Rating agencies and regulators expect utility companies to maintain sound risk management and long-term planning strategies. For this reason, electric utilities value diversity in power generation options. “Reliance on one fuel or technology can leave them vulnerable to price and supply volatility,” says a Congressional Research Service study published in February.
The study cautions utilities from becoming too dependent on natural gas: “There is still much debate as to whether the ‘shale gas revolution’ will result in a predictable, long-term increase in supplies of natural gas at relatively low prices.” Always volatile, natural gas prices have doubled since reaching historic lows last year.
The study also points to a growing dilemma as aging coal-fired plants are retired. Pending EPA rules virtually eliminate building traditional coal-fired plants. “Only new coal plants with carbon capture and storage are likely to meet the proposed greenhouse gas regulations,” says the study.
The new “lignite plant” Mississippi Power Company is building in Kemper County is a carbon capture plant. It will gasify cheap lignite coal, burn the gas to generate electricity, and capture the carbon dioxide.
In 2009 when MPCo began discussions with the Mississippi Public Service Commission about its need to replace aging coal-fired plants, adding a new natural gas plant was considered. However, this would have made MPCo’s generating capacity 75% dependent on price-volatile natural gas. The Commission instead approved the lignite plant, giving MPCo a diversified capacity mix of 50% natural gas, 25% coal, and 25% lignite. Costs for lignite coal are low and stable.
Despite the sound reasoning that guided MPCo’s decision to build the lignite plant, based on EPA’s pending rules and the need for prudent fuel diversity, the company and the Commission have come under fire. Opponents voice concerns about the plant’s costs and electricity rate increases and argue MPCo should build a natural gas plant.
Reasons to avoid over-dependence on natural gas are profound and discussed above. The plant is costing more than projected, but cost overages are being covered by company stockholders, not customers. To pay for the plant, MPCo has sought Commission approval to increase rates 22%; 15% of that has already occurred. But the impact is far less. As MPCo increased rates based on new capital costs it also reduced rates based on lower fuel costs. Today, despite the 15% increase, the company’s electricity rates are about the same as in 2009.
In 1985 when Entergy completed Grand Gulf nuclear plant, rates jumped 54%. In 1981 when MPCo completed its Plant Daniel coal units, rates increased 30%. Both plants proved to be good investments, providing low-cost energy for decades.
“We the people” depend upon our elected Public Service Commissioners to make prudent forward looking, long-term decisions. They did so in approving MPCo’s lignite plant.