With the undisputed evidence showing that Mississippi Power "stands on the brink of bankruptcy," the Mississippi Public Service Commission on Aug. 13 granted a temporary rate hike to this Southern Co. unit that allows cost recovery on the over-budget Kemper coal gasification project.
The evidence reveals that Mississippi Power has had assets in service since 2013 that are used and useful and that the combined cycle facility at the Kemper integrated gasification combined cycle project has provided substantial savings to customers in the year since going into operation, said the commission.
"Given the evidence of MPC's near insolvency, the Commission finds that MPC is in a state of financial emergency and that its rates are insufficient, justifying providing interim and emergency relief of $159 million to prevent further injury," said the Aug. 13 order.
MPC placed the transmission facilities into service in 2013, followed by the combined cycle facilities in 2014. The combined cycle units have been economically dispatched and have delivered savings to consumers in excess of $15.6 million, the commission ruled. MPC has received no rate recovery on those used and useful assets.
"MPC faces an impending cash shortfall, in which it will run out of funds in November 2015," the order noted. "MPC has lost access to the unsecured credit markets, and existing crediting facilities and secured financing are either insufficient or lack capacity to satisfy MPC's funding needs. MPC's credit rating and credit worthiness have been downgraded and are on a negative watch.
"MPC's impending financial woes will soon not allow it to fund its day-to-day operations and continue construction of the Kemper Project, jeopardizing its ability to provide safe, reliable service at reasonable rates. A lack of funds and access to funds is particularly concerning as we enter hurricane season, and the possibility of other damaging storms.
"MPC's emergency rate request is premised on assets that are presently, and have been, used and useful in providing service to its customers. The interim rate is not the same as Mirror CWIP, which was allowed in 2013. MPC is presently using company revenue to fund the Kemper Project; that is, MPC is taking money out of the business to fund Kemper construction.
MPC funds its entire business through roughly equal parts debt and equity and uses revenue and funds to operate its entire business. MPC will use revenue generated from the interim rates to fund, in part, the Kemper Project, the same as it does with rates in effect related to other parts of MPC's operations.
"Pursuant to its authority under the Public Utility Act, the Commission is not required to make a prudence determination prior to granting interim and emergency relief. The Commission, however, has established procedures and set a hearing on November 10, 2015, in which prudence, among other things, related to the In-Service Asset Proposal will be considered and ultimately decided no later than December 8, 2015.
"On June 11, 2015, the Mississippi Supreme Court issued its substituted opinion reversing the Mirror CWIP Order, ordering a refund of all revenue collections under the Mirror CWIP Order, voiding the 2013 Settlement Agreement reached between MPC and the Commission and remanding the case back to the Commission for further proceedings. The court issued its mandate on July 2, 2015, transferring jurisdiction back to the commission.
"On July 7, 2015, the Commission issued its Order on Remand in Docket No. 2013-UN-14, wherein it, inter alia, directed MPC to lower customer rates to remove the Mirror CWIP rate approved in 2013, beginning with the first billing cycle of August 2015. This resulted in no rate recovery related to the Kemper Project after July 20, 2015. The Commission's Order on Remand also directed MPC to file a Refund Plan to govern the refund of the Mirror CWIP proceeds. Interested parties were provided an opportunity to comment on the Refund Plan, and, on August 7, 2015, the Commission approved MPC's proposed Refund Plan, with modifications, such that the refund of the Mirror CWIP collections, in total about $350 million, shall be completed no later than December 4, 2015. This docket was initiated on May 15, 2015, by the Company's Notice of Intent to Change Rates Supported by a Conventional Rate Filing or, in the alternative, a Rate Mitigation Plan in Connection with the Kemper County IGCC Project ('Notice of Intent').
"The Notice of Intent proposed three alternative rate proposals for the Commission's consideration. Subsequent to the Supreme Court's mandate and this Commission's Order on Remand, MPC filed its First Supplemental Filing on July 10, 2015. The First Supplemental Filing offered a fourth alternative, termed the In-Service Asset Proposal, which was to take the place of the previously proposed 2019 RMP Proposal. MPC's First Supplemental Filing also requested an expedited order granting MPC "interim" rate relief until such time as the Commission can render a final decision on the In-Service Asset Proposal.
"This interlocutory order only addresses the Company's request for emergency, temporary rates. This order does not in any way relate to the merits of the four rate proposals currently pending in this case. This Commission has established, by separate order, a schedule by which the Company's In-Service Asset Proposal will be reviewed and ruled upon in a final Commission order. The scheduling order provides that hearings will begin on November 10, 2015, and that a final order is expected no later than December 8, 2015. This procedure will consider MPC's In-Service Asset Proposal and make corresponding prudence determinations. All parties of record and the general public will be provided adequate opportunity to be heard concerning any issues that may be raised concerning the Company's various rate proposals."
MPC told the commission it no longer has access to the traditional unsecured debt markets and that parent Southern Co. has become MPC's only potential lender. Yet, Southern Co. is an investor, a shareholder, and not a bank. Moreover, MPC, not Southern Co., holds the certificate to construct the Kemper Project and has the obligation to safely, reliably and cost-effectively serve Mississippians, which MPC cannot do with Southern Co. as a sole-source lender.