By Robert Walton
May 3, 2019 - Southern Co. revealed Wednesday that its utility subsidiary Mississippi Power is facing an investigation by the U.S. Department of Justice, related to the failed Kemper coal gasification plant, in its latest 10-Q filing with the U.S. Securities and Exchange Commission.
The "clean coal" aspects of the plant ultimately never worked properly and were mothballed, but not before costs ballooned from $2.9 billion to $7.5 billion. Mississippi Power received hundreds of millions of dollars from the federal government in support of the plant, which now burns only natural gas.
The utility wrote off $6.4 billion in costs related to the project and last year a settlement zeroed out ratepayer responsibility for the project. But Southern's 10-Q warns that Mississippi Power's finances could face a "material impact" from the investigation and other decisions.
It's been almost two years since Southern pulled the plug on Kemper's coal gasification plans, but the financial implications of the debacle are still being sorted out. In addition to the DOJ investigation, the company's filing revealed there could be more costs related to portions of the plant's abandoned infrastructure.
Mississippi Power constructed a pipeline designed to move captured carbon dioxide away from the plant, for future use in enhanced oil recovery. But the gasification aspect of the plant never worked as planned, and the CO2 pipeline sits unused.
Southern said it is "currently evaluating its options regarding the final disposition of the CO2 pipeline, including removal of the pipeline." That decision will be made later in the year, the company said.
"If Mississippi Power ultimately decides to remove the CO2 pipeline, the cost of removal could have a material impact on Southern Company's financial statements," the company warned.
There were few details related to the DOJ's inquiry. Mississippi Power in December asked the federal government for a "property closeout certification under the contract related to the $387 million of grants received."
According to Southern, Mississippi Power and the DOE "are currently in discussions regarding the requested closeout and property disposition, which may require payment to the DOE for a portion of certain property that is to be retained by Mississippi Power."
In connection with the closeout, Southern said the Civil Division of the Department of Justice on April 29 informed the company of "an investigation related to the Kemper County energy facility." Southern warned that the outcome is unknown, but could also have an impact on Southern's bottom line.
Southern on Wednesday reported first quarter earnings, noting that after excluding certain items, the company earned $730 million during the first quarter of 2019, compared with $893 million during the first quarter of 2018.
"Earnings drivers year-over-year for the first quarter 2019 were negatively impacted as a result of divested earnings and milder weather at the state-regulated electric utilities," Southern said in a statement.