Kemper costs rise $40 million on start-up reserve

JACKSON, Miss. (AP) -- The Southern Co. says it may cost another $40 million to finish the $5 billion-plus power plant and mine it's building in eastern Mississippi's Kemper County.

The Atlanta-based parent of Mississippi Power Co. said Tuesday that it would set aside money in the plant's budget to cover possible start-up problems. Critics have warned the technology, which turns soft lignite coal into a gas, extracts chemicals and burns the gas to generate electricity, may not work as designed. A coal gasification plant built by Duke Energy in Edwardsport, Ind., using different technology, struggled during its startup phase.

Mississippi Power said it, and not its 186,000 customers from Meridian to the Gulf Coast, will pay the additional money.

"We're just having to highlight that we see an additional risk on startup," spokeswoman Christy Ihrig said Tuesday. She said that the company analyzes future costs and decided now was the time to set the budget for startup contingencies.

Mississippi Power has already tested the plant's gas-powered turbines, which are similar to those used in a conventional natural gas plant. It's supposed to start the gasifier by June and start producing gas from its chemical-stripping unit by September. The company says the Kemper plant, which it calls Plant Ratcliffe, will enter commercial operation before year's end.

It's the fourth straight quarter that Southern has bumped up Kemper's cost the day before it announced its earnings to investors. The utility has now written off $1.18 billion in cost overruns, and is also forgoing $133 million in federal tax credits because of delays in the plant's completion. The plant complex was originally supposed to cost $2.8 billion.

As part of a settlement between the Public Service Commission and Mississippi Power, bills for customers have already gone up by 18 percent over two years. Mississippi Power has said it's likely in 2014 to seek an additional increase of at least 4 percent over 20 years to pay off $1 billion in bonds that the Legislature is allowing the company to issue as part of the settlement. Customers would pay for part of the overruns in that bond issue, but Mississippi Power wouldn't make any profit, unlike on costs included in traditional rates.

Opponents have introduced bills in the Legislature to get that settlement overturned, though their prospects are unclear. They're also fighting to force the Public Service Commission to rule that Mississippi Power's spending on the plant was imprudent, which could force the company to absorb much more of the cost. The commission is likely to rule on prudency later this year.

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