Mississippi Power reports escalating construction costs at Kemper plant
Published: July 2,2013
KEMPER COUNTY — Mississippi Power Co. warned yesterday that costs are still increasing at the power plant it’s building in Kemper County.
The unit of Atlanta-based Southern Co. told stockholders that an ongoing review of costs at the coal-fired plant has initially identified at least another $160 million in cost increases.
Mississippi Power spokeswoman Amoi Geter said Southern Co. shareholders would absorb any cost increases. The parent company was hit with $540 million in charges in April, although the after-tax cost to shareholders was lower. In a January settlement with Mississippi regulators, the company agreed to shield customers from further cost increases.
The overruns could push the cost of the plant, adjoining lignite mine and associated pipelines to $4.45 billion. That’s more than $1.1 billion above original estimates.
In a report to the Mississippi Public Service Commission, Mississippi Power wrote that among the “cost pressures” were problems with the productivity of construction labor, supplies that the company is ordering to have on hand during the plant’s start-up phase, and projected costs for fuel that the plant will burn during start-up.
“Management has reviewed a portion of these items on a preliminary basis and has identified a minimum of $160 million in likely cost increases,” the company wrote in its report to the commission. “Further material cost increases may be identified as management completes its review.”
When asked whether the company has control of the project, Geter replied, “We still believe the 2014 completion date is achievable.” She declined to answer additional questions, citing the preliminary status of the review. Though the company disclosed the projection to stockholders, it didn’t actually include the $160 million in a table of projected costs, instead footnoting the review.
Northern District Commissioner Brandon Presley, a consistent opponent of the plant, said the additional cost overruns are “very disturbing.”
“Not once have we received good news that things are coming in under budget,” said Presley, a Democrat.
Under the settlement, Mississippi ratepayers will have to pay for $2.4 billion of the plant’s price, plus pay for up to another $1 billion in bonds that Mississippi Power won’t make a profit on. That’s not counting the additional hundreds of millions for costs of the mine and pipeline.
The PSC voted 2-1 to approve a 15 percent rate increase to start paying off the plant’s debt even before it begins operations, followed by an additional 3 percent increase in 2014. Mississippi Power has said it’s likely in 2014 to seek an additional increase of at least 4 percent over 20 years to pay off the bonds.
Southern District Commissioner Leonard Bentz, a Republican whose district contains most of Mississippi Power’s 186,000 ratepayers, continues to pledge that he will only let customers pay for $2.4 billion for the power plant, not counting the mine or pipelines. To do so, he and a second commissioner would probably have to vote to find that the company was “imprudent” in spending money beyond that. Those prudency reviews were supposed to take place this summer, but now have been put off until next year.
“They said they could do it for $2.4 billion and they need to do it for $2.4 billion,” said Bentz, citing the original cost of the power plant
Southern Co. apparently made the announcement to fulfill pledges of transparency after being accused of hiding earlier overruns. Presley praised new Mississippi Power Co. President Ed Holland, saying “the level of candor has gone up.” Former President Ed Day retired abruptly after Mississippi commissioners accused him of hiding information from them.
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