By Eileen O'Grady
HOUSTON Aug 13 Southern Co's Mississippi
utility has consolidated contractors building a $2.88 billion
coal-gasification power plant in Kemper County as it struggles
to manage the project's rising cost.
The Kemper County plant, a 582-megawatt, integrated
gasification combined-cycle (IGCC) plant, has run into legal and
regulatory difficulty, highlighting the industry's difficulty in
pursuing a long-term strategy to produce power from a variety of
fuel sources in an era of low-cost natural gas.
Only Southern and Duke Energy are building IGCC
plants while more than three dozen other projects have been
scrapped due to rising capital costs, carbon legislation delay
and plentiful supplies of natural gas.
The price tag to complete Kemper County has risen in recent
months and is very close to a $2.88 billion cap set by state
regulators as the maximum amount Mississippi Power will be
allowed to recover from 188,000 customers.
The plant is about one-third complete. Construction activity
is nearing its peak and the project's contingency fund has
fallen to about $62 million. The plant is scheduled to begin
operating in May 2014.
Last week, Mississippi Power said it redefined the scope of
work for Kemper's three contractors: KBR Inc, Yates
Construction and Performance Contractors Inc.
"To make sure we bring in this project by May 2014 and to
make sure that we bring it in at the lowest cost possible, we
are looking at those contractors and how we are utilizing their
strengths," said Mississippi spokeswoman Cindy Duvall.
"For us, it is day-to-day management of a construction
project," Duvall said.
Mississippi Power said the three companies will remain
active at Kemper, but several hundred construction workers who
had been working for a KBR construction joint venture were
demobilized Aug. 9 and had to interview for jobs with the other
KBR, a co-owner with Southern Co of the gasification
technology being used at Kemper, will continue its role in
engineering and plant start-up, a spokeswoman said.
"The only impact on KBR is the construction engagement
piece," said KBR's Marianne Gooch. "We still have great
relations with Southern."
The utility's inability to begin charging customers for
early plant costs while a legal challenge over its state
certificate is resolved led Moody's Investors Service to
downgrade its senior unsecured debt last week.
"Although the plant construction remains on schedule, IGCC
technology is complex, specialized and not widely utilized,"
Moody's said. "The next 12 to 18 months will be critical in
resolving these uncertainties and determining if the plant
achieves commercial operation within its considerable time and
The Kemper plant has support of two of three state
commissioners who want to diversify the utility's generation
mix, but the commission denied a $55 million rate increase
request due to legal challenges from the Sierra Club.
Earlier this month, the Mississippi Supreme Court also
denied the utility's motion to begin charging interim rates.
The utility said increasing rates now would save customers
millions of dollars in interest cost over the life of the plant.
Southern Co Chief Executive Tom Fanning told Reuters last
month that the Kemper plant technology - to burn coal while
emitting fewer pollutants and greenhouse gas than existing coal
plants - is "important to the United States."
"The U.S., through a variety of largely environmental
regulations, has taken an energy-policy position ... that is
really diminishing the ability of the U.S. to use one of its
most valuable natural energy resources," Fanning said.
If not burned by U.S. utilities, coal will be burned in other
countries, Fanning said, "to our disadvantage from a global,
economic, competitiveness standpoint. This is poor policy."