l PHASE TWO DIRECT TESTIMONY

2 OF

3 THOMAS O. ANDERSON ÅÛ4 On Behalf of MISS.PUBLIC SERV¡c

5 MISSISSIPPI POWER COMPANY COMMISSIO

6 BEFORE THE MISSISSIPPI PUBLIC SERVICE COMMISSION

7 DOCKET NO. 2009-UA-0014

8

9 Q. Please state your name, position with Mississippi Power Company, and business

10 address.

l I A. My name is Thomas O. Anderson. I am the Vice President, Generation Development for

12 Mississippi Power Company (MPC or the Company). My business address is 2992 West

13 Beach Boulevard, Gulfport, Mississippi 39501.

14 Q. Please describe your education and professional experience.

15 A. I joined Southern Company Services (SCS) in 1979 as a co-op student with SCS in the

16 Engineering organization. After graduating from Auburn University in 1982 with a

17 bachelor's degree in Electrical Engineering, I began working in SCS Engineering,

18 Nuclear Support. After an initial assignment in the Engineering office, I transferred to

19 Georgia Power Company's Edwin I. Hatch nuclear plant in 1983, where I served as a

20 field engineer and a group supervisor. I was named Engineering Group Manager for the

2 i Hatch Project at SCS Engineering in 1989. In 1994, I transferred to SCS System

22 Planning, where I served in a variety of planning roles supporting the Southern Company

23 operating companies and Southern Electric International (SEI). In 1996, I was selected to

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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l participate in a Southern Company management development program, in which I did

2 several 6-8 month rotations through Market Analysis, Finance, and Wholesale Marketing.

3 In 1998, IjoinedSouthern Wholesale Energy as an energy trader on the Southern trading

4 floor. In 1999, I was appointed Manager, Generation Development, at SCS. In this role,

5 I was responsible for the development of new generation projects for the wholesale

6 market, including the construction of two simple cycle and eight combined cycle projects

7 that are presently owned by Southern Power Company. After the initial development,

8 competitive bidding and Power Purchase Agreement (PPA) phases, I was responsible for

9 the management of the aforementioned projects through the permitting and approval

10 process, and through the completion of engineering, procurement, construction and start11 up, to the point at which the units were turned over for commercial operation. In 2008, I

12 was named Director, Kemper County Integrated Gas Combined Cycle Project (the

13 Project as defined below) for Mississippi Power, reporting to the Senior Production

14 Officer for Mississippi Power Company, where my responsibilities were for the direction,

15 development, evaluation, planning and execution of the Project. In July 2009, I was

16 elected by the Mississippi Power Company Board of Directors to the position of Vice

17 President, Generation Development. In that capacity, I am responsible for new

18 generation resource project development, including the Project.

19 Q. Have you ever testified before the Mississippi Public Service Commission (the

20 Commission or MPSC)?

21 A. No, I have not.

22 Q. Have you read the petition and examined the exhibits attached thereto?

23 A. Yes, I have.

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On Behalf of Mississippi Power Company

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REVISED

12-08-09

1 A. Yes, I have.

2 Q. Are the facts presented in the petition and as set forth in the exhibits true and

3 correct to the best of your knowledge?

4 A. Yes, they are.

5 Q. Do you sponsor any exhibits with your testimony?

6 A. Yes. I am sponsoring the following exhibits:

7 Exhibit (TOA-1) Updated Design, Description And Cost Of Kemper

8 County IGCC Project (Formerly KDF-2);

9 Exhibit (TOA-2) Historical EFOR Rate For Southern Company

10 Combined Cycle Fleet; and

11 Exhibit (TOA-3) DOE Flowchart Of NEPA Record Of Decision (ROD)

12 Process.

13 Q. Were these exhibits prepared under your supervision and control?

14 A. Yes, they were.

15 Q. Do any of theseExhibits contain information that is confidential in nature?

16 A. Yes. Appendices B, E, G, K, N, P, Q and S of Exhibit (TOA-1) contain confidential

17 commercial and financial information or information in the nature of a trade secret that

18 are confidential and proprietary and that have commercial value and would place the

19 Company at a competitive disadvantage if publicly known. These Appendices have been

20 appropriately marked "confidential" and filed under separate confidential cover with the

21 Commission and Mississippi Public Utilities Staff (Staff) pursuant to Mississippi law and

22 the Commission's Public Utilities Rules of Practice and Procedure. In addition, certain

23 confidential information is being provided under terms of confidentiality agreements

24 executed between and the Company and specific parties in this proceeding.

