March 17, 2017

Alleged Mismanagement of the Kemper County Plant Under the Clean Coal Power Initiative

In February 2006, the Department of Energy awarded a cooperative agreement to Southern Company Services (Southern) under the Clean Coal Power Initiative to design, construct, and operate a coal-based power plant in Orlando, Florida.  The project was later relocated to Kemper County, Mississippi in December 2008 due to a Florida state regulatory change that required the addition of carbon capture and storage technology, rendering the project technically and economically impractical.  Based on the revised cooperative agreement, the construction and demonstration phases were to be completed by May 2018 at an estimated cost of approximately $1.6 billion , of which the Department’s share was about $270 million.  Under the Consolidated Appropriations Act of 2016, the Department’s share was increased by over $136 million to over $406 million.  As of January 2017, the Department had reimbursed Southern approximately $382 million for project costs and the completion date had been revised to April 2020.

We received a complaint alleging misconduct by plant managers of the project.  In particular, the complainant alleged that the project’s cost and schedule were drastically understated and problems at the plant were repeatedly concealed.  Problems included time delays, cost overruns, safety violations, and shoddy work as a result of mismanagement or fraud.  We initiated this inquiry to evaluate actions taken by the Department to oversee the Kemper County Project’s technical and financial performance.

In regard to the actions taken by the Department to oversee the Project’s technical and financial performance, we identified substantial oversight activities provided by the Department. Officials also noted that the project’s performance was being overseen by independent monitors, representing the Mississippi Public Service Commission, who sit on-site and prepare monthly assessment reports that identify any issues which could impact the project.

We did not review allegations regarding misconduct by plant managers due to an on-going investigation by the Securities and Exchange Commission (SEC).  As of January 2017, the investigation was still ongoing.  Our inquiry was limited to identifying the oversight activities provided by the Department.  Given the ongoing SEC investigation, we did not independently review costs submitted by Southern to the Department for reimbursement.  As such, we provide no opinion at this time regarding the allowability of those costs.

Following the SEC investigation and, based on the results, we will make a determination regarding any necessary future work with respect to this inquiry.  No formal recommendations were made in this report.

Topic: Financial Assistance