Mississippi Power said Oct. 27 that its Kemper County coal gasification power plant has reached its most significant milestone to date with the testing of one of the project’s gasification units.
The test of the first of two coal gasification units, or gasifiers, involves the injection of sand into the equipment under operational conditions. The test is used as a major step before injecting the plant’s locally-mined lignite supply in the gasifiers for final operational testing. The utility has contracted with an affiliate of North American Coal to operate the mine located next to the power plant.
“The testing of the gasifier at Kemper is a huge step toward achieving full operation of the project in the first half of 2016,” said Ed Holland, chairman and CEO of Mississippi Power. “This is one of the most important steps toward completion of the project. It demonstrates the first gasifier and related systems are working as designed to support the project’s generating capability of producing syngas from lignite.”
Synthesis gas will be supplied to Kemper’s combined cycle power plant once the gasifiers are operational. The combined-cycle portion of the plant has been operating successfully using natural gas and producing power for customers since August 2014.
“By having demonstrated its reliability over the past 14 months, the combined cycle’s dual-fuel design to use both syngas and natural gas should provide fuel flexibility for the benefit of customers,” said Holland. “Following the completion of the testing of both gasifiers, our next step will be to inject lignite into the gasifiers and produce syngas, which is expected to occur in the first part of next year.”
Additionally, Mississippi Power on Oct. 27 filed its monthly report for September with the Mississippi Public Service Commission. As noted in the company’s August monthly report, the company was reviewing the schedule for the project. Based on the completion of the review, the Kemper project’s schedule remains unchanged with completion still expected in the first half of 2016.
Also noted in the report was the previous cost estimate for the Kemper project that included costs through March 31, 2016. The company has revised its cost estimate subject to the cost cap for the Kemper project to include approximately $110 million in cost increases for September. This increase includes approximately $20 million of adjustments related to start-up and commissioning activities as well as operational readiness activities during the month, and approximately $90 million of additional schedule costs for the months of April-June of 2016.
These costs are in addition to previous adjustments made in the July and August reports, bringing the total adjustments subject to the cost cap for the third quarter to approximately $150 million. Customers will not pay for any of this increase in capped costs. The utility has run into major cost overruns during construction, leading to the cost cap that limits the costs borne by ratepayers.
Mississippi Power, a subsidiary of Southern Co. (NYSE: SO), produces safe, reliable and environmentally responsible energy for more than 186,000 customers in 23 southeast Mississippi counties.
Utility runs into criticism from consultant for the PSC staff
Mississippi Power is currently before the state PSC for ratemaking related to the Kemper project, including a request for a prudency approval for the completed combined-cycle portion of the plant, with prudency of the gasifiers up for review after they are opering and proved “used and useful.”
Supplying Oct. 9 testimony on behalf of PSC staff was Donald Grace, an independent consultant and subcontractor of Cost Plus Consulting LLC (CPC). CPC has been subcontracted by Critical Technologies Consulting LLC (CTC) for its expertise regarding technical, cost, and schedule issuesassociated with the Kemper County IGCC, specifically including the rate filing that is the subject of this docket. Members of CPC have prior experience working on the Kemper Project as consultants to Burns and Roe Enterprises Inc. (BREI).
Asked about the current status of the Kemper Project’s CC, Grace wrote: “The CC is currently available for economic dispatch operation using natural gas only. Normal operation is two on one (two gas turbines and one steam turbine). Minimum output of two on one is 352 MW and maximum available output is 696.4 MW for summer (730 MW for winter). There are three planned outages for the CC. Gas Turbine A had an outage in September 2015 and Gas Turbine B will have an outage in October 2015. Each of these two outages has a scheduled duration of less than two weeks, and the purpose includes normal maintenance inspections as part of a long term partnership agreement between MPCo and Siemens.