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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l A. In the Company's January 16, 2009, filing, Ms. Kimberly Flowers provided a description

2 of the Kemper County IGCC Project in her testimony and in her Exhibit (KDF-2)

3 and supporting Appendices. In the Commission's November 9, 2009, Order

4 Supplementing Phase Two Procedures, the Commission directed Mississippi Power

5 Company "to update its Kemper IGCC project proposal."' The purpose of my testimony

6 is to adopt and update Ms. Flowers's testimony with respect to the costs, design,

7 construction, start-up, performance, and operation of the Project. I will also update Ms.

8 Flowers's update of the lignite mining operation for the Project. Additional Project

9 information is provided in Exhibit (TOA-1), an updated version of Ms. Flowers's

10 previously filed Exhibit (KDF-2).

ll

12 KEMPER COUNTY IGCC PROJECT DEVELOPMENT

13 Q. Have there been any changes to the Project since the Company's original January

14 16, 2009, filing?

15 A. Yes. An updated Kemper County IGCC Project Description is provided in

16 Exhibit (TOA-1). To provide a complete description of the Project, this exhibit is

17 resubmitted in its entirety, including the portions unchanged from Ms. Flowers's January

18 16, 2009, Exhibit (KDF-2).

19 As with any large, new plant construction project, changes during the period of

20 project development are normal and to be expected. Since the Company's January 16,

21 2009, filing, changes have occurred to the Project, including the planned commercial

' Order Supplementing Phase Two Procedures, MPSC Docket No. 2009-UA-0014 (Nov. 9, 2009).

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On Behalf of Mississippi Power Company

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l service date, major equipment suppliers, carbon capture rates, water usage, land status,

2 transmission, permitting, and others. With the exception of the transmission changes,

3 which will be addressed in Mr. James Cochran's Phase Two direct testimony, all

4 material changes are included in Exhibit (TOA-1) and described through my direct

5 testimony.

6 Q. Have the basic design or operational characteristics of the Kemper County IGCC

7 Project changed?

8 A: No, the basic design and operational characteristics of the Project are the same as

9 presented in the January 16, 2009, filing, although some aspects of the Project have

10 changed as described below. MPC is requesting a certificate of public convenience and

11 necessity authorizing the Company to construct, acquire, operate, and maintain the

12 Kemper County IGCC Project in Kemper County, Mississippi, consisting of (i) a lignite13 fueled solid-fuel baseload electric generating facility, comprised of a two-on-one (2-on-1)

14 integrated gasification combined-cycle (lGCC) with a net summer output capacity of 582

15 MW2 (Plant); (ii) environmental equipment for the reduction of various emissions from

16 the Plant, including but not limited to, equipment and facilities for the capture of

17 approximately 65% of the carbon dioxide (CO2) emissions from the Plant; (iii)

18 approximately sixty miles of electric transmission lines with voltages varying from I 15

19 kV to 230 kV; (iv) three new transmission substations; (v) approximately five miles of

20 natural gas transportation facilities to accommodate natural gas deliveries to the Plant;

21 (vi) approximately 30 miles of water transportation facilities to accommodate the

2

The Plant will consist of 522 MW of lignite-fueled baseload generating capacity and 60 MW of natural

gas-fired duct firing peaking capacity.

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On Behalf of Mississippi Power Company

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l delivery of the City of Meridian treated wastewater to the Plant site for the Plant's

2 cooling and process water needs; (vii) mineral leases, mining equipment and all facilities

3 needed to mine lignite; (viii) the option to own the approximately 55 miles of CO2

4 pipeline necessary to transport CO2 from the plant boundary to oil fields suitable for

5 Enhance Oil Recovery (EOR); and (ix) the related facilities necessary for the efficient

6 and effective construction, acquisition, operation, repair, and maintenance of the Project

7 (collectively referred to as the Kemper County IGCC Project or the Project).

