Dive Brief:

• The Mississippi Supreme Court ruled Thursday that the state Public Service Commission overstepped its authority in approving hundreds of millions of dollars in rate increases to cover the costs of Mississippi Power's Kemper County coal gasification plant, SNL Energy reports. The Southern Co. subsidiary must refund the money to its 183,000 ratepayers, the court said. 
• The 5-4 decision stemmed from PSC decisions that allowed Mississippi Power to collect $125 million in 2013 and $156 million in 2014 to build the yet-unfinished plant. The regulators violated the law, the court said, because they did not assess whether the construction costs were being prudently incurred.
• The ruling prevents the PSC from approving any more rate increases until it conducts prudency hearings on the past cases, a stipulation that could threaten Mississippi Power's ability to finance the construction of the over-budget power plant. 

Dive Insight:

Mississippi Power's Kemper County plant is an integrated gasification combined cycle (IGCC) plant, meaning it aims to convert coal to a cleaner-burning gas to comply with environmental regulations. The ambitious project began in 2008 with a price tag of $2.2 billion, but has since ballooned to $6.17 billion. 

Mississippi Power says the plant's experimental nature is the cause for the cost overruns. A spokesperson told Utility Dive in December that construction began with only 15-20% of the design completed. 

The utility soon found it would need to increase rates to complete construction, and the PSC allowed them to do so. Now, the state's highest court says regulators failed to assess whether or not those costs were being prudently incurred and essentially took the utility on its word that the increases were needed.

"By not conducting prudency hearings, the Commission ... acted arbitrarily without lawful authority," the ruling read.

The court said that the PSC may not approve any more rate increases "until the Commission is in compliance with the Court's opinion," and ordered regulators to conduct prudency hearings on the costs already incurred. 

A Mississippi Power spokesperson told the Hattiesburg American that the company is still evaluating the decision on Thursday. In another article, a spokesperson told the Clarion-Ledger that the rate increases the court struck down were necessary to prevent bigger hikes in the future. 

That could threaten Mississippi Power's preferred method for financing Kemper construction, SNL points out, because state regulators decided last year that they would not declare the project to be "prudent" until the coal gasification facility is up and running. The Kemper plant is currently burning traditional natural gas and is slated to be finished sometime in 2016.