The South Mississippi Electric Power Association (SMEPA) board of directors voted May 20 to drop its plans to purchase a share of the 580-MW Kemper County integrated gasification combined cycle (IGCC) power plant from Southern (NYSE:SO) utility Mississippi Power.
The cooperative cited delays in project schedule, changing needs, and increased participation costs as reasons for withdrawal from the project, which is also known as the Ratcliffe plant.
SMEPA entered into an asset purchase agreement with Mississippi Power in 2010 for the purchase of 17.5% of the lignite plant located in Kemper County, Miss. Given the increased costs, South Mississippi later reduced the ownership figure to 15%.
Updated studies now show that SMEPA’s costs of participation in the project have increased to the point that the rate impacts necessary for ownership would not best serve the needs of South Mississippi’s 11 member cooperatives or their combined 419,000 members. The asset purchase agreement permits termination of SMEPA’s participation in the project due to the delay in closing.
“We entered into the purchase agreement in 2010,” said South Mississippi General Manager and CEO Jim Compton. “Since then, there have been multiple changes in the project, and also changes in our power supply needs. The board determined that proceeding to closing was not in SMEPA’s best interests, and we needed to let MPC know so that alternate plans could proceed.”
Although SMEPA won’t own a share of the coal gasification power plant, it continues to be a big customer of Mississippi Power, a SMEPA spokesperson said in response to an email from GenerationHub.
“Approximately 28% of our needs are purchased from Mississippi Power,” said the SMEPA spokesperson. “As a result, some of those needs will eventually be met by electricity generated at the Kemper County energy facility. We will just receive that electricity as a wholesale customer of Mississippi Power Company and not as a partial owner of the plant,” the spokesperson said.
In a March 15 decision, the Mississippi Supreme Court ruled in favor of a legal challenge brought by the Sierra Club against the utility’s proposed $2.88bn.
Mississippi Power ‘disappointed’ at SMEPA’s move
“Mississippi Power was disappointed to learn of South Mississippi Electric board of directors’ decision to end their pursuit of an ownership interest in the Kemper County energy facility,” the Southern utility said in a statement.
As a part of the asset purchase agreement to purchase 15% of the project, Mississippi Power received a total of $275m of deposits from SMEPA. That amount, with interest, is required to be returned to SMEPA in connection with the termination of the agreement, Mississippi Power said.
SMEPA’s 15% portion of the project as of March 2016 was projected to be approximately $600m in fixed asset costs. SMEPA’s investment and related costs associated with the proposed ownership interest were excluded from Mississippi Power’s May 15 retail rate filings, the utility said.
Mississippi Power “is evaluating its alternatives” related to the investment and related costs associated with the 15-percent ownership interest in Kemper. “The ultimate outcome of this activity cannot be determined at this time,” Mississippi Power said.
Mississippi Power went on to say that commercial operation is expected in the first half of 2016.
Mississippi Power said in March that it has successfully performed “first fire” at the gasifiers that will convert lignite coal to synthesis gas, or syngas, for use in power generation.
The plant has gotten an adverse decision from the Mississippi Supreme Court over certain rate recovery authorized by the state Public Service Commission.