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Updated: Natural-gas firing helps Kemper bottom line but company chief stays course

By JACK WEATHERLY 

Mississippi Power Co.’s Kemper County power plant has been run on natural gas for the past year as the utility moves toward completion of the project hobbled by construction delays and cost overruns.

As a result, the plant cut its after-tax charge of $235 million for the first six months of 2014 to $20 million in the corresponding period this year, according to a July 29 filing by the parent Southern Co. with the Securities and Exchange Commission.

But Atlanta-based Southern’s top official says he wants to stay the course and begin producing  what it calls syngas from lignite, a soft, brown coal surface mined near the plant.

Yet Tom Fanning, chairman, president and chief executive of Southern, had good things to say about the use of natural gas to fire the power-generating turbines.

Since last August the plant “has delivered more than 3 billion kilowatt hours of electricity and saved Mississippi Power customers more than $15 million,” Fanning said in a transcript of the  July 29 teleconference with industry analysts.

Earlier this year, the Mississippi Public Service Commission ordered Mississippi Power to roll back a 2013 increase of 18 percent the state Supreme Court struck down. The utility will have to make $350 million in refunds by Dec. 4, the PSC decided Thursday.

At the same hearing, Mississippi Power Chief Executive Ed Holland asked the commission for another 18 percent increase on an interim basis to give it $159 million a year, saying  it was needed for “immediate emergency relief,” according to the Associated Press.

In the refund for past service, a residential customer using 1,000 kilowatt hours per month in electricity will see monthly bills fall to $121 from $144. The average residential customer uses more power than that, and thus pays more. Mississippi Power has said that a 1,000 kwh-a-month residential customer is due between $500 and $600.

In the teleconference last week, Fanning said Mississippi Power had been able to save customers $15 million because it “displaced other higher cost methods of generation.”

Asked by the Mississippi Business Journal for an explanation, the company said in an email:

“The Southern Company actively manages fuel costs using a system of economic dispatch – meaning we use fuel that is most cost effective for our customers.” Mississippi Power has a coal-fired plant in Jackson County.

Fanning said the plant should start producing syngas by the fourth quarter.

Southern Co.’s latest filing with the SEC shows the impact that its Mississippi subsidiary’s Kemper County power plant continues to have on Mississippi Power.

Mississippi Power’s overall earnings through June of this year are $84 million, according to the Southern Co. filing, compared with a loss of $110 million in 2014.

And the plant was a major point of discussion between top Southern Co. officials and industry analysts in the July 29 teleconference.

Construction of the plant has been beset with lengthy delays and cost overruns. Originally projected to cost $2.4 billion, its price tag has risen to $6.2 billion, though the state Public Service Commission has capped the costs at $2.88 million as far as ratepayers are concerned.

The need to stay  the course with syngas is underscored by the cost of the first-of-its kind environmentally friendly facility. Even if the original projected cost of building the 585-megawatt plant had been maintained, it would have been two and one-half times the cost of building a comparable 620-megawatt natural-gas-fired plant for $917 million in 2013, according to the U.S. Energy Information Administration.

The market place for power sources has worked against the plan that was approved by the PSC in a 2-1 vote in 2010.

Natural gas, a cleaner and cheaper alternative to hard, black coal, is selling at a much lower cost that it had been in recent years, primarily because of a revolution in extraction due to a technological breakthrough called hydraulic fracturing, or fracking. The long-range outlook calls for it to remain low.

An analyst asked him if there’s going to be “a situation where you’re just going to be running natural gas through the CCGT because its more economic?”

Fanning replied, “I wouldn’t think so, no.”

The company said in an email in response to a Mississippi Business Journal question regarding that comment by Fanning:

“When fully-operational, the Kemper County energy facility’s fuel source, lignite, is expected to produce energy with a variable cost approaching that of nuclear power and that cost is expected to stay low over the 40-year life of the facility.

“Lignite is not subject to the price volatility and transportation costs associated with other fuel sources and transportation risk is virtually eliminated because the lignite is located with an 8-mile radius of the facility.

“Our cost of lignite will be fixed over 40 years, while other fuels often experience price volatility.”

Nuclear power is the cheapest and cleanest source for generating electricity.

 

About Jack Weatherly

2 comments

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