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“Kemper Plant” County” Coal “Southern Company” “Mississippi Power” “Cleaner Energy” “Carbon Capture” Capture Utilization Storage” Sequestration” Lignite CCS CCUS EPA “Department DOE Gasification IGCC

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Mississippi Power's Kemper County energy facility
Mississippi Power’s Kemper County energy facility

Mississippi Power has revised the Kemper County energy facility cost estimate by an additional $70 million pre-tax estimated probable loss for the fourth quarter of 2014.

The revised estimate was included in the December 2014 monthly status report filed with the state Public Service Commission and a Form 8-K filed with the U.S. Securities and Exchange Commission.

The revised estimate is due to costs related to operational readiness, start-up activities, fuel, completion of construction and construction support costs during start-up and the price of fuel.

“Mississippi Power is committed to the success of Kemper for the long-term benefit of its customers as well as for the benefit of the communities where we will operate,” Mississippi Power President and CEO Ed Holland said, adding that there are already more than 300 permanent employees located in the Kemper area, directly impacting the local economy, jobs growth and community efforts.

Customers will not pay anything above the limit agreed to by regulators.

The next major milestone for the facility is expected to be the first gasifier heat-up, currently scheduled for the spring of this year.

Cautionary Note Regarding Forward-Looking Statements
Certain information contained herein is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning the estimated cost and schedule for project milestones and the completion of construction and start-up of the Kemper County integrated gasification combined cycle project (the “Kemper IGCC”) and impacts on customer rates. Mississippi Power Company cautions that there are certain factors that could cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Mississippi Power Company; accordingly, there can be no assurance that such suggested results will be realized. The following factors, in addition to those discussed in Mississippi Power Company’s Annual Report on Form 10-K for the year ended December 31, 2013, and subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: changes in tax and other laws and regulations to which Mississippi Power Company is subject as well as changes in application of existing laws and regulations; ability to control costs and avoid cost overruns during the development and construction of facilities, which include the development and construction of generating facilities with designs that have not been finalized or previously constructed, including changes in labor costs and productivity factors, adverse weather conditions, shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction or other agreements, operational readiness, including specialized operator training and required site safety programs, unforeseen engineering or design problems, delays associated with start-up activities (including major equipment failure and system integration), and/or operational performance (including additional costs to satisfy any operational parameters ultimately adopted by the Mississippi Public Service Commission (“PSC”)); ability to construct facilities in accordance with the requirements of permits and licenses, to satisfy any environmental performance standards, and the requirements of tax credits and other incentives, and to integrate facilities into the Southern Company system upon completion of construction; advances in technology; actions related to cost recovery for the Kemper IGCC, including actions relating to proposed securitization, Mississippi PSC approval of Mississippi Power Company’s proposed rate recovery plan, as ultimately amended, which currently includes the ability to complete the proposed sale of an interest in the Kemper IGCC to South Mississippi Electric Power Association, the ability to utilize bonus depreciation, which currently requires that assets be placed in service in 2015, and satisfaction of requirements to utilize investment tax credits and grants; Mississippi PSC review of the prudence of Kemper IGCC costs; the outcome of any legal or regulatory proceedings regarding any settlement agreement between Mississippi Power Company and the Mississippi PSC, the March 2013 rate order approving retail rate increases consistent with the terms of the settlement agreement, or the State of Mississippi legislation designed to enhance the Mississippi PSC’s authority to facilitate development and construction of baseload generation in the State of Mississippi; and the ability of counterparties of Mississippi Power Company to make payments as and when due and to perform as required. Mississippi Power Company expressly disclaims any obligation to update any forward-looking information.

APEC members learn about the innovative technology of the Kemper County energy facility
APEC members learn about the innovative technology of the Kemper County energy facility

The promise of dramatically reducing carbon emissions and using the world’s most abundant type of coal for more energy production brought another group of international visitors to Kemper County.

