Dive Brief:  

• Mississippi regulators on Wednesday voted to direct Southern Co. to work up a settlement plan on the Kemper Integrated Gasification Combined Cycle (IGCC) plant would allow the plant to run solely on natural gas. 
• The plant, originally budgeted at less than $3 billion, was designed to convert locally-mined coal into a synthetic gas. But construction delays and overruns have more than doubled the price tag to about $7 billion, leading critics to call for the gasification portion to be scrapped. 
• The PSC voted 3-0 to direct its counsel to begin drafting an order on the plant for its July 6 meeting. The commissioners also said the order should include directives to prevent further rate increases and remove ratepayer risk for the gasifier assets. 

Dive Insight:

Just weeks after Mississippi Power revealed the company would need to continue working on the gasification portion of the plant for years, regulators are hitting the brakes. 

The utility, a unit of Southern Co., recently told regulators the facility was expected to be operational by the end of June — but would still require improvement projects "over the next several years" to fix leaks in equipment that handles heated gas, and with other issues. 

In response, the Mississippi Public Service Commission passed a motion instructing its lawyers to "prepare an
order pursuing potential solutions regarding the Kemper County Power Generation Facility."

In a statement, the PSC said the order would direct the utility "remove risk from ratepayers for the lignite coal gasifier and related assets," and specified that Mississippi Power would not be allowed to recover additional Kemper funds from customers.

As part of the order, the PSC said it would direct the utility to design a settlement that would "allow only for operation of a natural gas facility at the Kemper Project location."

Critics of the project took the PSC statement as an indication that the costly gasification project will soon be abandoned. 

“They just put a dagger in the heart of it,” Charles Grayson, a retired consultant and project critic, told the Wall Street Journal. 

A statement from Mississippi Power was less dire, saying the company will review all its options on Kemper. 

"The PSC provided several guidelines to consider for the negotiations, including the possibility of the project only operating as a natural gas-fueled combined cycle plant," the statement read. "We expect the process for any negotiations and this new docket will be formally addressed as part of a proposed order the commission will consider at their July 6 meeting."

The 582 MW Kemper project was designed to convert locally mined lignite into a synthetic gas and to capture up to 65% of the carbon dioxide emissions from the plant. But the project has been delayed multiple times and has racked up billions in cost overruns.

In 2012 the project was estimated to cost $2.4 billion, but that cost rose by $5 billion over five years.

Kemper has periodically run on syngas for about 200 days, according to Southern, but has not been able to fully integrate the coal gasification process over extended periods of time. The company has declined to specify how long the gasifiers can operate without needing to be shut down.

In May, Southern CEO Tom Fanning told analysts that the gasification portion of the plant was a "hedge" on natural gas prices — and that it was possible Kemper could end up operating simply as a combined cycle gas plant. 

According to the Journal, Mississippi Power already has more than $1 billion in liabilities related to the project.