensure that the utility earns a profit,” said Britton, who was a CPA before being elected to the PSC in 2015. “It is our responsibility to make just and fair decisions so they have the opportunity to make a profit, not guarantee them that they will make a profit.”

The company’s viability is in the hands of the people who run it, he said.

” They have made decisions with Kemper that have proved not to be good,” Britton said. “Obviously so because the Southern Company has paid $2.8 billion in cost overruns on that facility. So therefore, I don’t think it should be the obligation of the ratepayers to pay those costs. If that causes the entity to go into bankruptcy, that’s their responsibility.”

It wouldn’t be the first time an investor-owned utility in the Southeast went that route after a major financial catastrophe.

Entergy’s New Orleans subsidiary went into Chapter 11 bankruptcy in 2005 after Hurricane Katrina devastated the company’s infrastructure. It emerged in May 2007 after receiving $171.1 million in federal assistance and reaching a court-approved $69.5 million settlement with its insurer. Entergy operates a subsidiary in Mississippi as well.

In an earnings call in February, Southern Company CEO Tom Fanning said the company will stand by its Magnolia State subsidiary financially. Credit ratings firm Moody’s recently downgraded Mississippi Power’s credit rating.

“Our commitment to the financial integrity of Mississippi Power and Southern Company has not changed,” Fanning said. “As we have done to-date, Southern Company expects to maintain a capital structure and credit metrics for Mississippi Power supportive of investment grade ratings.”

Photo by Mississippi Power

LEAKY: Mississippi Power didn’t set a new commercial operation date after revealing in an SEC filing that leaks in the gasifier tubing require immediate repairs.

Delivering on those performance promises for the Kemper Project isn’t going to be easy for Mississippi Power. The utility announced last week in a filing with the U.S. Securities and Exchange Commission that the plant, which was scheduled to come online in mid-March, won’t be operational by then. The company didn’t set a new date.

The company blamed “certain tube leaks” in the syngas cooler on one of the plant’s two gasifiers, which convert the treated lignite to syngas, and inititated an outage to correct the problem. Previously, the company had to take the other gasifier offline on Feb. 20 to remove ash deposits.

The clean coal power plant has seen cost increases for 21 consecutive months. The project, announced in December 2006, was originally estimated to cost $1.8 billion and was scheduled to be fully operational by May 2014.

Steve Wilson reports for Mississippi Watchdog. Contact him at [email protected] and on Twitter.

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Steve Wilson is 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.) Steve's work has appeared on Fox News, the Huffington Post and the Daily Signal. His bachelor's degree is in journalism with a minor in political science from the University of Alabama. Steve is also a member of the Mississippi Press Association and Investigative Reporters and Editors. He served four-plus years in the United States Coast Guard after his high school graduation and is a native of Mobile, Ala.