Could better interest rates, sales offset Kemper plant cost overruns?
Published: August 7,2012
KEMPER COUNTY — Lower interest rates and higher sales of byproducts could allow Mississippi Power Co. to make up for higher costs at the power plant it’s building in Kemper County.
Officials say customers won’t have to pay more to cover the plant’s cost, which has risen from $2.4 billion to more than $2.8 billion.
Southern Co. won’t say how much it believes it has saved at it what it calls Plant Ratcliffe. But CEO Tom Fanning told investors on a conference call that the company is borrowing money at lower interest rates than originally planned, and projects it will be able to sell byproducts for more than planned.
“The overall cost to customers for Plant Ratcliffe will be less than projected than the original certification due primarily to the lower cost of debt financing and the proceeds from the by-product sales mentioned earlier,” he said.
Interest rates have settled at historic lows in recent years, allowing companies to borrow cheaply as the Federal Reserve tries to stimulate economic recovery. The Kemper County plant is supposed to produce carbon dioxide, sulfuric acid and ammonia that will be captured. The company plans to pipe the carbon dioxide to oil fields, where it will be injected into the ground to force out more oil.
Southern Co. spokeswoman Stephanie Kirijan said the combined benefit from lower rates and higher byproduct sales will be in the hundreds of millions of dollars. She said that means rates won’t rise by more than the 33 percent that Mississippi Power originally projected.
“It’s still our position that the economics of Kemper are as good today as when it was approved,” Kirijan said.
Opponents have disputed those rate projections, saying Mississippi Power has filed secret documents with the Mississippi Public Service Commission projecting higher increases. They also express skepticism that Mississippi Power can save enough money to offset the cost overruns.
“I’m totally skeptical that’s going to be enough to overcome $422 million in cost overruns,” said Northern District Public Service Commissioner Brandon Presley, a Democrat opposed to the plant.
Louie Miller, who heads the Sierra Club’s Mississippi chapter, was even blunter.
“And I’m Santa Claus,” said Miller, whose environmental group continues to fight the Kemper plant’s license in court.
Kirijan said Mississippi Power has made no official filing with the projections, but said they have been conveyed to PSC members. Southern District Commissioner Leonard Bentz said the company has informed him.
Investors have noted Mississippi Power’s troubles at Kemper, with one credit rating agency cutting the company’s grade and two others warning they could do so. Mississippi Power had counted on getting a rate increase while it was still building the plant. Fanning said Southern Co. was surprised when Bentz and Central District Commissioner Lynn Posey, both Republicans who had supported the plant, turned down a $55 million rate increase in June, citing the Sierra Club’s suit.
Mississippi Power appealed to the state Supreme Court, which rejected the company’s request to impose the rate increase while the high court case was pending.
Fanning said the rate increase for construction work in progress was still justified for a project of such magnitude. He also said legislation passed in Mississippi contemplated such work in progress.
Fanning continued to defend Southern Co.’s decision to build a new coal plant at Kemper and a new nuclear reactor at Plant Vogtle near Augusta, Ga. Many critics have said the company should turn more to natural gas, which is cheap and in plentiful supply now.
Southern Co. has shifted more toward gas, but is still burning about 38 percent coal and 45 percent gas to fuel its plants, officials said. By comparison, Entergy Corp.’s Mississippi operation burns more than half natural gas and less than a quarter coal.
“While natural gas appears plentiful and inexpensive today, it is not a panacea, and there are many reasons to be cautious about its future,” Fanning said. “Because overreliance on any single fuel source is never a good idea, we must continue to preserve existing sources, such as coal and nuclear, even as we cultivate new ones, such as renewables and energy efficiency.”
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