Share This Page

Southern risks billions on Miss. coal plant

| Saturday, Jan. 5, 2013,

DEKALB, Miss. — In the woods of eastern Mississippi, a subsidiary of Atlanta-based Southern Co. is pouring billions of dollars into construction of a power plant that burns coal but would emit less carbon dioxide. It's a response to looming federal limits on carbon emissions as regulators try to curtail global warming.

Each day, as 2,600 construction workers toil away at Plant Ratcliffe in Kemper County, the big bet becomes more expensive. The projected cost is at least $2.8 billion, almost half a billion dollars above original expectations, and some estimates say it will go higher.

Legal challenges brought by the Sierra Club have led regulators to block the company from billing customers for the costs so far, although Southern subsidiary Mississippi Power Co. got closer to that goal with a favorable lower court ruling last month.

Southern CEO Thomas Fanning stands by the plant. He said Southern's technology will mitigate its environmental impact and the need to exploit coal as a hedge against uncertainties in the future cost of natural gas, which is currently cheap and abundant.

But there are risks.

The Kemper plant is the most expensive project ever built by Southern subsidiary Mississippi Power Co. The company promises completion in May 2014, but some engineers monitoring construction for state regulators warn the cost could reach $3.1 billion, and completion isn't likely until November 2014 at the earliest.

Those same engineers, with the firm Burns & Roe, say the plant's lynchpin coal-to-gas technology isn't certain to work.

Fanning says some setbacks at Kemper have been seen in the company stock price. Shares are down about 5 percent over the last year, but Southern's stock has closely tracked shares of other big utilities in that time.

Morningstar analyst Mark Barnett says he respects Southern's ability to manage big projects, but says Kemper might dent Mississippi Power's finances if costs keep mounting. “This is an outsized project for such a small utility,” Barnett said.

As the Kemper project goes on, Southern also is at work on two additional nuclear reactors at Plant Vogtle, about 30 miles southeast of Augusta, Ga. The $14 billion project will be funded in part by $6 billion from Southern subsidiary Georgia Power Co. Southern also owns Alabama Power Co. and Florida's Gulf Power Co.

“Vogtle and Kemper County, even despite where gas prices are today, are exceedingly attractive resources for the future,” Fanning told The Associated Press.

The plants reflect Southern's decision not to become overly reliant on natural gas. Fanning argues gas can't be expected to remain cheap for decades, the lifecycle utilities consider for power plants. How Kemper and Vogtle turn out are likely to define Fanning's legacy, as the company stated in the last chapter of a 534-page history it published last year entitled “Big Bets.” The book, published for Southern's 100-year anniversary, is meant to encapsulate past lessons for future leaders.

Part of that past has been coal. Five years ago, 70 percent of Southern's power came from coal, with only 11 percent from natural gas. The company now generates 35 percent of its power from coal and 47 percent from gas.

But given federal regulations against carbon dioxide emissions, few utilities are now building coal plants.

Southern's response at Kemper is to convert the coal to a gas, strip out carbon dioxide and other hazardous chemicals, and burn the gas for power.

Southern expresses confidence in technology developed and tested at Wilsonville, Ala. But Burns & Roe, the engineering firm that warns the Kemper's cost will top $3 billion, warns “there is still a technology risk,” partly associated with scaling up the gasifier to Kemper's larger size.

The company would sell the carbon dioxide to be pumped into the ground for energy companies seeking to push up more oil from old oil fields.

“We are the Saudi Arabia of coal — very high quality stuff. We've got to find a way to continue to preserve that important national energy resource to be used for the benefit of our citizens,” Fanning said. “What we're doing here in Kemper County, I think, may be a way forward for coal in America. It is that important.”

The Sierra Club — which opposes coal-burning plants nationally — claims the plant could harm the environment and raise customer bills by 45 percent or more. Mississippi Power says the rise in bills would be closer to 33 percent before falling.

Kemper, though smaller, may be financially riskier than Vogtle. In Georgia, Southern is already collecting its financing costs from ratepayers, and regulators are approving company expenditures every six months, though they can still challenge that spending at the end of the project. Mississippi Power — Southern's smallest subsidiary with 186,000 customers — hasn't won regulator approval to collect any money it's spent on Kemper.

The Mississippi Public Service Commission's decision to hold off on rate increases until legal challenges are resolved stunned executives and investors, especially considering a 2008 state law allowed rate increases during construction.

“That decision surprised the investment community and we saw it our stock price,” Fanning said.

The Sierra Club says Southern should convert the plant to burn natural gas, an expense that could still be costly for shareholders and ratepayers. Opponents say Mississippi Power would end up spending less money than finishing Kemper, but the company would probably try to recoup the money it's already spent.

“I think they've painted themselves into a pretty tight little corner, said Louie Miller, head of the Sierra Club's Mississippi chapter. “They decided they were going to build this thing come hell or high water.”

In the 1970s, a giant construction program brought Southern to the edge of insolvency. High inflation and interest rates made it almost impossible to borrow money to complete plants in its four-state territory. The subsidiaries struggled to win rate increases from hostile state regulators, and nuclear plant overruns ballooned under new safety demands after 1979's Three Mile Island incident.

The company history says that at one point in 1979, Mississippi Power was down to less than six months of operating cash.

The company eventually patched things up with regulators and finished its construction marathon, but not before shareholders ate $1 billion in overruns at Vogtle.

TribLIVE commenting policy

You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.

We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.

While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.

We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers

We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.

We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.

We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.

We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.