8 Q. Has the location or any aspect of the Project site changed?

9 A. The location of the plant site in Kemper County has not changed. Of the approximately

10 1,750 acre site footprint, MPC currently owns approximately 770 acres and has entered

11 into option agreements to purchase the remaining acreage. This land was purchased to

12 meet the application requirements under the rules of the Internal Revenue Code, Section

13 48A, QualifyingAdvanced Coal Project Credit (Section 48A), in order to qualify for

14 $133 million in Investment Tax Credits. A layout of the site and the Plant are included in

15 Appendix C to Exhibit (TOA-l).

16 Q. Has the Project's Commercial Operation Date (COD) been changed, and if so, what

17 is the updated COD date?

18 A. Yes, the November 2013 commercial in service date specified in the Company's original

19 filing was later changed to May 2014. This decision was made in large part to comply

20 with the five year implementation requirement under Section 48A, in order to maintain

21 $133 million in Investment Tax Credits. A detaileddiscussion regarding this change can

22 be found in the Company's June 1, 2009, filing under this docket, and the cost impacts of

23 the change are discussed later in my testimony.

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On Behalf of Mississippi Power Company

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l Q. What experience do MPC and Southern Company have in designing, constructing

2 and operating large-scale electric generation projects?

3 A. Southern Company has a long and distinguished history of being able to design,

4 construct, and operate a diverse portfolio of electric generating technologies in a manner

5 that delivers value and produces reliable electricity for our customers over the lives of the

6 assets. Southern Company is one of the largest electric generation owners and operators

7 in the world, owning and operating 37 fossil fuel plants, 33 hydroelectric plants and three

8 nuclear plants representing over 40,000 MW in total that provide electricity to over 4.3

9 million customers spanning over 120,000 square miles. MPC has constructed, owns and

10 operates 21 units at five of those plants and has been in the electric generation business

Il over 84 years

12 Over the last several decades, Southern has demonstrated this ability by deploying

13 sub-critical pulverized coal, super-critical pulverized coal, nuclear, and gas-fired

14 combined cycle and simple cycle technologies. In all cases, the Southern Company has

15 consistently demonstrated its ability to successfully design, construct and operate these

16 different technologies-even during the early years of their commercialization. In fact,

17 the recent fleet of fifteen combined cycle plants designed, built, and being operated by

18 Southern Company have achieved forced outage rates of less than 3% in less than ten

l9 years, as shown in Exhibit (TOA-2), far better than the industry average.

20 MPC also has a track record of excellence in building and operating generating

21 plants, and our customers have received the benefit of those skills. Most recently, MPC's

22 Plant Daniel Units 3 and 4 were placed into service in 2001. These Daniel units were the

23 "first generation" of natural gas combined cycle technology, when this technology was

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On Behalf of Mississippi Power Company

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l relatively new in the United States. Nonetheless, the Company constructed the Daniel

2 Units 3 and 4 combined cycle units significantly under budget when compared to the

3 estimates provided in the initial certificate filing, saving our customers approximately

4 $30 million in capital expenditures.

5

6 TRIG" GASIFICATION TECHNOLOGY

7 Q. Have there been any other developments that confirm the Company's confidence

8 the TRIGI" technology can be successfully deployed on the Project?

9 A. Yes, on September 30, 2009, the United States Department of Energy (DOE) made an

10 informational filing with this Commission regarding the TRIGTM technology. In this

ll informational filing, DOE informed the Commission that the "Project is of significant

12 importance to achieving DOE's goal of demonstrating clean coal technologies in the

13 United States and, as demonstrated by DOE's significant financial commitment, we

14 strongly support its approval "3 DOE also indicated they were "confident that the

15 TRIGTM technology is ready for full-scale commercial application.'

16 The DOE has been engaged with Southern Company and other industry

17 participants for more than a decade at the Power Systems Development Facility (PSDF),

18 where the TRIGTM technology has been developed. As active investors in the TRIGTM

19 technology and active project managers at the PSDF facility, DOE has been tracking this

'

September 30, 2009 DOE Informational Filing with MPSC, reference Docket No. 2009-UA-0014

4

ibid

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On Behalf of Mississippi Power Company

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1 technology since its inception and has closely monitored its development to commercial

2 deployment.

3 Q. Has anything changed since the Company's original filing that increases your

4 confidence that TRIGTM technology can be successfully deployed at the proposed

5 scale?

