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Kemper Study

Kemper Study

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Published by the kingfish

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Published by: the kingfish on Dec 12, 2012
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07/10/2013

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 November 26, 2012
M E M O R A N D U M
 Re: Mississippi Power Company’s Kemper CountyIntegrated Gasification Combined Cycle Project Base Rate Impacts
Brubaker & Associates, Inc. (“BAI”) has developed an estimate of the retail base rateimpacts associated with the commercial operation of Mississippi Power Company’s (“MPC”)Kemper County Integrated Gasification Combined Cycle Project (“Kemper County IGCC”). Therate impacts are developed from public information obtained primarily from MPC’s filings beforethe Mississippi Public Service Commission (“Commission”) and Federal Energy RegulatoryCommission (“FERC”). Much of the specific Kemper County IGCC operating costs areclassified by MPC as confidential. For example, the detailed cost information that MPC used todevelop its rate impacts in Docket No. 2009-UA-14 was treated as confidential and was notshared publicly with the retail ratepayers. Basic cost items such as operation and maintenance(“O&M”) expense, depreciation rates, fuel cost and cost of parasitic load were classified by MPCas confidential and are not publicly available. Therefore, the first-year Kemper County IGCCcost estimates were developed from public information. The data and assumptions used by BAIto estimate the Kemper County IGCC revenue requirement and associated customer rateimpacts are discussed below.
Summary
The estimated retail rate impacts are summarized on
Attachment 1
.
Attachment 1
 shows the total estimated first-year revenue requirement for Kemper County IGCC, Mine and
 
 
MEMORANDUM - 2 - November 26, 2012
CO
2
Pipeline. In addition,
Attachment 1
shows the percent increase for the residential,commercial, industrial and other retail classes. Also shown is an estimated average increase indollars per year for the average residential, commercial and industrial customer. The analysisassumes that approximately 71.5% of the total costs are allocated to the retail ratepayers andapproximately 28.5% are allocated to the wholesale customers. An average-sized residential customer will see an estimated increase of $912 in theinitial year of operation ($76/month), or 61%. According to 2011 FERC Form 1 data, theaverage-sized residential customer uses 1,186 kWh per month. An average-sized commercial customer will see an estimated annual increase of $4,513($376/month), or 60%. According to 2011 FERC Form 1 data, the average-sized commercialcustomer uses 86,496 kWh per year or 7,208 kWh per month. An average-sized industrial customer will see an estimated annual increase of $282,760($23,563/month), or 54%. According to the 2011 FERC Form 1 data, the average-sizedindustrial customer uses 767,462 kWh/month.
Analysis
 A revenue requirement was developed individually for the Kemper County IGCC, Mineand CO
2
Pipeline. The revenue requirement is shown on
Attachment 2
. The revenuerequirement consists of a return on the rate base and income taxes, O&M expense,depreciation expense and property tax expense. The assumptions that were utilized to developeach component of the revenue requirement are discussed below. As previously indicated, allof the assumptions are developed from publicly available information.
 
 
MEMORANDUM - 3 - November 26, 2012
 An average rate base was developed for the first year of operation. The rate baseconsisted of the “Current View”
1
cost estimates for the Kemper County IGCC, Mine and CO
2
 Pipeline, the “Projected Allowance for Funds Used During Construction (‘AFUDC’) – Non-Mine,”additional AFUDC for 2012 through the in-service date, and reductions for accumulated bookdepreciation and deferred taxes. AFUDC was estimated and capitalized until the Kemper County IGCC is placed in-service.Specific publicly available O&M expenses were not available for the Kemper CountyIGCC, Mine and CO
2
Pipeline. Therefore, the estimated O&M expense of $75 million
2
wasallocated to these three items.Fuel cost and any potential fuel savings were not considered in the analysis. These datawere confidential and therefore were unavailable. Because of the unique nature of the plant’sprimary fuel source (new lignite mine), it was not feasible to estimate the fuel cost. The lignitefuel will be obtained from a Mississippi mine that is currently being developed.Considering the extremely high cost of Kemper County IGCC, the potential for significantsavings from fuel is questionable and has not been established by MPC based on current gasprices. Further, MPC’s documents reveal that Kemper County IGCC’s “Break Even FuelPricing” would require natural gas prices to be in the $11/MMBTU range in 2014 and increasingsubstantially thereafter. Currently, the price of natural gas is only in the $4/MMBTU range,which is much lower than the Kemper County IGCC “Break Even” presented by MPC. Inaddition, the plant will also use natural gas as a fuel source. The split between energyproduced by lignite and natural gas was unavailable, so any estimate of the fuel costs and/or potential benefit would have been arbitrary. Also, to develop the fuel cost it would be necessary
1
Monthly Status Report filed by MPC through May 2012, Docket No. 2009-UA-14.
2
See Assumption 3.

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