“During these outages, the CC will be running in a one on one configuration. In November 2015 there will be a third outage where 14 days have been scheduled to perform final tie-ins of steam lines coming from each of the gasifier trains to the steam turbine. During that time, none of the three turbines will be on line. During this outage, fine mesh screens will be temporarily installed in the steam lines leading to the steam turbine as a temporary protective measure. An additional seven days are planned for this third outage (for a total of 21 outage days in November), and the CC is scheduled to run in a one on one configuration during those seven days.”
Grace said the CC was designed and constructed concurrently to be fully integrated with the balance of plant systems and gasification and gas clean-up areas. The CC was not intended to be designed and constructed as an independent project, and the need to properly integrate with the gasifier has increased the complexity (and cost) of the CC. Furthermore, the company’s efforts to manage to a single project critical path for the entire Kemper Project extended the in-service date for the CC beyond what it could have otherwise been, he added.
Wrote Grace about the causes for the skyrocketing project costs: “CTC maintains that the major issue impacting the Kemper Project was the minimal design upon which the original estimate and schedule were based. This deficiency led to multiple project issues as evidenced by the increased commodity quantities, causing a major growth in the required amount of linear feet of piping, associated hangers, steel, etc.; the additional time needed for installation by craft labor; and delays resulting from insufficient capacity within certain vendors and suppliers for piping and hangers, all resulting in scheduling delays and work inefficiencies.
“Specifically, major difficulties were encountered during the design, fabrication, and installation of the piping for the CC as well as the other areas of the plant. In many cases, the CC was not in the Kemper Project’s scheduled “critical path” and appropriately received less attention from senior project management. Modifications were made to the contracting strategies within the CC. Such modifications were primarily for commodity installations which resulted in a shift to the “labor broker” method of contracting, which allowed Southern Company Services’ (“SCS”) supervision personnel to oversee and assign the daily tasks of the craftsmen supplied through subcontractors.
“The CC area was completed later than the original baseline schedule indicated by approximately six months (from February 2014 to August 2014) and the costs increased by 37.5%, from $575.36M to $790.88M.
“The Kemper Project CC is unique when compared to the other fifteen combined cycle projects designed and constructed by SCS, in that it was constructed as an integral part of the Kemper Project IGCC plant, which had exponentially more issues and challenges than any of the combined cycle units previously constructed by SCS.
“In my opinion, MPCo’s project management methods and decision making processes appear to be highly focused on the financial/accounting considerations (such as tax benefits) and less on the day-to-day management aspects for the benefit of the project. This is evidenced by key decisions early in the EPC portion of the planning efforts, such as the decision to begin the detailed design concurrent with the construction field activities, and the failure to implement and effectively use procedurally required project control scheduling tools to their fullest capabilities.
“Additionally, implementation of an effective quality assurance/control management program was lacking throughout the project, resulting in the need for multiple components to be reworked and/or completed by the start-up group instead of the construction group. An example is the failure of numerous hydrostatic pipe tests due to excessive leakage as a result of improper installation methods.
“Although the CC is in service, it is currently operating exclusively on natural gas but it was designed to run primarily on syngas. At this time, I am unable to determine how efficiently and reliably the unit will run on syngas. The CC has yet to be effectively integrated with the gasifier and remaining balance of plant. The cost of the CC includes the cost of modifications made to burn syngas. If it is later found that the plant will not operate satisfactorily on syngas, the cost of these modifications may be determined to be imprudent or not used and useful. Furthermore, the prudence issues that I have identified affect a prudence determination regarding the entire project, not just the CC.
“In the current ‘natural gas fired’ mode of operation, roughly 590 MW net can be obtained by operating the Kemper Project CC in what I would consider a ‘normal’ mode of CC operation; i.e., the combustion turbines are driven by the burning of natural gas, and the exhaust gas creates steam in the heat recovery steam generators (‘HRSG’), which then drives the steam turbine. Beyond roughly 590 MW net, in order to get to 730 MW, one needs to burn additional natural gas to superheat steam in the HRSGs and thereby increase the output of the steam turbine. This additional burning of natural gas is referred to as ‘duct firing.’ Finally, duct firing has a higher heat rate and does not produce the same number of MW per amount of gas burned; therefore, the dispatch economics change with the initiation of duct firing.”
