More Delays at Kemper as $250 Million Deadline Looms
Southern Co. has once again moved back the in-service date for the Kemper County integrated gasification combined cycle (IGCC) plant under construction in Mississippi, this time to December 31, the company said in its quarterly report released on November 4.
Though the plant has experienced ongoing construction delays for a variety of reasons, the most recent date carries special significance. According to the report, Southern subsidiary Mississippi Power will have to repay $250 million in tax benefits should it miss the December 31 date.
The deadline is a result of provisions in the "tax extenders" act passed by Congress in 2015, which allowed additional depreciation for certain projects. Southern said it expects to receive about $370 million in total tax benefits for Kemper under this provision, about $250 million of which has already been received through September 30 as a result of quarterly income tax refunds. But if Kemper does not enter service before the end of the year, Southern will have to repay those benefits.
The plant has been mired in controversy for years as a result of long delays and massive cost overruns. The initial estimate for the plant was $2.88 billion, and the project has long since exceeded the cost cap set by state regulators, meaning Southern shareholders are absorbing the losses. In addition to the added costs, Mississippi Power was ordered to pay back a rate increase related to Kemper in 2015 after a state court found it had been improperly awarded. Most recently, the company disclosed in May of this year that the Securities and Exchange Commission had opened an investigation into the project and whether Southern had properly disclosed all the problems. That investigation is ongoing, the report says.
In the most recent filing, the company revised its cost estimate for Kemper upward to $6.82 billion as a result of the delay. Each month's delay is causing around $40 million to $50 million in total additional costs (including labor, fuel, materials, interest, and other overhead and operating expenses). For year-to-date 2016, Southern said it has recorded a $222 million loss on Kemper, compared to $182 million at the same point last year.
Kemper began producing syngas this summer and commenced testing using syngas from both gasifiers for the first time this fall. The report says Mississippi Power has now shut down gasifier A to "make improvements in the ash removal systems." The remaining schedule reflects estimates of the time necessary to get both gasifiers operational "as well as to complete the integration of all systems necessary for both combustion turbines to simultaneously generate electricity with syngas."
-Thomas W. Overton, JD is a POWER associate editor (@thomas_overton, @POWERmagazine).
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