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Kemper County Coal Plant FAQ

 

What is the Kemper plant?

Why is the Kemper plant controversial?

How much will Kemper cost customers?

What is the short version of the Kemper story?

What is the Bigger Pie Board of Director's position on Kemper?

 

What is the Kemper plant?

The Kemper County Coal Plant is a Mississippi Power Company power plant project under construction in Kemper County, Miss. It is designed to produce electricity from lignite, a low-grade coal found in Kemper County and neighboring areas.

State law allows public electric utilities like Mississippi Power Company to be set up as monopolies in exchange for providing “just and reasonable” electric rates to customers. This has generally been interpreted to mean the cheapest electricity possible.

In order for this monopoly to be able to charge its customers for the cost of building a power plant, it must get permission from the Mississippi Public Service Commission, which regulates the company.

In 2009, the PSC determined more electricity generation would soon be needed for Mississippi Power’s 186,000 customers in 23 Southeastern Mississippi counties. Mississippi Power proposed the Kemper plant as the solution. The PSC eventually accepted Kemper as the solution, issuing a construction permit for the facility in June 2010.

The Kemper plant was originally estimated to cost $2.2 billion. The PSC approved the project after its cost had already risen to $2.4 billion. Now, Kemper is estimated to cost over $3 billion.1 Customers cannot be charged for these costs until the PSC decides they are “prudent,” and the PSC can make Mississippi Power pay for any costs deemed “imprudent,” or irresponsibly incurred.

Mississippi Power Company has not released any updated information on how this expensive plant might impact its customers’ electric bills.2


Why is the Kemper plant controversial?

Simply put: Natural gas.

State law requires public electric utilities to provide customers with the cheapest electricity possible.

When the PSC was deciding whether to give Mississippi Power permission to build the Kemper plant, it considered as an alternative a power plant fueled by natural gas. A natural gas plant would have been much cheaper to build, but Mississippi Power said the Kemper plant would be better for customers, since the price of natural gas had been volatile over the past several years, at one point spiking to around $9 per mmBtu (mmBtu is a measure of the energy contained in a fuel).

But, according to information Mississippi Power Company gave the PSC, a natural gas plant would have been a better option. Unless the price of natural gas changes radically between now and the time Kemper becomes operational in 2014, the Kemper plant will not save its customers money.3


How much will Kemper cost customers?

No one knows.

  • In March 2013, the Public Service Commission gave Mississippi Power Company permission to immediately raise rates by about 15 percent to cover financing costs of the Kemper plant, which won't become operational until 2014.

  • The Commission is currently considering a rate phase-in plan proposed by Mississippi Power that would keep rate increases during the first seven years of Kemper's operation in the neighborhood of 22 percent. (See proposed Kemper seven-year rate plans.)

  • Neither the Commission nor the power company have provided information regarding how much Kemper will cost customers starting in year eight and over the 40-year life of the plant.
  • Until the recent rate case, the only dollars-and-cents information on how much Mississippi Power Company's Kemper plant might impact customers' electric bills was released in 2009 via the Public Records Act.2     This document estimated that customer bills would rise by about $60 per month when the plant went into operation in 2014.
  • Bigger Pie Forum's Board of Directors contracted with energy consulting firm Brubaker & Associates in December 2012 to determine the customer impact of Kemper. Brubaker used traditional rate-making practices to arrive at its estimates.

       Brubaker estimated the rate impacts in the first year of Kemper’s operation would be the following:

  1. An average residential customer will see a rate increase of 61%. The estimated annual increase is $912, or $76 per month.

  2. An average commercial customer will see a rate increase of 60%. The estimated annual increase is $4,513, or $376 per month.

  3. An average industrial customer will see a rate increase of 54%. The estimated annual increase is $282,760, or $23,563 per month.  

Read the full report on Kemper’s rate impacts from Brubaker & Associates, Inc.

 

FOOTNOTES

Footnote 1, Burns & Roe report.

A report by Burns & Roe Enterprises, Inc., the independent monitor hired by the PSC’s advisory body, the Mississippi Public Utilities Staff, estimates the Kemper plant’s current cost to be between $3 billion and $3.1 billion.

Independent Monitor’s Project Schedule and Cost Evaluation for the Kemper County IGCC Project, filed Nov. 26, 2012 in PSC docket 2009-UA-14.

Footnote 2, Response to Entegra data request.

According to information Mississippi Power Company filed with the PSC in August 2009, customers would see a $59 rate increase in the first year of the Kemper plant’s operation.