Members of the Asia Pacific Economic Cooperation spent two days in east Mississippi to tour Mississippi Power’s Kemper County energy facility and hold a series of workshops primarily focused on Southern Company and Mississippi Power’s innovative carbon capture technology which is poised to be applied commercially next year when the Kemper County energy facility begins commercial operation.

“This technology can be very important for improving the environment in China,” said Pang Guanglian, secretary general and senior economist for the China Petroleum and Chemical Industry Federation.

Pang said China faces significant air quality challenges, particularly in Beijing. Guanglian was one of about 40 participants in the tour at Kemper. Along with China, the tour included representatives from the United States, Mexico, Japan and a host of Pacific Rim nations interested in not only Southern Company’s innovative carbon capture technology, but also its patented gasification process. The process – transport integrated gasification or TRIG – is the first in the world capable of turning low-grade, high-moisture coal into power, and use captured carbon for enhanced oil recovery.

“Many of these economies are seeing a decline in their oil production and some of these economies depend heavily on revenue from oil production, and the purpose of these meetings is both carbon management and energy security,” said Craig Hart, associate professor at Renmin University in China.

“China is both a producer and consumer of technology,” Hart continued. “So the ability to use, buy or partner with regard to technology would, for them, be a boon but also be beneficial for U.S. companies to be profitable and helpful to the broader societal goals in the long term.”

Despite the diversity of language and background, APEC Kemper workshop participants were linked by the common belief that technology can address the environmental challenges facing the globe, and ensure that readily available fuel sources, like lignite coal, can be used cleanly, responsibly and affordably.

Pamela Tomski, of the Global Carbon Capture and Storage Institute based in Australia said even on her third trip to Kemper, the facility continues to impress.

“It’s amazing,” Tomski declared. “It’s an engineering beauty. Everyone is looking at the Kemper plant. Mississippi has an opportunity to be showcased on the global stage. The whole world sees it as a first of its kind facility that’s going to set an example for the rest of the world on how to burn coal more cleanly and without CO2 emissions.”

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Kemper-July-14

Mississippi Power’s monthly Kemper County energy facility status report with the state Public Service Commission includes an additional $418 million pre-tax estimated probable loss for the third quarter of 2014 and an extension of the plant’s expected in-service date to the first half of 2016.

As previously announced, the company has been reviewing the schedule for the remainder of the project, including the gasifier and gas clean up facilities. Additional time is required for start-up activities and operational readiness, including enhancing the scope of specialized operator training.

“While it will take longer to complete the project, and the capital costs are higher than expected, Mississippi Power still believes in the team that is responsible for constructing and starting up the plant, along with the operations team currently running the combined cycle and training personnel for full operation of the gasification facility,” CEO Ed Holland said.

“These teams are working hard to bring this plant safely online for the benefit of Mississippi Power customers for decades to come,” he added.

Major construction on the project is “essentially complete” and the combined cycle portion of the plant has been in service since early August. The plant has been running at a capacity factor of 80 percent and has a reliability rate four times better than the industry average for combined cycles, Holland said.

The company continues to be committed to the long-term success of the project and the implications it has for coal use around the world. Last month, the top climate technology official for the United Nations toured the plant and said the project “gives hope” to developing countries.

Certain information contained herein is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning the cost and schedule for completion of the Kemper County energy facility.
Mississippi Power cautions that there are certain factors that could cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Mississippi Power; accordingly, there can be no assurance that such suggested results will be realized. The following factors, in addition to those discussed in Mississippi Power’s Form 10-K for the fiscal year ended December 31, 2013, and subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: the impact of recent and future federal and state regulatory changes, as well as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings, or inquiries; available sources and costs of fuels; state and federal rate regulations and the impact of pending and future rate cases and negotiations; ability to control costs and avoid cost overruns during the development and construction of facilities; ability to construct facilities in accordance with the requirements of permits and licenses to satisfy any
operational and environmental performance standards and to integrate facilities into the Southern Company system upon completion of construction; advances in technology; actions related to cost recovery for the Kemper County energy facility and satisfaction of requirements to utilize investment tax credits and grants; Mississippi PSC review of the prudence of the Kemper County energy facility costs; the outcome of any legal or regulatory proceedings regarding any settlement agreement between Mississippi Power and the Mississippi PSC, the March 2013 rate order, or the State of Mississippi legislation designed to enhance the Mississippi PSC’s authority to facilitate development and construction of baseload generation in the State of Mississippi; and the ability of counterparties of Mississippi Power to make payments as and when due and to perform as required. Mississippi Power expressly disclaims any obligation to update any forward-looking information.