6 A. Yes. As a further testament to its commercial applicability to electric generation, in

7 September of this year, Southern Company announced an agreement to deploy the

8

TRIGTM technology in China at a 120 MW power plant operated by Dongguan Tianming

9 Electric Power in Guandong Province (China TRIGTM Project). The China TRIGTM

10 Project is expected to be commercial in 2011. SCS Engineering & Construction Services

11 (E&CS) personnel will be providing design for the gasification island and will be

12 involved with the actual start-up of the China TRIGTM PTOject. In addition, the

13 contractual arrangement stipulates that operational data from the Tianming TRIGIN plant

14 be collected and transmitted to Southern Company. These direct design, start-up and

15 operations learnings gained from the Chinese Project will serve as added measures to

16 assist with the design and construction of the Kemper County IGCC Project. Combined

17 with the PSDF experience, commercial availability of most TRIGTM COmponents, and the

18 other assessments conducted to date, the Company remains confident in the TRIGTM

19 technology and believes it provides the lowest cost alternative for our customers.

20 Q. What further steps has MPC taken to ensure that the proposed design will reliably

21 gasify Mississippi lignite?

22 A. As mentioned in Ms. Flowers's original direct testimony, Mississippi lignite from the

23 Red Hills mine in Ackerman, MS, was gasified at the PSDF facility during a 543 hour

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On Behalf of Mississippi Power Company

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l test run in 2007 and a 742 hour test run in 2008. This series of tests showed extremely

2 reliable operation of all phases of the gasifier - drying the lignite, feeding the lignite into

3 the gasifier, producing syngas in the gasifier, and ash removal.

4 Since that time, an additional test run at the PSDF utilizing Mississippi lignite

5 from the Red Hills mine was conducted. PSDF Run RO1was completed in February

6 2009 after 510 hours of operation. This test run's objective was to gain additional

7 understanding and information on the operation of the TRIGTM gâSiÍÏCF USing Mississippi

8 lignite and in particular to help characterize a mnge of operating parameters beyond the

9 normal design conditions for the Project. The gasifier, feeders, and ash removal systems

10 were operated successfully across a wide range of operating conditions, which further

11 validates the Project's design. The Summary Report for PSDF Run RO1is attached as

12 Appendix P to Exhibit (TOA-1).

13 The three test campaigns at PSDF, TC-22 in 2007, TC-25 in 2009, and R-01 in

14 2009, all using Mississippi lignite, have resulted in a combined 1,795 hours of TRIGIM

15 gasifier operation. These tests were instituted as part of the Company's process of

16 demonstrating the TRIG= technology, and have clearly yielded valuable information

17 that has both improved the knowledge necessary to utilize Mississippi lignite, as well as

18 demonstrate reliable operation when utilizing Mississippi lignite.

19

20 ENVIRONMENTAL COMPLIANCE AND PERMITTING

21 Q. Has the Plant been designed to fully comply with all environmental laws and

22 regulations?

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On Behalf of Mississippi PowerCompany

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l A. Yes. The Project has been designed with state-of-art technology that will facilitate its full

2 compliance with the Clean Air Act and all applicable regulations promulgated there

3 under to date. The syngas cleanup processes planned for this Project are an integral part

4 of the overall gasification process design and are included as a means to reduce stack

5 emissions. The emission rates expected by utilizing these processes represent the best air

6 pollution control technologies available and will allow MPC to permit the Plant in

7 accordance with all federal and state ambient air quality standards. In fact, the Hazardous

8 Air Pollutants (HAP) emissions, which include mercury emissions, from the Kemper

9 IGCC fall below the threshold where a Maximum Achievable Control Technology

10 (MACT) determination has to be conducted. A description of the control technologies

ll that are included in the Project design is included in Appendix A to Exhibit (TOA-1).

12 Q. Have there been any changes with the permits required to begin construction of the

13 Kemper IGCC Project?

14 A. The Mississippi Department of Environmental Quality(MDEQ)issued an air permit for

15 the Project on October 14, 2008, and a Construction Stormwater General National

16 Pollutant Discharge Elimination System (NPDES) permit was received November, 13,

17 2007, both of which provide the environmental permit approvals necessary to begin

18 construction.

