Southern Co's coal unit delayed, forfeits tax benefit

HOUSTON Wed Oct 2, 2013 11:14pm EDT

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HOUSTON Oct 2 (Reuters) - Southern Co's $5 billion project to build one of the first coal-fired power plants that captures carbon dioxide emissions will be delayed beyond May and so will miss out on $133 million in tax incentives, the company said in a filing.

Rainy weather in the summer and low labor productivity will delay completion of the plant in Kemper County, Mississippi, until later in the year, Southern said on Wednesday, despite raising the project's budget in July to meet the May deadline.

Southern's smallest utility unit, Mississippi Power, is building the 582-megawatt integrated gasification combined-cycle (IGCC) plant near oil fields, meaning it can capture and inject underground the majority of carbon dioxide it emits to increase oil field production.

The plant's unique location, however, led Southern last month to caution regulators not to use it as a standard for future coal-fired plants.

"The expected extension of the schedule beyond May 2014 reflects Southern Company's and Mississippi Power's current analysis of the time needed to complete the construction and start-up activities of the Kemper IGCC," the companies said in a filing with the Securities and Exchange Commission.

The delay means Mississippi Power will not be eligible for $133 million in investment tax credits and potential future tax credits.

COST OVERRUNS

A revised construction schedule and any resulting changes to cost will be detailed later this month, Southern said.

Cost overruns have increased the plant's price tag twice this year to nearly $5 billion, more than twice the initial estimate. As a consequence, two executives involved with the project have been replaced.

Southern can recover $3.8 billion in related costs from Mississippi Power's 185,000 customers. It said it anticipates no change to customer rates proposed under a plan approved earlier this year by the Mississippi Public Service Commission.

In July, Southern increased the project's budget by $450 million to keep it on schedule. Before that, it raised the budget by $540 million for additional piping systems critical to transfer fuel from the coal gasifier to the turbines that produce electricity.

In early August, Mississippi Power began testing the plant's auxiliary boiler which will turn water into steam. In late August and early September, workers began test-firing the combustion turbines.

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