A rising cost estimate for Mississippi Power's integrated gasification combined-cycle project has rattled the state's utility regulators, but the Southern Co. subsidiary is standing firm on its plan to complete the project on which 2,000 craftsmen and other workers are now employed.
Mississippi Power, which already has invested more than $1.3 billion in the Kemper County IGCC project, told the state Public Service Commission that its latest cost estimate suggests the plant's net cost will reach $2.762 billion, a 15% increase from the $2.395-billion estimate made only two months earlier.
The utility said that $338 million of the $367-million increase is tied to the project's engineering, procurement and construction costs, including increased material costs and staffing needs.
Neither estimate includes the $245- million in Clean Coal Power Initiative funds the U.S. Dept. of Energy allocated to the project. Also not factored in are $558 million in costs tied to the lignite mine Mississippi Power is developing near the IGCC plant, the 61-mile carbon-dioxide pipeline it is building to deliver captured CO2 for use in enhanced oil recovery and the Allowance for Funds Used During Construction (AFUDC). When they are included, the project's estimated cost climbs to $3.5 billion.
The estimated cost of developing the lignite mine is now $245 million—up $30 million from two months ago—but the estimated cost of the CO2 pipeline and the AFUDC are unchanged, at $140 million and $173 million, respectively.
PSC Chairman Leonard Bentz and Vice Chairman Lynn Posey both voted to approve the project in May 2010 and again in April. While they still stand by those decisions, they say they will hold Mississippi Power to the $2.4-billion "soft cap" and $2.88 billion "hard cap" called for in the approvals.
Bentz sees "absolutely no flexibility in the hard cap," he says. Furthermore, Mississippi Power and Southern Co. "might have to 'eat' anything over the $2.4-billion soft cap, too," he says. "There will be prudency reviews" that anaylze "every penny" the utility spends.
Posey, in turn, acknowledges that while the IGCC project's reliance on locally mined lignite will provide Mississippi Power with needed fuel diversity, declines in current and projected natural- gas prices since 2010 make the project much less attractive from an economic standpoint. "Would we vote to approve Kemper today? Probably not, because of gas prices," Posey says.
Commissioner Brandon Presley, the project's lone opponent at the PSC, says Mississippi Power "ought to be ashamed of itself for not making [the higher cost estimate] known to the commission before it voted" on a new certificate in April, after the state Supreme Court threw out the PSC's original certificate.
Shepard: Stay the Course
Jeff Shepard, spokesman for Mississippi Power, says the utility "has every intention and is committed to bringing the plant on line, within the [$2.88 billion] cost cap." The on-site workforce will peak later this year at about 2,500, and the project is on schedule for completion by summer 2014, he adds.
"With any construction project, particularly one of this size, costs will fluctuate as the project progresses," Shepard says. He notes that nearly 70% of the project's detailed engineering design is now complete, so the utility has "a better picture" of what material and staff are needed to finish the plant.
The Mississippi Power spokesman adds that, according to a 2009 economic impact study prepared for the Mississippi Development Authority, the IGCC project will contribute about $46 million in local and state taxes during construction. "After construction is complete, there will be approximately 300 direct jobs and approximately 700 indirect jobs resulting in an annual $30 million local and state tax impact," Shepard says.
Southern Co. Services, another unit of Southern Co., serves as the IGCC project's engineering-procurement-construction contractor.