Despite claims by Mississippi Power Company, Kemper plant could raise ratepayer rates by more than 45%
By its first full year of service in 2014, Mississippi Power Company’s $2.4-billion Kemper County IGCC power plant is expected to raise residential customer rates by more than 45 percent, according to a confidential document released to the Mississippi Business Journal. That number stands in contrast to the 33 percent increase stated five months ago by the company’s then-CEO Anthony Topazi.
MPC filed the only rate impact information that addressed rate increases in actual dollar amounts confidentially with the Mississippi Public Service Commission in Aug. 2009. This information was released to the MBJ via a public records request.
Upon its release, MPC attorney Ben Stone downplayed the validity of the information, stating: “It is important that you note that none of this rate information accurately reflects the findings and decisions contained in the Commission’s orders granting Mississippi Power a certificate of public convenience and necessity, which will ultimately result in different rate treatment than what was proposed and assumed in all of the information previously filed in the Kemper docket.”
Stone added that updated rate impact information was released publicly in Dec. 2009. However, this information consisted of a graph, which compares, via percentages, the difference in rate impacts due to Kemper to rate impacts due to a natural gas-fired power plant alternative. No actual dollar amounts or overall rate impacts to customers are shown.
The released information shows the average Mississippi Power customer will see a monthly bill increase by about $60, starting in the plant’s first full service year, 2014. The approximate $60 rate increase will continue every year until 2020, with customer rates beginning to rise in 2012, according to the document. An average customer using 1,200 kilowatt hours of electricity per month would have a monthly bill of approximately $126 based on the current MPC rate of approximately 11 cents per kilowatt hour. That’s an increase of more than 45 percent.
Topazi told the Mississippi Business Journal in a March interview that customer rates would go up “about a third” whether Kemper or a natural gas-fired plant was built to accommodate the increased load the company has projected. Kemper’s high front-end capital cost will save customers money in the long run, he said, because its lignite coal fuel will be cheaper than natural gas. The plant is expected to operate for 40 years.
“By 2020, rates are going to go up about a third. That’s approximately how much rates are going up with the gas alternative. With the Kemper alternative, they’re going to go up a few percentage points higher than that, but still, in the 30s. So it’s going to go up about a third, and it’s going to go up maybe 37 percent or so for Kemper. So there is a front-end difference — Kemper is more expensive on the front end, by a small amount — not an enormous amount. Rates are going up about a third regardless of which option is chosen. Then, once you put that in rates, you then have to pay for the energy, for the fuel, that you burn out of this facility — whether it’s a gas facility or a lignite facility. And that’s where the fuel savings takes over,” Topazi said.
Kemper is a $2.4-billion project, making it the largest addition to a public utility in state history. It will more than double MPC’s assets.
At an 8.7 percent return on equity, the shareholders of Southern Company will earn $62 million per year on the plant, even if Kemper only meets the lowest performance standard, according to an Entegra Power Group, LLC, filing with the Commission. MPC did not contest Entegra’s calculation. MPC’s authorized earnings should decline gradually over time as the plant is paid for and depreciated.
Moody’s credit rating agency recently downgraded its rating of Southern Company and MPC, according to the Associate Press. A Moody’s analyst said a reason for the downgrade was higher business and operating risk coming from the construction of nuclear and coal gasification power plants.
Although MPC has made no guarantees that the plant’s new technology will work, ratepayers will pay for the plant regardless.
Kemper is set to be the first power plant in the nation to capture 65 percent of its carbon dioxide emissions. It will be fueled by lignite coal, which can be mined on site in Mississippi, thus providing stable fuel costs.
The alternative to Kemper was for MPC to build a new natural gas-fired power plant or purchase natural gas-fired electricity from independent power producers (IPPs).
Natural gas prices have historically been volatile but are currently at extreme lows due to technology that allows drilling in shale rock, opening a wealth of new reserves.
MPC based its Kemper evaluation on projections of natural gas price increases, which are filed confidentially with the Commission.
Confidentiality to be reviewed
Mississippi law allows proprietary or trade secret information to be filed confidentially with the Mississippi Public Service Commission. However, since it is not specifically prohibited by law, current interpretation of the law has been to allow the utilities to hide other information from public view.
Both Commissioners Brandon Presley and Leonard Bentz have publicly complained about the hidden rate impacts. The Commission opened a docket in June to consider amending the rule.
Sierra Club, an intervener in the Kemper proceedings, has also taken issue with the lack of rate impact disclosure in the Kemper case, including an effort to make the impacts public in a lawsuit it has filed before the state Supreme Court. Sierra asserts that the Commission’s approval of the Kemper project was arbitrary and unsupported by the record.
Other rate-impacting projects
South Mississippi Electric Power Association (SMEPA) announced at the end of June that it would purchase a 17.5 percent stake in the plant. If the deal goes through, SMEPA customers should absorb some of MPC customers’ cost, but the impact “should not be significant” for SMEPA’s 406,000 ratepayers, said Kurt Brautigam, SMEPA spokesman.
SMEPA is a Hattiesburg-based co-op consisting of 11 members. Financing could possibly come through the USDA Rural Utilities Service or from private lenders, Brautigam said. SMEPA hopes to have a contract with MPC and financing settled by next summer.
MPC said it did not have a comment regarding possible rate benefits of SMEPA’s stake in the plant for MPC customers.
MPC customers are likely to soon see another rate hike due to improvements needed to comply with new federal environmental regulations.
MPC filed a request last month with the Commission to “scrub” its Plant Daniel in Jackson County, which could result in an additional impact of $313 million, or an approximate 4 percent rate increase to customers, according to Commission documents.
Scrubbing is a process that removes sulfur dioxide and other harmful emissions. The project would bring the plant into compliance with the U.S. Environmental Protection Agency, allowing it to continue to operate and provide ratepayers “protection against higher, more volatile natural gas prices,” the company said.
MPC also stated in a Commission filing that more capital expenditures are likely to come: “It is fully expected that the long-term continued operation of the Plant Daniel coal units will require additional large environmental projects beyond the proposed Scrubber Project.”
MPC’s coal-fired generating Plant Jack Watson near Gulfport may also need environmental improvements in the future, although the company does not currently have plans for such projects.
“Mississippi Power does not presently have plans to install a scrubber at Plant Jack Watson. The dynamics at Watson enable us to defer considerations for a scrubber at that facility to a later timeframe,” said company spokesman Verdell Hawkins.
Utility rate shock history
From a rate impact standpoint, the only reasonable Mississippi comparison to Kemper is Entergy Mississippi’s Grand Gulf nuclear plant in Port Gibson, which has been operating since 1985. A multi-state project, the plant cost in excess of $3.5 billion, with approximately $1 billion of the cost assigned to Mississippi ratepayers. It’s still not paid for. Entergy Mississippi’s 433,000 customers pay $150 million annually on the plant. Due to the phase in of the rate increase, the largest rate shock due to the reactor occurred in 1994 and was 53 percent.
“Customers are still being billed approximately $150 million per year for the reactor, but it is the cheapest energy we have now (due to low fuel costs),” Virden Jones, the director of electricity for the Mississippi Public Utilities Staff, has said.
MPC serves approximately 190,000 retail customers in 23 southeastern Mississippi counties.
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