19 The Company, as part of its activities under the screening and evaluation docket

20 (now 2009-UA-0014, formerly 2006-UN-0581), conducted a competitive solicitation for

21 the two gas turbine generators necessary to burn the plant's synthesis gas and produce

22 electricity. This solicitation was necessary in order to procure the long lead time gas

23 turbines to support the May 2014 commercial service date. The preferred bidder's gas

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On Behalf of Mississippi Power Company

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l turbine, while still in the same "F" class, had different size and performance

2 characteristics from what was specified in the October 14, 2008, PSD permit (reference

3 Appendix I to Exhibit (TOA-1). The Company submitted an amendment to the

4 PSD permit on September 15, 2009, providing the updated specifications supplied by the

5 preferred gas turbine manufacturer. The PSD permit revision is in progress at the MDEQ

6 and is expected to be issued in the Spring of 2010. The listing of the Project's

7 permits/licenses, corresponding agencies and expected approval dates are outlined in

8 Appendix J to Exhibit (TOA-l).

9 Q. Have there been any changes in the Project's source of cooling and process water?

10 A. Yes. The Company's original proposal was to utilize deep wells (reference Ms. Flowers'

11 Exhibit (KDF-2)) for its cooling and process water needs. MPC now plans to use

12 treated municipal wastewater, sometimes referred to as "graywater", from the City of

13 Meridian. The industrial use of graywater is an established practice, and one that

14 provides a win-win solution for both parties. The City of Meridian generates significant

15 volumes of graywater, and currently bears both the cost and the burden of discharge for

16 the graywater it generates. After meeting with City officials and reviewing the water

17 volume and quality data, Company representatives and City officials negotiated a long18 term water supply contract. The Company will pay an annual fee to purchase the water,

19 turning a cost into a benefit for the City. In return, the Company gets a non-saline water

20 source, already treated, that is well suited to provide the Plant's cooling and process

21 water needs. The graywater will have to be pumped from the City of Meridian's

22 wastewater treatment facility to the Kemper County IGCC plant site. The capital cost to

23 build the pumping, pipeline and storage capabilities is offset over the life of the Project

Phase Two Direct Testupony of ThomasO. Anderson

on Behalf ofMississippiPowerCompany

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I by the savings of avoiding water treatment facilities and the associated operations and

2 maintenance costs. The cost changes from utilizing Meridian graywater are included in

3 the Company's update. A diagram of the water source and route to the Kemper site is

4 provided in Appendix R to Exhibit (TOA-1).

5 Q. In Exhibit (TOA-1) the Kemper County IGCC is described as a zero-liquid

6 discharge facility. Please explain the Plant's zero-water discharge design.

7 A. The Plant will be a zero liquid discharge facility, meaning that no process water will be

8 discharged into any rivers or streams. The process water will be supplied by the City of

9 Meridian graywater I discussed earlier. Process waste steams will be treated and recycled

10 back to the combined cycle cooling tower for reuse or evaporated.

11 The combined effect of using Meridian graywater and a zero-liquid discharge

12 design is that graywater that would otherwise have to be discharged in accordance with

13 MDEQregulations, is instead used to serve the Kemper County ICCC's cooling and

14 process water needs, in a manner where no discharge is required.

l 5 Q. What is the NEPA Record of Decision and how does it impact Kemper?

16 A. To comply with the National Environmental Policy Act (NEPA), DOE has determined

17 that because of the $270million CCPl2 award to the Kemper County IGCC Project, an

18 Environmental Impact Statement must be written to "assess the potential impacts on the

19 human environment" of the Project The Record of Decision (ROD) is the outcome of

20 this process, and a favorable ROD is required before the Company and Project can

21 receive any CCPI2 or Loan Guarantees from DOE. Significant, should we say more or

22 include the DEIS as an attachment?

' Notice of Intent, Federal Register September 22, 2008, pgs. 54569-54573

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On Behalf of Mississippi Power Company

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l Q. What is the status of the NEPA ROD?

