* Utility outlines milestones to complete coal plant
* Kemper construction costlier than nuclear on kilowatt
* Nuclear loan talks with Energy Department see new momentum
By Eileen O'Grady
HOUSTON, July 31 A second costly increase in the
budget for Southern Co's Kemper County coal-gasification
plant in Mississippi will keep the project on schedule for
completion in May 2014, Southern Co Chairman Tom Fanning told
investors on Wednesday.
A day earlier, Southern's smallest utility unit, Mississippi
Power, disclosed that an additional $450 million will be needed
to finish the 582-megawatt integrated gasification
combined-cycle (IGCC) plant by mid-2014, pushing the total
project cost to nearly $5 billion.
Atlanta-based Southern Co is building the advanced coal
plant to showcase its gasification technology and is one of two
U.S. power companies building new nuclear reactors.
Southern's Georgia Power unit's share of the 2,200-MW
expansion at the Vogtle nuclear plant will cost nearly $7
billion, a price now exceeded by Kemper on a per-kilowatt basis.
Southern Co recorded a $278 million charge in the quarter
ended June 30 as Kemper's price tag rose for a second time this
year. Southern took a first-quarter charge of $333 million due
to cost overruns of $540 million for the project.
Fanning said the additional $450 million is needed to
maintain key project milestones including $100 million for
contingencies while the earlier cost increase was tied to
material needs, such as more piping.
Fanning would not rule out additional cost overruns at
Kemper, but said the recent financial review was "very, very
An executive review committee of senior Southern officials
visited the site and met with two newly named Mississippi Power
executives. "We've really torn those numbers apart," Fanning
said. "It is our best estimate."
Mississippi Power expects to begin test-firing Kemper's
combustion turbine in late August, align the steam turbine to
the electric grid in October and heat up the first gasifier by
the end of the year, Fanning said.
Despite the nearly $1 billion cost overrun which Mississippi
Power will not be able to recover, Fanning said the project
remained "attractive" for the utility's 185,000 customers, but
not for Southern Co shareholders.
"It has the economics of a nuclear plant with relatively
high capital costs (and) very cheap energy," Fanning said. "Is
it attractive to Southern's shareholders? No. We are taking a
hit here. We understand that."
Fanning said it was unlikely the same problem of late cost
increases will occur at the Vogtle nuclear site.
He said the Mississippi utility agreed to a $2.88 billion
cost cap mandated by the Mississippi Public Service Commission
in 2010 at a point when engineering work for Kemper was just 15
"We only knew we had the problem once the engineering became
complete and we saw the implications" on construction, he said.
"That is completely the opposite of what we have seen at
Vogtle," Fanning said, due to the two-phase federal nuclear
regulatory licensing process which calls for a majority of
engineering work to be completed in advance of construction.
Fanning cited "positive momentum" on its negotiation for an
$8.3 billion loan guarantee for Vogtle following the
confirmation of Ernest Moniz as secretary of energy.
Terms of the loan were expected to be finalized last year.
The Energy Department recently extended the negotiating deadline
to Sept. 30.
"Our view is that we've had a renewed sense of urgency,"
Fanning said, declining to predict whether or not the talks will
Fanning has said the utility will only pursue the loan
guarantee if it benefits Georgia Power customers.