Mississippi Power Company response to data request “Entegra 3-5,” filed Aug. 3, 2009 in PSC docket 2009-UN(sic)-0014.

Footnote 3, Break even price of natural gas.

According to information Mississippi Power filed with the PSC, the utility’s customers won’t break even with Kemper (much less save money) unless natural gas reaches the price of $12 per mmBtu by 2014, and escalates to $18 per mmBtu by 2035. Natural gas prices are predicted to stay below $5 per mmBtu through 2023, according to the U.S. Energy Information Administration.

Entegra Power LLC and Calpine Corporation’s Post Hearing Brief, filed March 12, 2010 in PSC docket 2009-UA-14.

 

What is the short version of the Kemper story?

  • In 2008, MPC lobbied for a bill called the Baseload Act, which became law. The Act enables a public electric utility, with the Commission's approval, to charge customers for a power plant whether it ever works or not.
  • In December 2008, MPC gained U.S. Department of Energy funds for Kemper with the help of BGR Group, the Washington, D.C. lobbying firm founded by then-Gov. Haley Barbour, who retained shares of the firm while governor via a blind trust.
  • In 2009, the Commission unanimously determined that MPC's service area would need more electric generation by 2014. MPC estimated Kemper's cost to be $2.2 billion.
  • In early 2010, the Public Service Commission held hearings to determine the best solution for creating the additional electric generation. The options were (1) the Kemper County clean coal plant or (2) a power plant fueled by natural gas. MPC economically justified Kemper by saying that it would be cheaper than a natural gas plant, since natural gas prices had been high and volatile over the past several years.
  • MPC used natural gas projections that were much higher than those predicted by a reliable federal agency. (See infographic.)
  • MPC estimated Kemper's cost to be $2.4 billion. The company requested a cost cap of $3.2 billion.
  • In April 2010, the Commission offered MPC a construction permit with financial restrictions -- a $2.4-billion cost cap and no CWIP (ability to charge customers for costs of the plant before it becomes operational) -- citing concerns of financial risk to customers.
  • MPC said these restrictions were too tight.
  • In May 2010, the Commission offered MPC another construction permit with a $2.88-billion cost cap and permission to charge CWIP.
  • MPC began building Kemper.
  • The Sierra Club sued Mississippi Power and the Commission, saying the second construction permit was baseless.
  • By January 2012, former Gov. Barbour had returned to work as a lobbyist for Southern Company at BGR Group.
  • In May 2012, the state Supreme Court agreed with Sierra Club and revoked the construction permit.
  • In April 2012, the Commission issued another construction permit.
  • Sierra Club sued Mississippi Power and the Commission again for the same reason, saying the new permit was baseless.
  • In May 2012, MPC released information that Kemper was more than $300 million over budget.
  • In June 2012, the Commission denied MPC's request for a CWIP rate increase.
  • MPC experiened a downgrade in its credit rating and appealed the decision to the state Supreme Court.
  • On Jan. 24, 2013, MPC and the Commission signed a settlement agreement that essentially released MPC from its cost cap by allowing the company to seek $1 billion on bonds from the Legislature. MPC and the Commission asked for oral arguments before the Supreme Court to be canceled.
  • On Jan. 28, 2013, the Supreme Court heard the case, which included a challenge of constitutionality by an MPC customer.
  • As of February 2013, Mississippi Power says Kemper is approximately 70 percent complete. More than $1.5 billion has been spent.
  • MPC is lobbying the Legislature for bills that would enable them to issue, through a special purpose entity, $1 billion in bonds that would be the responsibility of its ratepayers.

 

Bigger Pie Forum Board of Directors’ position on the Kemper plant:

"The Mississippi Public Service Commission’s responsibility is to ensure that the utilities it regulates provide reliable power to customers at the lowest practicable cost. During the evaluation period when it compared the economics of the Kemper plant to a natural gas plant, the PSC apparently did not have all the facts. The PSC should evaluate the plant based on current data, determine that Kemper is not prudent, and require Mississippi Power Company to pay most of its cost.

"If the PSC decides customers should pay for the costs of Kemper, Southeast Mississippi will be stuck with crippling electric bills for years, if not decades. Affordable energy stimulates economic growth because it lowers costs for both businesses and consumers, who then have more money to circulate in the local economy. Conversely, expensive energy does economic harm. In the case of Southeast Mississippi, the region may be unable to compete economically with other regions enjoying affordable energy as a result of the U.S. shale gas revolution."

For a list of Bigger Pie Board members, visit our About page.