Sierra Club pats itself on back for predicting coal plant overruns

The Sierra Club took a moment to say “I told you so” as Mississippi Power battles cost overruns at the in-construction Ratcliffe (also known as Kemper County) integrated gasification combined cycle power plant.

Mississippi Power is preparing for ask the state Public Service Commission for a $100m rate increase, and filings from the independent monitor (IM) of the 582-MW Kemper County project show Mississippi Power has spent $366m past the budget with the plant less than one-third complete, the Sierra Club said in a June 13 statement. Mississippi Power, a unit of Southern Co. (NYSE: SO), has said it expects rates to increase by 30% to pay for the new coal plant, although independent analyses have found that a 45% rate increase is more likely, the club added.

“The Sierra Club warned the PSC of this exact scenario,” said Louie Miler, Director of the Mississippi Sierra Club. “The Kemper County Coal Plant is not even one-third complete, yet they’ve blown through the contingency fund and are $366M over budget. We’re on a crash course to blow the budget even more, and it’s time the PSC stepped in and protected the ratepayer from Mississippi Power’s dirty, expensive, unnecessary, and experimental Kemper coal plant.”

The May 2012 report from URS Corp., which the commission hired as the independent monitor of the Kemper County project, documented cost overruns of $366m based on a May 10 meeting with utility officials. This report documents that with only 31% of construction complete, Mississippi Power has exhausted its $167m contingency fund and has overspent in engineering and construction costs, as well as other areas, the club noted.

“The Kemper County Coal Plant is fast becoming Mississippi’s biggest financial boondoggle,” said Glen Hooks, Beyond Coal Campaign Representative with Sierra Club. “Duke Energy’s Edwardsport Plant is the only other project of this nature in the country, and it is already more than $1 billion over budget and is not yet complete.”

The Sierra Club has challenged the Kemper County project from its inception, successfully arguing before the state Supreme Court that the PSC had improperly and illegally issued permits to Mississippi Power for construction and development of the project. The Sierra Club and PSC Commissioner Brandon Presley have also argued that Mississippi Power ratepayers should not be required to finance the construction, development, and operation of the Kemper County plant.

URS report outlines project’s financial status

The URS May report to the commission on the status of the project said about the May 10 meeting with Mississippi Power and Southern Co. Services (SCS) officials: “In this monthly report final analysis, the project has been reported to have an increase in the current view of $366M to the certification amount. Due to increases in quantities, procured items man-hours to construct have increased greatly more than reported and was expected. … Contingency current view is zero dollars remaining. Zero dollars is not enough to cover a project that is 31% complete. The conclusion is that the project was forecasted by the IM team to be over budget even though SCS was reporting no variance. If quantities increases were known in early 2011, the cost variance could have been forecasted earlier. The project cost is over the certified amount. The cost could continue to increase. It will take further investigation and complete SCS Production reports to develop a forecast based on updated data.”

The URS report also mentioned the ongoing activity by a unit of contract mine operator North American Coal to develop the adjacent lignite coal mine that will provide the power plant with feedstock. Liberty Fuels Co. has started work on the dragline and as of May 23 approximately 25%-30% of the parts of the giant machine are on site. The mine’s box culvert is 95% completed.

Mississippi Power said in a June 8 statement that in its monthly meeting with the IM team, it reported that Kemper County plant construction is progressing on schedule and continues to be the best generation option for customers. The plant will be on line in May 2014 and immediately begin saving customers on fuel costs, the utility said.

The construction costs are currently projected to be approximately $2.76bn or 15% above the original construction estimate prepared in 2009, said the utility. The PSC established a cost cap of $2.88bn for plant construction.

Mississippi Power will deliver additional economic value for the project from increased byproduct sales, such as CO2, and savings from lower financing costs, the utility added. Because of these benefits to customers, the new estimate will not increase the rate impact of Kemper.

“We are committed to bringing the Kemper Project on line, within the cost cap, to provide clean, safe and reliable energy to our customers,” said Cindy Duvall, company spokeswoman, in the June 8 statement.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.