More workers, pipe needed to finish Southern Co coal project

HOUSTON, April 24 Wed Apr 24, 2013 5:50pm EDT

HOUSTON, April 24 (Reuters) - More high-quality pipe and more workers are needed to complete Southern Co's coal-gasification plant in Kemper County, Mississippi, by a 2014 deadline, company executives said on Wednesday.

Atlanta-based Southern Co said a $333 million charge to cover cost overruns at the Kemper plant reduced first-quarter earnings to $81 million, or 9 cents per share, from $368 million, or 42 cents per share, in the first quarter of 2012.

In a filing late Tuesday, Southern's Mississippi Power unit said the cost to build Kemper, a 582-megawatt, integrated gasification combined-cycle (IGCC) plant, had risen by $540 million to more than $4.2 billion, about double early estimates.

The parent company will absorb the cost overrun to maintain commitments made by Mississippi Power to state regulators, Southern Co Chief Executive Tom Fanning told investors.

Fanning said the company inaccurately estimated how much critical piping would be needed to marry the coal gasifier, carbon capture and turbine systems that will produce electricity.

"We made the decision to essentially improve the quality of (the piping), improve the thickness, improve the metallurgy," Fanning told investors on a call.

Another shift of workers has been added to get the plant into operation by a May 2014 deadline to take advantage of $133 million or more in investment tax credits and to be able to continue to accrue financing-related costs above a $2.88 billion limit set by state regulators.

"This Kemper situation is something that we're disappointed in," said Fanning. "We've got our heads down," Fanning said. "We're focused on this. And we're going to do everything we can to improve performance going forward."

Environmental group Sierra Club, which is challenging Kemper's construction, called on the Mississippi Public Service Commission to immediately review the prudency of the utility's investment in the costly project.

"The Sierra Club and our experts have been warning of this for years," said Louie Miller, state director of the group. "It's time to pull the plug on this dirty, expensive, and unnecessary boondoggle."

Fanning said the biggest challenge in getting Kemper operational on time is the instrumentation needed to "harmonize" the operation from coal intake to the gasifier, capture of carbon dioxide from the synthesis gas and transfer of the gas to turbines to generate electricity.

As Mississippi Power spends money at Kemper, Fanning said Southern Co will make a capital contribution to the utility, Southern's smallest with just 185,000 customers, to bolster its financial structure.

With the addition of new generation at Kemper, Southern's share of the output from two new Vogtle nuclear reactors which are under construction in Georgia and other long-term power contracts, Southern is unlikely to need additional power plants before 2023, Fanning said.

Southern's utilities burned more Powder River Basin coal in the first quarter than other types of eastern U.S. coal which are more expensive, but overall reliance on coal was steady at 32 percent of the generation mix, flat from the 2012 first quarter.

Despite rising prices for natural gas since 2012, Southern's use of gas increased to 47 percent of the generation mix in the quarter, from 45 percent a year ago.

First-quarter nuclear output fell to 16 percent from 19 percent a year earlier, with hydro output about steady.

Officials said they continue to investigate the cause of an April 4 explosion at Georgia Power's 3,166-megawatt, coal-fired Plant Bowen in Bartow County. Fanning could not say when the units there might return to service or whether the damaged unit will be repaired.

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