Independent monitor: Kemper contingency 91 percent gone

Included in the April 24 order granting a new certificate of public convenience and necessity for Mississippi Power Co.’s Kemper County coal plant was a portion of the March report from the project’s independent monitors.

The report, which monitors file monthly, said that 91 percent of the company’s contingency has been allocated, with the project 26 percent complete.

Included in the $2.4 billion cost — which assumes no overruns — of the project, is a total of about $200 million in contingency. Between $130 million and $160 million of that total is for engineering and pre-construction costs. The remaining contingency amount was for what the company calls “efficiencies” after the plant is completed. Currently, the plant is scheduled to begin commercial operation in May 2014. Any cost beyond $2.4 billion that MPC wants to pass through to ratepayers must meet a set of conditions, and must be approved by the Mississippi Public Service Commission. Those pass-through costs are capped at $2.88 billion.

“The level of project contingency rundown is a concern that will require close monitoring,” reads part of the March report from URS, a California-based company the PSC contracted to serve as its independent monitor. “The current forecast does not include adjustments for possible overruns based on historical trends or pending change orders. For example, the construction variance is $85 million with $573 million awarded (15 percent over plan to date). The forecast does not address budget impact if this adverse trend were to continue for the balance of construction. Instead, the forecast assumes the impact will not exceed available contingency.”

Officials with MPC are scheduled to meet with monitors early this month to discuss monitors’ concerns. “As a courtesy to the Public Service Commission, staff and the independent monitors and out of respect for the process, we will hold comments until after the meeting,” Mississippi Power spokesperson Cindy Duvall wrote in an email to the Mississippi Business Journal.

Portions of the contingency bear greater risks. For example, MPC has finished procuring equipment for the facility, meaning one of the most expensive and contingency-draining parts of construction is over, now that the underground work has been done and there are parts of the facility rising out of the ground.

URS is one of two companies serving as monitors for the state. The PSC’s Public Utilities Staff hired its own monitor. Expenses for each are paid by MPC via a pass-through to its ratepayers. URS’ annual costs are capped at $3.25 million annually; costs for the Public Utilities Staff’s monitor are capped at $1.5 million.

This isn’t the first financial relationship URS had had with Southern Co., MPC’s Georgia-based parent company. One of URS’ subsidiaries installed a series of scrubbers at a coal plant in Alabama, with work completed in 2008. The scrubbers at the Gorgas Power Plant, a coal-fired generation facility owned by Alabama Power, were part of an overall plan to improve the air quality in areas surrounding three of the company’s six coal plants. The initiative cost nearly $1 billion, according to Alabama Power’s website.

How much of that total was spent on work at the Gorgas site was unclear last week. Spokespeople for URS and for Alabama Power did not respond to messages seeking comment. There was no evidence that URS’ financial relationship with Southern Co. extended beyond URS’ role as independent monitor for the Kemper project.

In 2010, in a response to a directive from commissioners, Mississippi Power recommended 25 companies as qualified to serve as the independent monitor for the PSC. URS was among those companies.

The April 24 order granting new approval for the Kemper project became necessary after the Mississippi Court ruled 9-0 on March 15 that the 2010 order approving the coal plant did not cite sufficient evidence from the record of proceedings. That ruling was in response to litigation initiated by the Mississippi Chapter of the Sierra Club, which has filed a series of legal challenges to the plant. The environmental advocacy organization, which challenged the plant anew after the latest order, has said the coal plant is an expensive and unnecessary environmental hazard.

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