Kemper County IGCC costs rise $450m, Southern reports

Southern (NYSE:SO), the only U.S. utility developing both a nuclear plant and an advanced coal gasification power plant, said July 31 that costs continue to rise for the Kemper County IGCC in Mississippi.

Southern said that it is increasing its cost estimate for the Kemper Country integrated gasification combined-cycle project by $450m. That brings the estimated cost of the project to roughly $3.87bn. That figure is net of a $245m grant awarded to the project by the U.S. Department of Energy under the Clean Coal Power Initiative Round 2.

Southern initially made the figure public in a July 30 8-K filing with the Securities & Exchange Commission (SEC). “The revised cost estimate reflects additional cost pressures, including labor costs, piping and other material costs, engineering and support costs, start-up costs, and decreases in construction labor productivity,” according to the 8-K.

But the company stressed that it is not seeking an increase beyond the roughly $2.88bn cost cap. 

Southern Chairman, President and CEO Thomas Fanning said the long-term economics of the Kemper County project still look good.

On the other hand, the cost increase is being eaten largely by Southern shareholders, and not Mississippi Power ratepayers, Fanning said.

“Is it attractive to Southern ratepayers [right now]? No,” Fanning said. “We are taking a hit right now and nobody is happy about that.”

Long-term, however, Kemper will be an efficient plant with carbon-capture ability and a CO2 profile akin to that of a natural gas power plant, Fanning said.

“Despite recent cost challenges, we are making great progress in the construction of the Kemper County energy facility,” Fanning said. “The company’s investment in this innovative technology will help provide decades of clean, safe, reliable and affordable electricity to Mississippi Power customers.”

The Kemper County IGCC May 2014 startup date is still attainable, Fanning said. Subsidiary Mississippi Power will achieve “first-fire” at the plant by the end of this year. If the Southern utility misses the startup date it could run the risk of losing some of its government incentives.

The Mississippi Public Service Commission will hold a hearing on the Kemper County project Oct. 1. Fanning added that the neighboring lignite coal mine that will supply the plant has entered service.

New Vogtle reactors more than 50% complete

Things are going better on the new nuclear plant front. Construction is more than 50% complete on Vogtle 3 and 4 nuclear units in Georgia, Fanning said.

Southern reported 2Q13 earnings of $297m, or 34 cents per share, compared with earnings of $623m, or 71 cents per share, in 2Q12.

For the six months ended June 30, 2013, earnings were $378m, or 43 cents per share, compared with $991m, or $1.14 per share, for the same period in 2012.

Kilowatt-hour sales to retail customers in Southern’s four-state service area decreased 2.9% in 2Q13 compared with 2Q12. Residential and commercial energy sales decreased 5.3% and 4.2%, respectively, while industrial energy sales increased 0.6%.

CFO Art Beattie said weather was milder than normal during the quarter. Also some Southern service areas saw a heavy rainy season, one of the wettest in the past 50 years, which helped hydroelectric generation.

“It’s raining right now,” Fanning said.

Meanwhile, at a time when President Obama is seeking to slash CO2 emissions from the power fleet, Southern continues to revise its generation mix, Fanning said.

During the first six months of the year, Southern got 43% of its power from natural gas and oil and 36% from coal. Nuclear generation is at 16% and hydro and other resources account for 5%. Southern has traditionally been one of the nation’s largest coal burners but is now becoming one of its largest gas purchasers, Fanning said.

Regulatory reviews are ongoing for Southern utility subsidiaries in Alabama, Georgia, Florida and Mississippi, Fanning said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.