Major power customers say no prudency should be granted for CC right now
Also supplying Oct. 9 testimony was Charles S. Griffey, an Adjunct Professor of Management at Rice University’s Jones Graduate School of Business. He was testifying on behalf of major utility power customers Greenleaf CO2 Solutions, Chevron Products Co., a division of Chevron U.S.A. Inc., and the U.S. Air Force. Prior to becoming a consultant in 2009, he was employed by Reliant Energy as Senior Vice President of Regulatory Affairs and Market Design.
“My primary recommendation is that the Mississippi Public Service Commission (Commission) should deny Mississippi Power Company’s (MPC’s) request for a finding that the costs MPC currently seeks to recover in rates for the natural gas-fired combined cycle gas turbine (CCGT) portion of the Kemper County Power Plant (Kemper Project) are prudent,” Griffey wrote. “MPC never requested nor obtained [an approval] for a stand-alone CCGT. In fact, in the case where the Commission granted [a certificate] for the overall Kemper Project, MPC specifically argued that either purchasing or constructing a stand-alone CCGT was not prudent. As a result, the Commission must consider the prudence of MPC’s decision to build a stand-alone CCGT as a matter of first impression in this case, without the benefit of a [certificate] to gauge its behavior against.
“My review and evaluation conclude the CCGT is not needed to reliably serve MPC customers and will cause a net increase in costs to MPC customers. MPC cannot demonstrate that the decision to construct and operate a stand-alone CCGT was prudent—particularly when the costs significantly exceed the costs of alternatives available to MPC at the various points in time at which MPC appears to have decided to proceed with constructing and then operating the CCGT as a stand-alone unit. Lacking demonstrated prudence for the decision to construct and operate the CCGT as a stand-alone unit, a finding of prudence for the CCGT as a portion of the Kemper Project cannot be properly considered until the Kemper Project in its entirety is reviewed for prudence.”
Griffey said he is only recommending denying the prudence findings for the stand-alone CCGT proposal. MPC will have the opportunity to present its case on prudence of the total costs of the Kemper Project, including the CCGT, once the entire facility is in service.
“Granting a piecemeal prudence finding for only the CCGT costs could inappropriately tie the Commission’s hands when it considers the prudence of the overall Kemper plant in a future proceeding,” Griffey added. “For instance, MPC has admitted that it had a material weakness in financial controls related to the cost estimates for the Kemper plant, but MPC has provided no allocation of the impact of that material weakness to any of the CCGT or regulatory asset amounts it is seeking in this case. If MPC’s request is fully granted, the Commission cannot go back and change the prudence finding made here, even if in the future IGCC case it is shown that the impact of this material weakness had an impact on these costs. To give another example, the Commission could determine in the future case that schedule delays for the overall Kemper Project were caused by MPC’s imprudence, but MPC may have already been allowed to include delay costs (such as AFUDC that was accrued as a direct result of the delays) in rates as part of this case. The Commission would then be faced with trying to undo this prior, arguably inconsistent rate treatment.
“Further, if the overall Kemper Project is not able to operate as a coal gasification plant as intended, then customers should be made whole for losing the syngas warranty on the gas turbine equipment. This is infinitely more complicated if the CCGT costs have already been held to be prudent and put in rates.
“MPC is seeking a finding that it prudently incurred $1,130,732,373 on just the CCGT portion of the overall Kemper Project. When the [certificate] for the IGCC was issued, MPC never intended for the CCGT component to be operated as a stand-alone facility, independent of the overall Kemper Project, and MPC has never been granted a [certificate] for this stand-alone CCGT. The Commission has never before considered the need for or the prudence of this stand-alone CCGT investment, yet MPC is requesting it do so here as a matter of first impression, without the benefit of a prior “need” determination. The evidence demonstrates that: (1) MPC does not need a CCGT to meet its customers’ demand, and (2) the stand-alone CCGT will provide no net benefit but will instead impose a net cost on MPC ratepayers,” Griffey said.