2 A. The Project's Draft Environmental Impact Statement (EIS) has been completed and a

3 Notice of Availability (NOA) was posted in Federal Register on November 6, 2009.

4 Subsequent to the NOA, a forty-five day Public Comment Period began, including a

5 Draft EIS Public Hearing held by DOE in De Kalb, MS at Kemper County High School

6 on December 1, 2009. The purpose of the meeting was for DOE to present the DEIS to

7 the public and seek their comments and input. After the forty-five day public comment

8 period, the Final EIS and Record of Decision follow. The flowchart of the NEPA ROD

9 process used by DOE in the December l, 2009 public hearing is provided in Exhibit

10 (TOA-3). The Company expects a NEPA Record of Decision in the spring of

11 2010.

12

13 CONSTRUCTION AND OPERATION COST ESTIMATES

14 Q. What is the updated estimate of the Project's capital cost?

15 A. The Project is estimated to cost a total of $2.4 billion, after accounting for (1) anticipated

16 external funding from federal, state and local governments; and (2) maintaining the

17 current construction schedule for a commercial operation date of May 20l4. This

18 estimate is an "overnight" estimate (i.e. does not include capitalized financing costs). A

19 more detailed breakdown of the construction cost estimate is contained in Appendix B to

20 Exhibit (TOA-1).

21 Q. Please describe the primary changes in the Project and their impact on the

22 estimated total cost of the Project.

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On Behalf of Mississippi Power Company

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l A. The following is a description of the primary changes in the Project and their impact on

2 the estimated capital cost of the Project:

3 1. Change in COD. Moving the COD from November 2013 to May 2014 adds

4 approximately six months of additional escalation for equipment, labor and

5 commodities, which is expected to increase the capital cost of the Project by

6 approximately $30.1 million.

7 2. Meridian Graywater. Utilizing Meridian graywater for the Project's cooling and

8 process water needs will require additional pumping, piping and storage facilities,

9 which is expected to increase the capital cost of the Project by approximately $35

10 million.

ll 3. 65% CO2 Capture. Increasing the Project's carbon capture capability from 50% to

12 65% is expected to increase the capital cost of the Project by approximately $35

13 million.

14 4. Transmission Upgrades. As described in Mr. Cochran's Phase Two direct testimony,

15 the Companyenhanced its transmission and substation design to increase reliability,

16 which is expected to increase the capital cost of the Project by approximately $22.1

17 million.

18 5. Lignite Handling Facilities. North American Coal (NAC), the Project's lignite miner,

19 in collaboration with the Company, has performed a more detailed design of the

20 lignite handling facilities needed to convey the lignite from the mine to the Plant,

21 which is expected to increase the capital cost of the Project by approximately $12.2

22 million.

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On Behalf of Mississippi Power Company

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l 6. Project Contingency. The Company increased its Project contingency from $132.6

2 million to $l 61.6 million. The Company felt that its capital contingency of $132.6

3 million, coupled with the various other contingencies embedded in the specific

4 elements of the Project costs was adequate. However, based upon comments offered

5 by the Commission's independent consultant during Phase One, the Company has

6 determined that an additional capital contingency would be prudent and beneficial.

7 Q Have the Project changes described in the Company's Phase Two update affected

8 the overall economics of the Kemper County IGCC Project?

9 A. The Project changes provided in the Company's Phase Two update are included in Mr.

10 Brazzell's economic analysis. As shown in Mr. Brazzell's testimony, the Kemper

11 County IGCC Project represents the dominant self-build solution when considering the

12 economics across all 16 scenarios.

13

14 ENGINEERING, PROCUREMENT, & CONSTRUCTION

15 MANAGEMENT PLAN

16

17 Q. How will the design and construction of the Project be managed?

18 A. SCS E&CS provides engineering, procurement and construction (EPC) service to all of

19 the Southern Company operating companies including MPC. As agent for, and in

20 conjunction with MPC, E&CS will serve the role of Owner's Engineer, ensuring that

21 factors such as land, the site, infrastructure, training, and future operations are accounted

22 for when undertaking the Project.

