Mississippi regulators concerned about Kemper Project operational costs

By   /   October 25, 2016

Mississippi regulators are expressing concern about how much it could cost to operate the Kemper Project clean coal power plant after the utility admitted the facility could cost $1 billion to run over its first five years in operation, 288 percent more than original estimates.

Cecil Brown, who represents the Central District on the Public Service Commission, said the filing in the commission’s discovery docket on Kemper was disappointing, but not a surprise.

“I think everybody who has followed this knows that you can’t run a $7 billion plant on the same money

Photo by Mississippi Power COST CONCERNS: Members of the state Public Service Commission are worried about the latest cost estimates at Mississippi Power’s Kemper Project clean coal power plant.

Photo by Mississippi Power
COST CONCERNS: Members of the state Public Service Commission are worried about the latest cost estimates at Mississippi Power’s Kemper Project clean coal power plant.

that you run a $2 billion or $3 billion plant,” Brown said. “The big question is how much are they going to ask the ratepayers to pay.”

Brown added that the PSC would be “skeptical about making the ratepayers pay for any great overage like that.”

Southern District Commissioner Sam Britton said the filing raises questions about the plant, which is nearly $5 billion over budget and more than two years behind schedule.

“There are more questions to be asked about that (operations and maintenance costs),” said Britton. “That’s as simple as you can put it. It still comes back to their responsibility to get that thing up and operating at the appropriate level.”

The utility has a June deadline to file a rate case with the commission. If the company has confidence that it can get the plant operational using synthesis gas made from lignite coal to produce electricity, it could ask the commission for the entire capped capital cost of $2.88 billion. The cap was the result of a deal reached in 2012 between the PSC and the utility.

Those capital costs would be passed on to its 186,000 ratepayers in the form of a rate increase if the PSC holds a prudency hearing and decides that the utility’s costs incurred during construction were prudent or justified. If the commission decides they weren’t, the company’s shareholders would be responsible for the costs.

If the utility struggles to get Kemper running reliably on syngas, it could ask for a smaller rate hike to cover less of its capital costs and come back for more once it gets the plant into sustained, commercial operation.

The utility received a 15 percent rate hike in December 2015 from the outgoing PSC that covers the parts of Kemper — the combustion turbines and transmission lines — already in service.

The cost of maintaining the plant’s two gasifiers and the associated gas cleanup systems that remove byproducts such as carbon dioxide, sulfuric acid and anhydrous ammonia is considerable, as are the personnel costs. While the Kemper Project will require a workforce of 300 to 350 at the plant, and up to 500 total including the lignite mine, an equivalent natural gas plant requires far fewer employees.

The 900 megawatt Magnolia Power Plant near Ashland requires 25 employees to operate and maintain. Duke Energy’s natural gas plant, with 1,640 megawatts of capacity, in Citrus County, Fla., is supposed to go online in 2018 and will have 50 to 75 employees.

Luminant bought two natural gas plants in Texas in April from NextEra Energy Resources, one with a capacity of 1,912 megawatts and the other with 1,076 megawatts of capacity. Each has 30 to 40 employees.

Related: Utility admits Kemper Project could be costlier to operate than originally estimated

The high costs of running a complex plant such as Kemper’s gasifier trains have been known since 2012, when a critical 2012 AECOM report that 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.

Mississippi Power and its corporate parent, utility giant the Southern Company, say the integrated gasification combined cycle plant is a dual-fuel plant able to run on natural gas (as it has since August 2014) or on syngas.

Related: Critics say Kemper Project ‘dual fuel’ tag is a dirty trick

If the utility decides to run the plant primarily on syngas rather than natural gas, customers will get a bigger bill to cover operations and maintenance for less capacity. Kemper generates 582 megawatts on syngas versus 732 megawatts on natural gas.

The original estimate for the cost of the plant, according to the company’s announcement in December 2006, was $1.8 billion.


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