Mississippi Power Co. on Dec. 1 filed a revised settlement with several stakeholders on the company's troubled Kemper project, in which the utility's revenue requirement would be lower than what was agreed to in an earlier stipulation.
In response, state regulators canceled a previously scheduled Dec. 4 hearing to review issues at the integrated gasification combined-cycle facility in Kemper County, Miss., formally named Plant Ratcliffe. Members of the Public Service Commission say they need additional time to review the new filing before a meeting can be held.
The Southern Co. subsidiary, alongside certain interveners, is now proposing that its overall retail annual revenue requirement for Kemper be $112.6 million, down from the $117.8 million agreed to by parties on Nov. 22.
Earlier in the settlement process, Mississippi Power wanted to continue recovering $126 million annually, an amount approved by regulators in December 2015. Company officials said in August that they could have justified a $209 million annual recovery, but did not pursue it to abide by PSC requests, one of which was for Mississippi Power to not impose a rate increase on customers.
Under the proposed settlement, embedded cost of debt for 2018 would be 4.62%, and Mississippi Power would continue to target a 50% average equity capital structure ratio for 2018 and 2019. Terms of the settlement also include a return on equity of 8.6% for 2018 and 2019, with future years calculated using a performance-based ROE percentage.
Parties also concluded that the utility's annual budgeted operations and maintenance costs of $25.5 million in the 2018 revenue requirement are necessary and reasonable. They additionally agreed that the regulatory assets of the plant's in-service section would have an amortization period of eight years, with its regulatory liabilities seeing a six-year amortization time. Both would commence in January 2018.
The regulatory asset balance would be $115.9 million, and the regulatory liability balance would be $26.5 million, according to the revised settlement.
While the settlement "has gives and takes on both sides," RBC Capital Markets analyst Shelby Tucker wrote in a Dec. 1 note, "we ultimately view this as a positive development for [Southern]."
"We view this as a light at the end of a very long tunnel; while there are still various approvals needed, the path ahead seems much clearer," Tucker added.
Further settlement background
As has been previously stated in Kemper docket records, Mississippi Power said in the Dec. 1 settlement that it agrees to permanently remove from its retail rate base and rate base all costs of the coal gasifiers, operations for which were suspended in June after the PSC instructed its attorneys to draft an order directing the company to run only on natural gas at Kemper.
Mississippi Power as a result was forced to take a $2.8 billion pretax loss in its second-quarter 2017 income. Since the Kemper project started, the company has incurred $6 billion in pretax charges to income.
Southern Chairman, President and CEO Tom Fanning said on the company's second-quarter earnings call that once a settlement is approved by the PSC, Mississippi Power will also incur pretax Kemper cancellation costs of $100 million to $200 million.
The Southern subsidiary will also have to file a reserve margin plan with the PSC detailing a forecast of customer load and energy requirements, an evaluation of resources available to meet energy and capacity needs, an implementation of demand-side management and energy efficiency programs, and a plan for complying with environmental laws and regulations.
Signatories to the settlement were Mississippi Power, PSC staff, Chevron Corp. subsidiary Chevron Products Company, federal executive agencies and Chemours Co. subsidiary Chemours Company FC LLC.
Other intervenors in the docket, including the Mississippi attorney general's office and Wal-Mart Stores Inc., did not sign the Dec. 1 settlement. Denbury Resources Inc., the Central Mississippi Building and Construction Trades Council, the East Mississippi Business Development Corp. and the Ministerial Alliance Partnership had joined Mississippi Power for an Aug. 21 agreement, but were not party to the Dec. 1 settlement.
Southern said Dec. 1 that it will not face an enforcement action by the SEC related to Kemper, which was the subject of a recently-closed federal investigation.
The PSC said it will issue a scheduling order on or before Dec. 8 that sets a hearing date for the revised settlement, along with deadlines for filing comment.
