DEKALB, Miss. (AP) -- In a story Dec. 28 about a coal-fired power plant being built by Southern Co. in Mississippi, The Associated Press reported erroneously in the 10th paragraph that Southern Co. subsidiary Georgia Power is contributing $6 million to the cost of a nuclear power project. That figure should be $6 billion.
A corrected version of the story is below:
Southern Co. faces risks on Miss. power plant
After spending $1.88 billion, Southern Co. still faces risks on plant in Kemper County, Miss.
By JEFF AMY
DEKALB, Miss. (AP) -- In the woods of east 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 earlier this month.
Southern CEO Thomas Fanning stands by the plant. He says Southern's own 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 (VOH'-gohl), 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.
"It was like you had your hands on something big that you couldn't control," Ed Addison, Southern CEO from 1983 to 1995, said in the company history. "You couldn't stop because ... too much was already invested in it."
Fanning argues this time is different because inflation and interest rates are low and Southern has gotten better at big construction projects.
"Everything that I know, this plant was exceedingly well-built and well organized during the construction period," Fanning said. "I suppose there is a theoretical risk of prudency. But in my view, this company is executing like no company in the United States."
He is comfortable with the chips he has on the table.
"Now look, I am not a skeptic of natural gas more than any other fuel. But you cannot plan to put all your eggs in that basket. That is imprudent," he said. "What Mississippi is doing here is a big bet. But ultimately, long-term, it will serve well the interests of the families we serve here in Mississippi."
Online: Mississippi Power on Kemper: http://www.mississippipower.com/kemper/home.asp
Sierra Club on Kemper: http://www.sierraclub.org/environmentallaw/lawsuits/0485.aspx
Follow Jeff Amy at: http://twitter.com/jeffamy