23 As previously indicated, the Company's FEED Study has been completed, and the

24 necessary design activities needed to preserve the economic viability of the Project's May

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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l 2014 commercial service date are ongoing. This preliminary engineering and detailed

2 design of the Project is expected to continue through the issuance of a certificate and be

3 completed on or before October 2012. Although no major equipment is scheduled to be

4 purchased until after receipt of a certificate, procurement activities necessary to maintain

5 the COD are also in progress and will need to begin in earnest in the summer of 2010 to

6 ensure that adequate materials, equipment and labor are available for construction. Initial

7 construction of the Plant is scheduled to commence on or before July 2010, and the

8 procurement and construction planning activities necessary to support this date are

9 ongoing. Any delay in these schedules could jeopardize the Company's ability to meet

10 the May 2014 commercial operation schedule. Project start-up and testing is expected to

ll commence following the completion of construction and last at least nine months.

12 E&CS has developed an overall construction strategy based upon review of the

13 conceptual design drawings and documentation and prepared the preliminary schedule for

14 the Project shown in Appendix K to Exhibit (TOA-l). This strategy includes a

15 crane and rigging plan; a site-use plan; and a plan for contracting the work. E&CS will

16 divide the work into various labor inquiry packages in order to obtain bids from various,

17 qualified installation contractors. Examples of these packages include: survey,

18 communications and data cable installation, site preparation, access road, lay-down yard

19 and parking lot construction, road construction, building construction, deep foundations,

20 concrete, prime above ground contractor, natural gas pipeline, graywater pipeline, and

21 substation work.

22 Another critical piece of the overall construction strategy is the contracting

23 strategy, or determination of how the work will be bid and performed. Determination of

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On Behalf of Mississippi Power Company

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I whether the work will be bid on a lump sum, unit price, cost plus, time and materials, or

2 cost reimbursable with a fixed fee basis and whether the work will be performed by an

3 independent contractor or labor broker greatly impacts project schedule, as well as MPC

4 and E&CS staffing requirements, and therefore impacts the project cost estimate and cash

5 flow.

6 The construction strategy is tied directly to the time allotted for detailed design

7 and procurement activities. Because the four year construction window is not of

8 sufficient duration to allow all detailed design to be substantially complete prior to

9 bidding construction packages, it is unlikely that the entire project will be bid on a lump10 sum basis and performed by one independent contractor. While this contracting

11 arrangement places the least amount of risk on MPC, it also may be more costly as it

12 contains contractor's profit and risk premiums. In the absence of one prime contractor,

13 E&CS and the Company are currently evaluating the most effective method of bidding

14 construction packages. It is anticipated that the site preparation inquiries, which could

15 include clearing, grading, laydown area preparation, and/or ingress/egress road

16 construction, are expected to be issued to potential vendors late this year or early 2010.

17 Q. Will the Project schedule facilitate the Company's May 2014 commercial service

18 date?

19 A. Yes, however, as I just described, the current four year schedule is not of sufficient

20 duration to allow detailed design to be substantially complete before bidding critical path

2l construction packages. A more conservative approach to building a project like the

22 Kemper County IGCC Project, would be to sequence the completion of the design before

23 bidding each of the scheduled construction packages. This allows for the design and

Phase Two Direct Testimony of Thomas O. Anderson

On Behalfof Mississippi Power Company

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l construction to be done in series. A more aggressive schedule approach would be to

2 defer the design and procurement activities until after receipt of project approval, and

3 issue construction packages based on conceptual design. The Company's experience

4 with this type of situation is that it almost always leads to increased costs due to change

5 orders, schedule compression and overtime, and rework.

6 The Company's current plans are to break the construction of the Project into

7 packages, and sequence these activities whereby a material portion of the detailed design

8 can be complete for each package prior to bidding.

9 Q. What are the critical steps that are required to develop and implement this design

10 and construction schedule?

ll A. The long lead time for major engineered components is anticipated to be one of the

12 construction schedule's most time sensitive activities. Based on inquiries to major

13 equipment suppliers, the lead times for several of the more complicated equipment can be

14 thirty months or longer. Therefore, current vendor lead times dictate that the Company

15 will have to commit on major equipment during the second quarter of 2010 to ensure that

16 the equipment can be manufactured and delivered to support the Project's May 2014

17 schedule.

18 There are many other details, drivers, milestones and deadlines associated with

19 the Company's proposed schedule, but MPC and the Southern Company have the

20 experience and knowledge to successfully manage the current Project schedule at the

21 lowest reasonable cost.

22

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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i LIGNITE MINING OPERATIONS

2 Q. Has the Company changed its plans to utilize Mississippi lignite as the primary

3 feedstock for the Project?

