By Steve Wilson

Special to The Messenger



Southern Company CEO Tom Fanning told investors the company will be able to successfully demonstrate for regulators the Kemper Project clean coal power plant's performance in advance of a request for a rate hike.

On a Monday conference call to report third-quarter results, Fanning said the company intends to get the integrated coal gasification power plant fully operational generating electricity on synthesis gas made from lignite coal. He said the facility is already generating on syngas from of the plant's two gasifiers.

The company reported third quarter 2016 earnings of $1.1 billion, or $1.18 per share. That represents a slight increase over last year's third quarter numbers, which were $1 billion, or $1.05 per share. The company has earned $2.2 billion in the first nine months of this year, compared with $2.1 billion at this time last year.

"As we moved through the startup process and we've knocked over these dominoes that you normally expect with the startup process, I think it has gone beautifully," Fanning said. "I think we're going to be able to demonstrate 'used and useful' very easily. This plant is going to work. It is working."

"Used and useful" is the legal regulatory term that would justify Southern subsidiary Mississippi Power hitting its 186,000 ratepayers for rate hikes to cover its capital costs, subject to approval after a review by the Mississippi Public Service Commission.

To do that, the company must show the facility is commercially operational (used) and generates electricity (useful), which Fanning said it will begin when the plant comes online on Nov. 30.

Amid the upbeat forecast, the plant continues to be beset with cost increases and delays.

The company said in a filing with the U.S. Securities and Exchange Commission that it has written off $1.5 billion in Kemper losses in the last five years.

Mississippi Power said in an SEC filing last week that Kemper will cost another $29 million, bringing its price tag up to $6.913 billion, a 284 percent increase from the original $1.8 billion estimate when the project was announced in December 2006.

The company also said that operating the plant will cost $1 billion over the first five years the facility is running on syngas.

Fanning offered no hints on what kind of rate case the company intends to file by the June 2017 deadline. Mississippi Power has already increased its rates 15 percent to help fund the parts of the plant, such as the electricity-generating turbines, already in service since August 2014 on natural gas.

Fanning also said that using syngas, made from lignite coal mined on site, would be more stable over the life of the plant, because natural gas prices were more "volatile."

The company has touted the plant as a dual-fuel plant capable of using natural gas or syngas even though it was sold to the PSC as a clean coal power plant.

He also said the company could justify running the facility on syngas — which is more expensive to run the gasifiers for less generation capacity than on natural gas —by being able to sell carbon dioxide and other byproducts such as anhydrous ammonia or sulfuric acid removed from the syngas stream to industrial customers.

Byproduct sales to offset Kemper's costs have been a key plank in Mississippi Power's business plan since the outset.

Mississippi Power originally had two companies signed up to off-load the plant's carbon dioxide, but one dropped out and has sued the utility while the other, Denbury Onshore Resources, continues to struggle financially because of lower oil prices. Denbury's stock price has dropped from a high of $20.25 per share in 2012 to $2.40 per share today.

Fanning said while Kemper's coal gasification technology would be "hard to replicate" in the U.S., the technology would be "relevant elsewhere" in the world.

"We're advancing 21st century coal and I know we've been through our bumps and bruises on that one," Fanning said. "The technology works. We know there is regulatory work to do to get it finally into rates. That's a big challenge."