Kemper cost outlook rises another $496 million, and customers could get bill for $167 million

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JACKSON, Mississippi — Southern Co. says it will cost at least another $496 million to finish the power plant it's building in eastern Mississippi's Kemper County, pushing the total cost above $6.1 billion.

And, unlike other recent overruns, customers could have to pay $167 million of the charges if regulators agree.

The Atlanta-based parent of Mississippi Power Co. pushed back the completion date for Kemper from June 2015 to at least March 2016, and said further delays beyond that would cost $20 million to $30 million a month.

Southern said the additional money will pay for material and labor during the plant's startup phase, as well as additional interest the company will earn on money it's already invested because of the delay. The plant and associated lignite mine were originally supposed to cost $2.8 billion and begin operating last year.

"We absolutely continue to feel that this is in the best interest of our customers and the state of Mississippi," Mississippi Power President Ed Holland said in a phone interview.

While it was once construction delays and complications driving up the cost of the project, Holland said this time the company is slowing down and spending more money on starting what the company calls Plant Ratcliffe.

"We wanted to look realistically, from both a training perspective and a startup perspective at how long it would take," Holland told The Associated Press in a phone interview.

The plant is supposed to turn soft lignite coal into a gas, burn the gas to generate power, and extract chemicals including carbon dioxide to reduce pollution. Critics have warned the technology may not work as designed. A coal gasification plant built by Duke Energy in Edwardsport, Indiana, using different technology, struggled during its startup phase. Kemper's three power generating turbines went into commercial operation in August, burning natural gas piped to the east Mississippi plant.

Southern will absorb $330 million of the increased costs, in addition to the $88 million that it increased estimates by in August in September, writing a total of $418 million off its quarterly profit statement that will be released Wednesday morning. The company said that after taxes, that amount will reduce profit by $258 million. Southern has absorbed nearly $2 billion in overruns at this point over the $2.88 billion cap that the Mississippi Public Service Commission imposed on the project.

But Mississippi Power also projects another $167 million in additional costs outside the cap. Holland said Mississippi Power will ask Mississippi regulators to declare those additional costs are prudent, meaning the company's 186,000 customers from Meridian to the Gulf Coast would pay for them.

Customers are already paying 18 percent higher rates for Kemper. Mississippi Power has said it's likely to seek an additional increase of at least 4 percent over 20 years to pay off $1 billion in bonds that the Legislature is allowing the company to issue as part of the settlement. Holland said the additional $167 million could be included in those bonds, on which the company isn't supposed to make any profit, unlike traditional utility rates.

Much of the additional cost to customers would be additional interest on money the company has already invested.

"We expect to make the argument and state it very clearly that it's appropriate," Holland said.

Monitors, though, have criticized Mississippi Power for starting construction without doing enough engineering. Holland acknowledged that critics are likely to argue that it's unfair to charge customers more for the company's mistakes.


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