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The executive roundtable at the Gulf Coast Energy Forum. From left to right, moderator Lance Brown, executive director of the Partnership for Affordable Clean Energy; Jim Compton, general manager/CEO of the South Mississippi Electric Power Association; Mississippi Power CEO Ed Holland; Chip Pardee, EVP and COO of the Tennessee Valley Authority; Gary Smith, president and CEO of PowerSouth and Zeke Smith, Alabama Power executive vice president, External Affairs.
The executive roundtable at the Gulf Coast Energy Forum. From left to right, moderator Lance Brown, executive director of the Partnership for Affordable Clean Energy; Jim Compton, general manager/CEO of the South Mississippi Electric Power Association; Mississippi Power CEO Ed Holland; Chip Pardee, EVP and COO of the Tennessee Valley Authority; Gary Smith, president and CEO of PowerSouth and Zeke Smith, Alabama Power executive vice president, External Affairs.

Utility executives and energy policy makers met in downtown Mobile on June 5 for the 2014 Gulf Coast Energy Forum to discuss challenges and opportunities facing utilities in their efforts to serve customers with low-cost, reliable power.

A recurring topic of discussion throughout the day was the need for innovative solutions to problems facing the industry, including workforce development, transmission delivery and reliability and how federal mandates could impact the industry.

Michael Zehr, federal policy advisor with the Consumer Energy Alliance, said federal regulations can do more harm than good when they impose massive restrictions for minor benefit.

“To be successful, regulations should be designed to provide maximum environmental benefits with minimal financial impact on customers,” he said.

Investing in new technology

During a discussion on investing in new technology, Sen. Terry Burton (R-Newton), who is also chairman of the Energy Committee in the Mississippi Senate, said the Kemper County energy facility is a perfect example of the Department of Energy investing dollars in new technology.

“This plant will pay tremendous dividends down the line,” Burton said. “I think it will set the standard for a change in energy policy not only here, but in other parts of the country, and the world, as well.

“The investment by the federal government into this plant shows me that they believe in it too,” he added.

“We fundamentally believe there has to be a future for coal-fired capacity in this country and across the world,” said CEO Ed Holland, who participated in the forum’s executive roundtable. “But we have to use this resource cleaner than we have in the past. The technology we are applying at Kemper is drawing interest from countries all over the globe. We’re proud to be a leader in the area of carbon capture.”

Using renewable energy

While all members of the executive roundtable agreed that there is a place for renewables in a diversified energy portfolio, many cautioned that the cost of renewables should not come at the expense of customers.

“It can’t be done on the backs of ratepayers, some of whom struggle to pay as it is,” said Chip Pardee, executive vice president and COO of the Tennessee Valley Authority.

Holland also said renewables do have limitations since strong solar and wind resources exist in areas where few people live.

“We believe that you need to build generation as close to the source of consumption as possible,” he said, referencing the cautionary tales of previous blackouts in the Midwest, Northeast and desert Southwest.

Powering the future

Jim Compton, general manager and CEO of South Mississippi Electric Power Association, which will own a portion of the Kemper facility, noted the constantly changing environment of the utility industry.

“We have a real opportunity to meet the challenge of making our industry cleaner while keeping it affordable,” he said.

“We produce the most important product in our economy. Energy runs our homes, it runs our businesses. We owe it to our customers to keep the lights on.”

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By Matthew Bandyk

Southern Co. is arguing that its technology to gasify lignite to generate power at low CO2 levels can become a major player in the world power market, despite the recent cost overruns at the first U.S. facility to use the technology that have forced Southern to write off more than half a billion dollars after taxes so far.

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