July 6 marked two years since the Mississippi Public Service Commission issued an order that called for a settlement in the battle over the controversial Kemper Project clean coal power plant, known now as Plant Ratcliffe.

In February 2018, the PSC unanimously approved a settlement that reduced the amount of capital costs the company could collect from ratepayers and mandated that Mississippi Power run the Kemper Project on natural gas only, something the company had done since August 2014. 

Mississippi Power’s 187,000 ratepayers on the Coast will only pay about $1 billion of the plant’s capital costs, avoiding double-digit rate hikes to pay for the multi-billion plant.

If Mississippi Power could’ve gotten the plant commercially operational — even for a few days — and the PSC approved of the utility’s spending, ratepayers would’ve had to pay more than $3 billion rather than Southern Company stockholders.

The plant was supposed to cost $2.4 billion, but the cost ballooned by 212.5 percent to $7.5 billion. 

Kemper was enabled by friendly regulators and a legislature that passed two bills, including one that allowed the company to collect the plant’s costs from ratepayers before it came online and another that gave the company the authority to charge ratepayers for a $1 billion bond to help finance the plant.

Kemper Project explained

Kemper was a 582-megawatt plant designed to convert the second-lowest grade of coal, lignite, into a natural gas-like substance called synthesis gas to fuel its electricity-generating turbines. The two gasifiers turned the high-moisture lignite into 1,750 degree syngas and presented the biggest technical hurdle that ultimately couldn’t be overcome.

The chemical plant component of Kemper that was most important to its environmental promises was its carbon capture system. This system was supposed to remove 65 percent of the carbon dioxide from the gas stream for sale to oil exploration firms to inject into old oil wells. 

Other byproducts, such as ammonia and sulfuric acid, were to be sold to off-site companies as another revenue generator to offset the plant’s massive costs.

The announcement by Mississippi Power on June 28, 2018 that it was ceasing its attempts to get the plant’s two gasifiers and assorted equipment operational was the beginning of the end of the Kemper saga. The company spent billions of dollars and three years to get Kemper’s gasifiers working as a steady-state generating unit.

An accident in October 2016 nearly resulted in a catastrophic explosion when hot syngas filled an area of the Kemper plant that wasn’t built for 1,750 degree temperatures. If the gasifiers had been working at operational pressure, there likely would’ve been a fatal explosion. 

Consequences for Southern Company, the parent firm of Mississippi Power that build the $7.38 billion plant are still in play. In May, the company said in a filing with the U.S. Securities and Exchange Commission that it’s under investigation by the Civil Division of the U.S. Department of Justice due to Kemper.

The lignite mine that was supposed to supply the plant with fuel is now closed and the company said in a recent SEC filing that it hasn’t decided the fate of the 30-plus mile carbon dioxide pipeline.

Taxpayers picking up the tab

Mississippi Power ratepayers weren’t alone in paying for Kemper. Taxpayers were also on the tab as well. 

The utility was set to receive $133 million in IRS investment tax breaks from building the plant. The company couldn’t make the original start date of May 2014 required by the tax breaks and had to return them. 

Another set of IRS tax breaks, this one for $279 million, had to be returned after the plant missed an April 2016 deadline.

The utility also received $245 million from the U.S. Department of Energy under a now-defunct grant program for coal power plants that were supposed to be more environmentally friendly. 

Some history

The administration of then-President George W. Bush in 2004 began the Clean Coal Power Initiative, giving grants for research into cleaner electrical generation using coal. The $2 billion, 10-year program was designed to demonstrate cleaner alternatives to traditional coal-fired power plants.

Southern Company announced in December 2006 that it’d build a new coal gasification power plant company that was supposed to cost $1.8 billion and be completed in 2013. Earlier that year, Mississippi Power asked the PSC to approve its need for more generation capacity. 

Southern wasn’t going to finance this experimental project entirely with investor dollars.

One of the recipients of the DOE grant program was to be an integrated gasification plant added to the Stanton Energy Center near Orlando in a partnership with Southern Company and the Orlando Utilities Commission. The 285-megawatt plant was canceled in 2007, only two months after groundbreaking, as the company blamed an “uncertain regulatory environment.” 

Experiences with a similar plant constructed in 2002 by Tampa Electric likely didn’t help solidify the case for another coal gasification plant in the Sunshine State.

Then-Gov. Haley Barbour used his considerable influence and longstanding relationship with Southern (his lobbying firm, Barbour, Griffith and Rogers was the utility giant’s long-term lobbyist in Washington) to get approval by the Department of Energy in May 2008 to move the project money from Florida to Mississippi.

The legislature passed Senate Bill 2793 in the 2008 legislative session — commonly known as the Baseload Act — allowing utilities in the state to start charging customers for power plants before they generated a single kilowatt of electricity and Barbour signed the bill into law. 

The Mississippi PSC approved MPC’s need for more generation capacity in November 2009, with the plant’s capital costs for ratepayers capped at $2.88 billion. Mississippi Power petitioned the PSC to increase the spending cap to $3.2 billion in March 2010, while two months later, construction begins at the site in Kemper County north of Meridian. 

The PSC issued the plant’s first certificate of need and necessity, which authorized the plant’s construction. A lawsuit by the Sierra Club and other groups was successful in throwing out the authorization after a state Supreme Court decision in June 2010 that sent the matter back to the PSC.

In April 2012, the PSC approved a new  certificate in a meeting that lasted less than a minute and capped the project’s costs that could be charged to ratepayers. A few weeks later, Mississippi Power announced a $488 million cost increase, which brought Kemper’s cost to $2.88 billion.

In 2013, the legislature passed a bill that allowed the company to issue a 20-year bond up to $1 billion payable by its ratepayers. Gov. Phil Bryant later signed House Bill 1134 into law.

The bond approved in 2013, known as a special purpose entity, was designed to provide up to $1 billion to offset increasing costs on the Kemper Project. 

Mississippi Power received an 18 percent rate increase — 15 percent in 2013 and 3 percent in 2014 — approved by the Public Service Commission before the plant came online. The increase was later overturned by a state Supreme Court order in a lawsuit brought by Hattiesburg businessman Thomas Blanton.