Kemper coal plant now faces spending review
Published: July 15,2013
KEMPER COUNTY — The next battle over a Kemper County power plant will hinge on whether Mississippi Power Co.’s spending on the project was prudent — and that decision may come months later than a July 24 date that state regulators had agreed to earlier this year.
The utility recently asked the state Public Service Commission to determine if spending on the project has been prudent.
It’s a key step in the company collecting money from its 186,000 ratepayers to pay for the plant. If regulators decide Mississippi Power wasted money, they can throw out certain costs and bar the company from charging ratepayers for them.
Costs have grown to more than $4.3 billion when the power plant, a lignite mine and carbon dioxide pipeline are included. Opposition group Bigger Pie Forum has produced a video urging commissioners to reject the spending.
The key to the review is what Mississippi Power knew at the time it made spending decisions, said Robert Burns, a retired utility analyst who has studied the spending reviews.
“What you’re not supposed to do is say, ‘Oh, if we had known then what we know now,'” he said.
Mississippi Power also faces questions about whether it hid information about earlier overruns from regulators. It’s not clear whether an inquiry into those questions will play into the review.
Burns said the prudence reviews that he studied show wide variations, but on average only 5 percent of costs were excluded. That might not be as dramatic as some opponents hope for, but it could force the Southern Co. shareholders to absorb more than $200 million more in Kemper costs. The parent company already charged off $540 million in April, and it said earlier this month that it could have to swallow $160 million or more in additional overruns.
Regulators may not vote on the prudence of the company’s spending until early 2014, though a January agreement calls for a vote by July 24. Originally, the Public Service Commission didn’t plan to review spending until the coal-fired plant started commercial operation. As part of the January settlement of a lawsuit that Mississippi Power filed over a rate denial, the commission agreed to review part of the spending within six months.
But the commission never announced the beginning of the formal review process, and Mississippi Power filed June 28 asking that the review get started and cover all spending through March 31, 2013. As of that date, Mississippi Power had spent or committed $2.31 billion for the power plant, and $451 million for the mine, pipeline and borrowing costs.
Mississippi Power, a unit of Atlanta-based Southern Co., says it accepts the delay because regulators need to request and analyze records.
“We understand that there’s going to be a modified prudency schedule,” spokesman Jeff Shepard said.
But Northern District Commissioner Brandon Presley, the commission’s lone Democrat and a longtime opponent of the project, says it would be better to wait until Kemper is in operation.
“You can’t determine prudence until we see the plant in operation,” he said. “I don’t think prudence can be determined piecemeal.”
Regulators traditionally have waited until completion, Burns said, though utilities have pushed for rolling reviews.
“It locks in everything up to that point,” Burns said of the benefits for utilities. “It lowers your uncertainty.”
Under the settlement, Mississippi Power pledged that the company would earn a normal profit on $2.4 billion of the plant cost, plus the mine and pipeline. But with legislative approval, Mississippi Power could recover up to another $1 billion by selling bonds. Ratepayers would pay for the interest and principal, but the company wouldn’t earn a profit.
The prudence review is the only way that the company could be denied authority to sell the bonds. Southern District Commissioner Leonard Bentz has said repeatedly that he intends to vote against any amount above $2.4 billion, the plant’s original pricetag.
“They said they could do it for $2.4 billion and they need to do it for $2.4 billion,” Bentz said.
But a denial only on the grounds that the plant cost more than originally projected could be legally shaky without additional findings of wasteful spending, Burns said.
“That type of rationale won’t stand up in court, unless there was a legally binding agreement where the company assumed all risk,” he said.
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