By Nick Lawton, Staff Attorney
Mississippi’s ratepayers are off the hook for billions of dollars in cost overruns at the long-delayed Kemper Power Plant, at least for the time being. The state Supreme Court has held that the Mississippi Public Services Commission (PSC) erred in allowing an 18% rate increase because the agency failed to evaluate whether Mississippi Power, the utility developing the power plant, incurred its costs “prudently.” The Court described the Commission’s failure to “balance the ratepayers’ interests with those of the utility” as resulting in a “grave injustice,” ordering the Commission to implement a refund for ratepayers.
Mississippi’s ratepayers are off the hook for billions of dollars in cost overruns at the long-delayed Kemper Power Plant, at least for the time being. The state Supreme Court has held that the Mississippi Public Services Commission (PSC) erred in allowing an 18% rate increase because the agency failed to evaluate whether Mississippi Power, the utility developing the power plant, incurred its costs “prudently.” The Court described the Commission’s failure to “balance the ratepayers’ interests with those of the utility” as resulting in a “grave injustice,” ordering the Commission to implement a refund for ratepayers.
I blogged recently
about the cost overruns and delays at the Kemper power plant, which is a new
type of coal-fired power plant that is supposed to prove the pipe dream of
“clean coal” by demonstrating the economic viability of carbon capture and
sequestration technology. Although the power plant will likely come online
eventually, the demonstration of “clean coal’s” economic benefits has
completely failed. The project, originally slated to cost roughly $2 billion,
has now reached a total cost of more than three times as much. The total cost, of above $6 billion, is greater than the entire budget of the state of Mississippi, as the Mississippi Supreme Court noted.
The essential question now is whether Mississippi’s
ratepayers or the utility should pay for the increased costs. The PSC initially
allowed the utility to pass those costs on to ratepayers, as I reported.
However, the Supreme Court found that the
PSC failed to consider whether the cost overruns were “prudent,” as state law
requires. (States generally require regulators to consider whether costs are “prudent”
before requiring ratepayers to shoulder them.) The upshot is that the utility
may have to swallow these billions of dollars in cost overruns, offering
ratepayers a refund for what they have already kicked in.
Or maybe not. The Mississippi Supreme Court ruled that the
PSC erred by failing to consider prudency. But the court did not itself resolve
the question of whether the utility incurred the costs prudently. The PSC could
revisit this issue and could conclude later that the utility did in fact act
prudently. If that happens, Mississippi’s ratepayers will once
more be on the hook. In fact, the utility has already said that it
plans to ask the Court to reconsider its ruling. The utility argues
that if it can’t recover costs during construction, the rate increases will
ultimately cost “significantly more,” roughly doubling the rate increase from
18% to 35%. Mississippi’s ratepayers should watch this issue closely.
Regardless of who pays and when, though, the moral of the
story is the same. This coal-fired power plant has turned out to be far more
expensive than expected. In fact, as the Mississippi Supreme Court noted, the Kemper
power plant’s costs are now higher than the entire budget of the state of
Mississippi for fiscal year 2014 or 2015. In short, this power plant—and
coal-fired power generally—are a bad investment. In contrast, solar prices are down and
solar employment is up.
The time has come for all states—including those in the reluctant South—to
transition to renewable energy.
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