The future of the most expensive fossil-fuel power plant built in the U.S. is facing new pressures after a Mississippi utility backed out of its commitment to the clean-coal project.
Southern Co.’s $6.2 billion coal-fired power plant near Meridian, Miss., lost a utility partner, raising the stakes for the project and resulting in a request for higher power rates to help pay for the project. PHOTO: GARY TRAMONTINA/BLOOMBERG NEWS
South Mississippi Electric Power Association, which furnishes power to smaller utilities in the state, dropped its plan to buy a $600 million, 15% stake in the project spearheaded by Atlanta-based Southern Co., citing construction delays.
Southern, in turn, notified state regulators that it may have to raise electricity rates for Mississippi power customers by 41%, or $37 a month for the typical household, to pay for the project.
South Mississippi Electric Power’s move deals a significant blow to the project in Kemper County, Miss., which has been delayed two years and now has an in-service date of 2016. The plant was expected to provide a bright future for the coal industry, under attack for its pollution profile, but instead it has exposed the risks of pursuing novel clean-coal technology.
It also raises a politically-challenging question for Mississippi utility regulators: who will cover the shortfall, Southern’s shareholders or its customers?
A Southern spokeswoman on Friday said the company is “evaluating its alternatives.”
Under various rate plans, the cost of power for a typical home in Mississippi could rise between 24% and 60% within the first two years that the plant is operating, according to Bigger Pie Forum, a Mississippi consumer advocacy group that has analyzed the company’s filings with state regulators. Southern rejects its assessment.
But earlier this year, the state’s highest court found that an 18% rate increase, intended to cover some of the Kemper plant’s costs, wasn’t justified and ordered Southern to refund money to customers.
Fitch Ratings Inc., a credit-rating firm, said on Friday that it is reviewing its rating of Mississippi Power, Southern’s utility. A one-notch downgrade is likely, but “a two-notch downgrade cannot be ruled out at this time,” Fitch said. It also noted Southern may have to bolster its balance sheet by issuing more equity.
Southern’s stock price fell 15 cents, or less than 1%, to $43.23 in 4 p.m. trading on Friday.
The cost of the Kemper power plant has ballooned several times to $6.2 billion, as the price tag swept past the $2.88 billion cap set by state utility regulators to protect customers from budget overruns. Southern has already taken about $2 billion in charges to earnings related to the plant construction.
The Kemper project is expensive because its costs include a new coal mine, a chemical plant to gasify coal, a power plant, plus a pipeline and electric transmission lines.
Coal has been one of the cheapest—and dirtiest—sources of energy for power production. Escalating costs for clean-coal power may make Kemper’s electricity some of the priciest in the nation.
The plant is designed to take coal mined locally and convert it into a flammable gas which can be burned to make electricity. Most carbon dioxide created in the process will be captured, so the plant is billed as clean coal. Southern hoped it would be the first of many plants, but the price tag has scared off other utilities from pursuing similar projects.