UPDATE 1-Miss. Supreme Court reverses Southern Co coal project approval

Thu Mar 15, 2012 9:31pm EDT

By Eileen O'Grady

HOUSTON, March 15 (Reuters) - The Mississippi Supreme Court on Thursday reversed an approval for a Southern Co $2.8 billion coal gasification project in Mississippi.

In a 9-0 vote, the state supreme court said the Mississippi Public Service Commission's May 2010 approval failed to satisfy state law that the plant would benefit the utility's customers, and sent the case back to the PSC.

Southern's smallest utility, Mississippi Power, is already building the 582-megawatt integrated gasification combined-cycle (IGCC) power plant, which has been awarded more than $680 million in federal grants and tax incentives, including $270 million from the U.S. Department of Energy's clean coal power initiative.

The ruling "has dealt a severe blow to the project in the sense that they (Mississippi Power) are back to square one," said Louie Miller, state director at the Sierra Club, which challenged the PSC certificate to build the plant.

Mississippi Power officials said late Thursday that they were reviewing the court ruling and declined further comment.

The PSC will now have to take another look at the Kemper Country plant, said attorney Robert Wiygul, who represented the Sierra Club.

"It's going to be very difficult for an unbiased observer to say that this plant is a good idea given the current state of the energy market, the natural gas market and the economy," Wiygul said.

In 2010, the three-member PSC initially ruled that Mississippi Power failed to prove that the costly plant would benefit the utility's small customer base of less than 200,000.

Mississippi Power indicated that the $2.4 billion price cap imposed on the project by the commission would make it impossible to finance or construct the plant.

About a month later, however, the commission voted 2-1 to allow Mississippi Power to build the plant under revised conditions that included raising the price cap by nearly $500 million to $2.88 billion.

The Sierra Club called the second vote "an unprecedented flip-flop."

Brandon Presley, the lone Mississippi commissioner who voted against the Kemper project both times, called Thursday's Supreme Court ruling "a major victory for each and every customer of Mississippi Power Co and deals a serious blow to the company's corporate socialism."

"This plant is untried technology," Presley said in a statement. "The shareholders have no risks while the customers have all the risks along with a 45 percent rate hike to boot."

IGCC technology heats coal to convert it into a synthesis gas that is processed to remove sulfur, mercury and other pollutants before being sent to a traditional combined cycle power plant to produce electricity.

The plant was designed to use a gasification technology developed by Southern Co to burn Mississippi lignite and had support from state economic development groups and then-Governor Haley Barbour.

A number of IGCC projects have been canceled due to technical problems, high capital costs and a lack of federal regulation to limit carbon dioxide emissions.

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