Southern Co. CEO defends power project

May 23, 2013 10:31:46 AM

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PINE MOUNTAIN, Ga. -- The head of Southern Co. called the decision to write off $540 million in extra costs on a Mississippi power plant "a bitter pill for us to swallow," but he defended the project Wednesday as a long-term investment for the large utility. 

 

Southern Co. has absorbed the unexpected charges of building Plant Ratcliffe in Mississippi's Kemper County, a showcase facility designed to capture much of the carbon dioxide produced while burning local coal to make electricity. The carbon dioxide will then be sold to companies that use it to extract oil. If successful, supporters say the plant would prove the United States can still rely on coal as a fuel even if it moves to trim carbon dioxide emissions, a gas blamed for global warming. 

 

Losses from the plant, a project of Southern Co. subsidiary Mississippi Power, proved a drag on the parent company's net income, which fell 78 percent to $81 million during the first three months of the year compared to $368 million during the same period last year. Mississippi Power said it will not pass the extra costs on to its customers. 

 

"That was a bitter pill for us to swallow," CEO Thomas Fanning said, responding to a question during an annual meeting of shareholders in Georgia.  

 

"But it was appropriate. It shows, I think, appropriate corporate responsibility in this issue." 

 

The cost of the plant has increased sharply. To ease the pressure, Mississippi Power is issuing up to $1 billion in bonds to help pay for project overruns. Southern Co. has shaken up its local leadership. Mississippi Power President Ed Day abruptly retired this week, a move that company officials say was probably connected to project pressures. Fanning said Day reached the decision to leave on his own, though Fanning said the two executives discussed it. 

 

One project critic, Linda St. Martin, representing Mississippians For Affordable Energy, challenged Fanning on whether the company has accounted for all costs. 

 

"What is going to be the next shoe that falls?" she said. 

 

Much of the cost increase was related to the design of the facility's chemical plant, the system that will strip carbon dioxide out of its emissions, Fanning said. The need for more workers at the site and a related drop in productivity were also factors. 

 

Still, Fanning defended the power plant as viable in the long run. Without building a coal plant, Mississippi would be overly dependent on natural gas plants for its electricity, he said. A big dependency on natural gas could mean big fluctuations in customer bills if gas costs change. The plant should create electricity while producing less carbon dioxide emissions than a natural gas plant. 

 

"Let me assure you this, Kemper County is providing jobs, providing tax base and providing cheap energy for decades into the future," he said. 

 

Duke Energy, the nation's largest electric utility, also faced enormous cost overruns with a similar new coal plant now nearly complete in Edwardsport, Ind. The plant was originally expected to cost $1.9 billion and begin operating in 2012. Construction overruns pushed the price up to $3.5 billion, and the company is hoping to begin operations by mid-2013. Indiana regulators ruled in December that Duke would have to cover $900 million of the extra costs, and ratepayers would have to pay the other $700 million.