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Public Service Commission has options with a Kemper Project settlement

COMPARISON: Mississippi Power wants more for its capital and regulatory costs than the Public Utilities Staff and other intervenors seek. Graph by Steve Wilson

In the battle over how much ratepayers might pay for the Kemper Project, three proposed plans are being debated as the Mississippi Public Service Commission tries to make a decision.

The commission has wide latitude to decide how much the company will receive from ratepayers for capital costs for the parts of Kemper operational since August 2014 on natural gas and regulatory costs such as legal fees.

Here are summaries of the three plans offered so far that could offer a framework for the PSC to draft a final order in January:

Mississippi Power proposal

The company's initial proposal would force ratepayers to continue paying most of a $126 million increase that was passed by the outgoing commission in December 2015. The company has since cut its proposal to $122 million in 2018, but the final cost on Kemper as a combined cycle natural gas plant and the associated regulatory costs would add up to $1.17 billion. Ratepayers would pay for that over a 20-year period.

David Dismukes, an economist and the executive director of the Center for Energy Studies at Louisiana State University and a consulting economist with the Acadian Consulting Group, told the commission in testimony that accepting the proposed rate deal from Mississippi Power could result in $5.9 billion in lost economic activity over the plant's 40-year life.

Public Utilities Staff proposal

The Public Utilities Staff is offering the plan that would be cheapest for ratepayers, as it would only give the company $819 million for the plant and regulatory costs and cut the annual rate by $4 million to $122 million. The staff disagrees with both the capital costs on the plant and with some of the regulatory costs that Mississippi Power seeks. Under the staff's proposal, the regulatory costs would've been paid for in five years.

The staff and the intervenors agree that the cost on the combined cycle plant alone is $247 million too high, considering that a natural gas plant designed as such from the start would've been far cheaper to build and maintain and more efficient since Kemper's turbines were optimized to burn synthesis gas made from lignite coal. One estimate in testimony put the price of an equivalent capacity natural gas plant at $566 million while another put the cost at $664.8 million.

The company rejected the offer.

Chevron and other intervenors proposal

A proposal by Chevron and other intervenors never filed with commission would've given the company $930 million total and passed on the regulatory costs to ratepayers over a four-year period. Again, Mississippi Power rejected the offer.

Another option for the commission

The final option is the PSC could pull the facility's certificate of public convenience and need. The certificate authorized Mississippi Power to build and operate the plant. If the PSC decided to invalidate the certificate, it would force the utility to completely shutter Kemper. This move is unlikely since the commission has pledged it will resolve the Kemper matter by January and doing so would likely invite legal action by Mississippi Power and its parent firm, the Southern Company.

The $7.5 billion plant was originally designed to be fueled by lignite coal converted into synthesis gas, but will now to become a natural gas power plant after the company decided to abandon the gasifier units after three years of trying to get them operational. The plant was originally supposed to be operational by May 2014 and the company has already written off more than $6 billion in costs related to the gasifier.

The PSC will conduct hearings starting December 4 and the commission hopes to have a decision by January.

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