Fanning fields questions on Kemper IGCC project

Despite cost and delay issues, Southern (NYSE:SO) Chairman and CEO Tom Fanning said July 27 that the Mississippi Power integrated gasification combined cycle facility (IGCC) plant in Kemper County, Mississippi is on the brink of generating electricity from gasified coal.

Fanning said during a regular quarterly earnings call that the 582-MW project should start generating power by gasifying local lignite coal by the end of September.

Kemper produced its first syngas using lignite earlier this month. Fanning said Mississippi Power is in the middle of a couple of important weeks of startup and testing work.

The CEO’s comments came after a July 26 filing that the utility made with the Securities and Exchange Commission (SEC) about the latest cost issues at Kemper.

“The total estimated Kemper IGCC cost subject to the $2.88 billion cost cap as of June 30, 2016 was approximately $5.38 billion, net of the Initial DOE Grants and excluding the Cost Cap Exceptions. Mississippi Power does not intend to seek rate recovery for any costs related to the construction of the Kemper IGCC that exceed the $2.88 billion cost cap, net of the Initial DOE Grants and excluding the Cost Cap Exceptions,” according to the filing. “As a result of this revised cost estimate, Southern Company and Mississippi Power recorded total pre-tax charges to income for the estimated probable losses on the Kemper IGCC of approximately $38 million ($23 million after-tax) during the second quarter 2016.”

Additional costs could be incurred if the commercial operation date slides past Sept. 30, the company acknowledged in the SEC filing.

Fanning reminded financial analysts that Kemper is a dual-fuel facility and that the combined-cycle portion of the plant has been generating power from natural gas for about two years now.

“When we are not running on synfuel, we are going to be running on natural gas,” Fanning said. It can already supply a significant slice of Mississippi Power electricity using natural gas.

Once deployed the plant will generate power from gasified coal and also provide carbon capture and storage (CCS).

Experience shows “you don’t hit full speed right away,” Fanning said of the plant performance after startup. The utility will soon seek to ramp up syngas production to 60% to 70% capability in the early months – although that might not necessarily mean a 60% to 70% capacity factor average during the first year, Fanning said.

Fanning also said he could provide no additional information about an SEC investigation, disclosed earlier this year, about cost and timeline issues at the Kemper IGCC.

“Construction of the (Kemper IGCC) significantly impacted the presentation of earnings and earnings per share for the three and six months ended June 30, 2016 and 2015,” Southern said in its July 26 SEC filing. “Similar charges may occur with uncertain frequency,” the company said in the filing.

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.