Finding that the Mississippi Public Service Commission didn’t properly justify them, the state Supreme Court on Feb. 12 struck down rate increases for Mississippi Power that cover some of the costs of the controversial Kemper County coal gasification power plant.
A private individual, Thomas Blanton, asks the high court to invalidate rate increases approved by the commission for Mississippi Power. Kemper County has gone hugely over budget, provoking criticism from environmental and other groups and contentious proceedings at the PSC. Mississippi Power parent Southern Co. (NYSE: SO) said recently that it now expects to see commercial startup of the 582-MW coal gasification plant in the first half of 2016.
“An examination of controlling law and statutes, the Constitutions of the United States and Mississippi, and a comprehensive review of the proceedings before us reveals that the Commission failed to comply with the language of the Base Load Act, inter alia, and exceeded its authority granted by the Act,” said the Feb. 12 Supreme Court ruling. “The increased rates were achieved by including ‘mirror CWIP’ in the rate base and rates. Following the inclusion of ‘mirror CWIP,’ the Commission ‘approve[d] the retail revenue adjustment over 2013 and 2014…allow[ing] the Company an annual rate designed to collect $125,000,000 for 2013, escalating to $156,000,000 in 2014. This represents a 15% and 3% increase, respectively.’ The increased rates on 186,000 South Mississippi ratepayers fail to comport with the Act or, otherwise, with our law. Accordingly, the order granting rate increases is reversed, and this matter is remanded to the Commission for proceedings consistent with this opinion.”
The court noted that Mississippi Power (MPC) first asked the commission to approve the Kemper project at a projected net cost of $2.2 billion. In its most recent “Monthly Status Report” to the commission dated Feb. 3, 2015, Mississippi Power now projects the costs at more than $6.172 billion, a 281% increase from the original net cost estimate.
The court added: “MPC requested approval of its Certified New Plant, Rate Schedule CNP-A, a rate mechanism designed to provide recovery of the construction financing costs during the construction period. The Commission denied MPC’s CNP-A rate schedule, and MPC appealed the denial to this Court, arguing that the Commission acted arbitrarily and capriciously when it denied MPC CWIP recovery. Blanton intervened in the appeal and also filed a separate appeal. By agreement, MPC and the Commission dismissed MPC’s appeal. However, Blanton’s appeal is properly before this Court.”
The court took the commission to task, at one point writing: “The Commission has exhibited a pattern of conduct throughout these proceedings that exceeds its authority. The Commission’s tasks remain undone and its duties unfulfilled. The Commission does not have unbridled authority to adopt recovery mechanisms which are not authorized by existing law. While the Act permits the Commission to include CWIP in the utility’s rate base and rates, the Act did not authorize the Commission to adopt an entirely new mechanism, i.e., ‘mirror CWIP’ (a concept not previously recognized in Mississippi rate-making practices). An affirmance of the Commission’s order can only perpetuate these transgressions.”
It later concluded: “Therefore, we reverse the March 5, 2013, Order granting the rate increases and order the Commission to enter an order directing that the funds be refunded to the ratepayers. The Commission is instructed further to provide notice to the ratepayers in future proceedings related to rate base, rates, rate of return, and prudency hearings. We otherwise remand to the Commission for proceedings consistent with this opinion.”
Mississippi Power had announced Feb. 3 that it had revised the Kemper County cost estimate by an additional $70 million pre-tax estimated probable loss for the fourth quarter of 2014. The revised estimate was included in the December 2014 monthly status report filed with the state Public Service Commission and a Form 8-K filed with the U.S. Securities and Exchange Commission. The revised estimate is due to costs related to operational readiness, start-up activities, fuel, completion of construction and construction support costs during start-up and the price of fuel.
“Mississippi Power is committed to the success of Kemper for the long-term benefit of its customers as well as for the benefit of the communities where we will operate,” Mississippi Power President and CEO Ed Holland said, adding that there are already more than 300 permanent employees located in the Kemper area, directly impacting the local economy, jobs growth and community efforts.
Customers will not pay anything above the limit agreed to by regulators, the utility noted. The next major milestone for the facility is expected to be the first gasifier heat-up, currently scheduled for the spring of this year.