Southern's Clean-Coal Woes Mount -- WSJ
May 16 2016 - 3:03AM
Dow Jones News
Kemper facility in Mississippi faces SEC investigation on top of
skyrocketing costs
By Rebecca Smith
A Mississippi power plant intended as a showcase for clean-coal
technology has turned into a costly mess for utility Southern Co.,
which is now facing an investigation by the Securities and Exchange
Commission, a lawsuit from unhappy customers and a price tag that
has more than doubled to $6.6 billion.
On Friday, Southern's credit rating also was downgraded one
notch by Fitch Ratings and Moody's Investors Service, mostly
because of its purchase of a gas utility, and because of cost
overruns for the Mississippi project and new nuclear reactors it is
building in Georgia.
The SEC is looking into Southern's financial controls and
disclosures for the Kemper County Energy Facility in Mississippi,
the company disclosed in a regulatory filing this month, amid
claims by a former project manager that it misled the public about
how long construction would last.
The Atlanta-based company also faces a lawsuit from Mississippi
businesses concerned they will be saddled with high costs to pay
for the Kemper plant, which is generating power but remains
unfinished.
"The people of south Mississippi are struggling," said Michael
Avenatti, the lawyer representing the ratepayers. "They can least
afford to be saddled with this boondoggle."
The power plant, financed in part with federal subsidies, aims
to take locally mined coal, convert it into a flammable gas and use
it to make electricity. Most of the carbon dioxide will be captured
and used for enhanced oil recovery, reducing the environmental
impact.
Conceived as a first-of-a-kind plant, it currently looks to be
the last of its kind in the U.S., though China and other nations
have expressed interest in the technology. Kemper costs have
swelled to $6.6 billion, far above the $3 billion forecast in
2010.
Southern spokesman Tim Leljedal said the company remains
convinced that the Kemper plant "is the right project for
Mississippi."
The SEC declined to confirm or deny its investigation. Southern
said it believes the probe is focused on "accounting matters,
disclosure controls and procedures, and internal controls over
financial reporting." The company said it is fully cooperating with
the inquiry.
A former Kemper project manager said he was let go after
complaining to top company officials that public estimates for the
project's completion were unrealistic and misleading.
Brett Wingo, who was a project manager for the gasification
portion of the plant, said he thinks the company put a positive
spin on construction so it wouldn't have to acknowledge to
investors it was likely to lose federal subsidies due to
delays.
To date, Southern has paid back $368 million in federal tax
credits for missing deadlines, but believes it will be able to keep
$407 million in grants from the Energy Department.
"I think they fired me because I wouldn't quit raising ethics
issues," said Mr. Wingo, who was put on paid administrative leave
in August 2014 and was let go this past February.
Southern's Mr. Leljedal said the company wouldn't comment on Mr.
Wingo's termination. But he said the company has fully investigated
and concluded "his concerns were unsubstantiated and not otherwise
supported by the facts."
The state lawsuit by ratepayers, including a casino resort
operator and a shrimp processor, contends that customers and
investors weren't told important information about the project's
problems and are being harmed by rate increases to pay for the
plant. It seeks unspecified damages.
The utility said it believes the lawsuit is without merit.
Southern has recorded charges that have reduced earnings in 13
of the past 14 quarters that total $2.5 billion pretax ($1.52
billion after-tax) amid rising costs for the project. The charges
were required because Southern's Mississippi Power Co., the
subsidiary building the plant, agreed to cap costs billed to its
customers.
Company executives have said early cost estimates were low
because Mississippi Power started construction before engineering
drawings were completed.
Kemper has been producing electricity since 2014, but by burning
natural gas instead of coal while work continues on the plant's two
coal gasifiers. Southern is aiming to complete the project in
September, though an independent monitor recently told state
regulators it might take longer, as it tackles problems including
cracking in insulating material in the gasifiers.
Southern said this week it has completed repairs to refractory
material in one gasifier and is making progress on another.
Write to Rebecca Smith at Rebecca.Smith@wsj.com
(END) Dow Jones Newswires
May 16, 2016 02:48 ET (06:48 GMT)
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