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Experts dispute Mississippi Power reasoning on Kemper Project costs

NATURAL GAS: The battle over costs on the Kemper Project is now down to how much will ratepayers pay for the combined cycle plant. Photo by Mississippi Power

Experts testifying in front of the Mississippi Public Service Commission disagree with Mississippi Power on how much ratepayers should pay for the parts of the Kemper Project that will go into service as a natural gas plant.

The now $7.5 billion plant was originally supposed to be fueled by lignite coal mined on site and converted to a natural gas-like substance called synthesis gas while stripping out pollutants such as carbon dioxide and anhydrous ammonia for sale to third-party clients. The company decided in July to end attempts to get it operational on syngas and convert it to a natural gas-fueled facility.

Brubaker and Associates public utility regulation expert Michael Gorman testified on behalf of two of Mississippi Power's larger industrial customers: Chevron's Pascagoula Refinery and Chemours, which operates a pigment plant in Harrison County. He told the commission that the company shouldn't receive $125.6 million per year from ratepayers for the next 20 years to cover regulatory costs such as legal fees and other expenditures with Kemper. He suggested that the figure be reduced to $71.1 million annually, ending after eight years.

PROPOSAL: Chevron and Chemours offered a different rate proposal on the Kemper Project.

The Public Utilities Staff offered the company $99.8 million over the next five years, which it rejected. The staff, which is a separate agency from the elected PSC, had Donald Grace of Critical Technologies Consulting testify. He told the commission that Mississippi Power's parent firm, the Southern Company, could've built a natural gas plant for $654 million.

Grace blasted the Southern Company's management of the project, which ended with the company deciding to cease its efforts to get the gasifier trains, which convert lignite coal into syngas, operational in July.

"In my opinion, MPC's project management/project controls actions and decision-making processes were overly focused on financial/accounting considerations such as tax benefits and DOE (Department of Energy) funding," Grace said. "This misplaced focus on the financial and accounting considerations then adversely impacted the ability to effectively manage the project on a day-to-day basis."

Grace also said the plant's electricity-generating turbines haven't reached their stated generational capacity and data requests filed with the company haven't provided answers.

The Sierra Club and the STEPS Coalition, through the testimony of Jeremy Fisher, fired away at the combined cycle efficiency. Fisher told the PSC that Kemper was never designed as a natural gas facility and that the plant's combustion turbines were optimized for syngas, not natural gas. He said the plant's two turbines were not as efficient as other natural gas plants in the Southern Company's generation fleet and polluted more than other natural gas-fueled plants. He said an equivalent natural gas plant should've cost no more than $566 million, or 35 percent less than the $765 million Mississippi Power seeks to recover through maintaining present rates for Kemper.

Mississippi Power told the PSC that any change from its offer will "fundamentally change the way it does business." The company said it needs to maintain its present rates (which add up to $126 million annually) for the next 20 years. Those rates were approved in December 2015 by the outgoing commission.

Capital costs are the other holdup in negotiations, as the two sides are between $150 million and $250 million apart.

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