The future of a Mississippi power plant aimed at showcasing "clean coal" technology is in doubt after state regulators on Wednesday issued an ultimatum to Southern Co., warning that they would not pass on more of its ballooning costs to ratepayers.
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Mississippi regulators said they wanted the Kemper power plant, which has already taken $7.5 billion and seven years to finish, to run using natural gas going forward, and don't want any additional costs to be passed on to electricity customers.
The plant has primarily been running on natural gas, not coal, since 2015, because the company has struggled to make the clean coal technology consistently work.
The regulators' action leaves Southern with a difficult decision over how to salvage its costly investment, including possibly having to write down part of the value of the facility.
Ending the plant's clean coal experiment would be a major setback for efforts to use technology to remove carbon emissions from coal plants, an idea the Trump administration renewed its commitment to on Tuesday.
"We are telling the parties to get a plan and get a settlement in 45 days that does not increase rates one penny," said Mississippi Public Service Commission Chairman Brandon Presley.
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Jack Bonnikson, a spokesman for Mississippi Power, said that until there was a new order approved by the commission "we have a responsibility to comply with the current order." The current order was to built an integrated natural gas and clean coal power plant.
"The message is pretty clear. Mississippians don't want to pay for a ticket on a plane that isn't going to fly," said Paul Patterson, an equity analyst who follows Southern at Glenrock Associates LLC.
Earlier this month, Southern filed documents with the Mississippi Public Service Commission proposing to pass on some of the cost of the facility to electrical consumers.
After a closed-door meeting Wednesday in Jackson, Miss., the three commissioners voted give Mississippi Power a few weeks to reach a settlement but indicated they were not interested in passing on costs of the plant to consumers.
They ordered all the parties -- the company as well as residential and industrial power customers -- to settle the matter by converting the operating certificate to run on natural gas, not so-called syngas -- or synthesis gas -- which is made from coal. If the parties are unable to reach an agreement, the plant's license could be revoked, the commissioners said.
"They just put a dagger in the heart of it," said Charles Grayson, a Mississippi resident and retired consultant who has been a critic of the project.
The Kemper County, Miss., facility -- which was forecast to cost $3 billion to build in 2010 -- was intended to burn lignite coal, capture about 65% of the carbon-dioxide output and send the gas, via pipeline, to oil fields where it would be injected underground.
The 582-megawatt plant can run on either natural gas or syngas, but the technology needed to turn the coal into gas and burn that to generate power has proved difficult to develop.
In October, Mississippi Power began testing the coal gasifier, but leaks and other problems have arisen since then. Earlier this month, the company reported another setback when it said it needed to redesign a heat exchanger and replace it sooner than expected.
So far, the Southern unit has spent $5.9 billion on the power plant alone, and the rest of the cost on coal mines and pipelines to carry the captured carbon dioxide to oil companies, which would pump it underground to extract more crude oil from wells.
The project's repeated cost overruns and delays have led to growing unhappiness in Mississippi.
If Mississippi Power cannot find a way to pass on some of the remaining costs to customers, it will face a difficult financial situation. Its liabilities already exceed its assets by $1.2 billion, according to Southern's most recent quarterly Securities and Exchange Commission filing. Southern said it intended to provide loans or equity contributions to cover this shortfall.
Mississippi regulators have already approved the cost of the portion of the facility that can be used to burn natural gas, but the majority of the cost of the facility was for the technology to turn coal into gas and capture the carbon dioxide.
Write to Russell Gold at email@example.com
(END) Dow Jones Newswires
June 21, 2017 17:28 ET (21:28 GMT)