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Southern Co's Miss. IGCC plant faces new challenge

HOUSTON, April 24 (Reuters) - Mississippi's attorney general has questioned the state's authority to approve a $2.2 billion coal-gasification plant that Southern Co. SO.N wants to build, throwing the future of the proposed lower-emission power plant into doubt.

Southern’s smallest utility unit, Mississippi Power, wants the Mississippi Public Service Commission to certify the need for a 582-megawatt integrated gasification combined-cycle (IGCC) power plant in Kemper County.

Mississippi Power plans to use IGCC technology to convert locally mined lignite into a synthesis gas that is processed to remove pollutants before being sent to a combined-cycle power plant to generate electricity.

The utility has proposed sequestering half the Kemper County IGCC plant’s emissions of carbon dioxide, a gas blamed for global warming.

Despite growing climate change worry, few IGCC projects in the U.S. are advancing due to cost and regulatory uncertainty.

The utility wants the commission to sign off on the project by autumn so it can meet an operating deadline to qualify for nearly $500 million in federal incentives.

Attorney General Jim Hood’s office challenged the Kemper County project on a number of fronts in a filing last week.

The filing questions whether Mississippi Power, under state law regulating electric utilities, can build and charge customers for a plant that will “manufacture fuel and chemicals - with the ratepayers taking the cost and technology risk.”

The attorney general likened Mississippi Power’s request to asking for “authority to go into the drilling, exploration and production business for natural gas and asking for ratepayers to shoulder the risk.”

Mississippi Power’s desire to earn a return on costs to build the gasification side of the project “enters into legal, regulatory and technical areas never seen before in Mississippi,” the filing stated.

Hood also asked the commission to strike the utility’s request to raise rates, saying the filing lacks documentation required under state law. Mississippi Power wants to charge customers for some Kemper County financing costs beginning in 2011 before construction is complete.

“We respect the attorney general’s obligation to do his job,” said Cindy Webb, a Mississippi Power spokeswoman, in an email. “We look forward to participating in the upcoming hearing at which time we hope to alleviate his concerns.”

Mississippi Power said the IGCC plant is the best option to meet growing power demand by 2014.

Hood's challenge to Southern Co's plan follows a lawsuit filed last year against the state's other investor-owned utility, Entergy Corp ETR.N.

The AG’s pending suit charges that Entergy Mississippi raised fuel costs by forcing its customers to buy the highest-priced power Entergy generates.

Hood’s action in Mississippi raised questions about Entergy’s fuel practices among Louisiana utility regulators.

Opponents of the Kemper County project have called it “the largest single addition to any Mississippi utility’s rate base from any generation facility” in state history. Mississippi Power has 189,000 customers. (Editing by Chris Baltimore; Editing by Marguerita Choy)