4 A. No, the Project still plans to utilize lignite from the Liberty Mine from the Damascus

5 Reserve and which we expect will be mined by NAC on behalf of the Company. Since

6 the January 16, 2009, filing we have decided to alter the structure of the arrangement for

7 mining lignite. After careful consideration, the Company has determined that a

8 management fee contract structure would provide the lowest overall price of lignite for

9 the Kemper IGCC Project.

10 Under a management fee mining services agreement, MPC would own the mine,

11 all associated mineral interests, and all of the equipment and facilities related thereto.

12 NAC, utilizing its mining experience and expertise, would perform all lignite mining

13 activities associated with providing lignite to the Plant. Under this type of arrangement,

14 the Company will pay the costs associated with all mining activities and pay NAC a

15 management fee based on the amount of lignite actually delivered. The Company's

16 forecast of lignite cost for the life of the Project is included in this filing as Appendix S to

17 Exhibit (TOA-1), filed confidentially.

l 8 The Company continues to believe that NAC is the premier lignite miner in North

19 America with an excellent, proven record of performance which should translate directly

20 to a long term, uninterrupted supply of lignite to the Project.

21 MPC currently has 72 leases in place covering 8,820 surface acres and will

22 continue to acquire additional leases throughout the life of the mine. Thus, once the Plant

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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l is operational, it will have a dedicated source of fuel that provides the best overall

2 balance of cost and risk to customers.

3 Once the mining contract is executed, the Company will file it confidentially with

4 the Commission and Staff.

5

6 CO2 Capture and Enhanced Oil Recoverv

7 Q. Please explain why the Company increased the carbon capture capabilities of the

8 Project to 65%.

9 A. As described by the Company and validated by the expert witness testimony in Phase

10 One and the direct testimony in Phase Two, MPC believes legislation regarding climate

11 change and CO2 is likely to be enacted in the near future. Over the past few sessions of

12 Congress, numerous bills addressing climate change have been introduced, including the

13 Waxman-Markey Bill that passed the House and the Kerry-Boxer Bill currently in the

14 Senate.

15 The opportunity to increase the Plant's CO2 capture to 65%, making it equivalent

16 to natural gas fired combined cycle technology6 provided better Project economics, as the

17 incremental cost to increase the CO2 capture from 50% to 65% was offset by the savings

18 created by avoiding additional CO2 penalties in the $10/ton,$20/tonand $30/ton

19 scenarios, and increased revenues from CO2 sales for Enhanced Oil Recovery.

Coal Initiative Reports, Edward S. Rubin, Camegie Mellon University, June 2009. Also see, Meeting

Califomia's Greenhouse Gas Emission Performance Standards for Westem Coal Plants, Eric Grol, National Energy

Technology Laboratory, March 25, 2009.

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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l The Project's carbon capture capabilities qualify it for additional Phase II

2 Investment Tax Credits as described in Ms. Turnage's testimony. In addition, based upon

3 the versions of both the Waxman-Markey and the Kerry-Boxer bills current before

4 Congress, the Company believes the Project would be eligible for significant "early

5 mover" benefits designed to stimulate the development of new carbon dioxide mitigating

6 technologies.

7 Q. How does the Company plan to capture a portion of the Plant's CO2?

8 A. The carbon capture process being utilized for the Kemper County ICGC is a commercial

9 technology referred to as SelexolTM. The SelexolTM process is a commercial technology

10 that uses proprietary solvents, but is based on a technology and principles that have been

ll in commercial use in the chemical industry for over forty years. Thus, the risk

12 associated with the design and operation of the carbon capture equipment incorporated

13 into the Plant's design is manageable. A more detailed discussion of this process is

14 contained in Appendix A to Exhibit (TOA-1).

15 Q. What does the Company plan to do with the captured CO2?

16 A. Fortunately, the Project is sited in a region of the country that contains a number of

17 Enhanced Oil Recovery (EOR) projects that are expected to provide a vibrant market for

l 8 the sale of the Project's captured CO2. EOR, or tertiary oil recovery, is a process that has

19 been used by oil companies since the 1960sto extract Original Oil In Place (OOIP) from

20 oil fields that have already utilized primary (gravity)and secondary (water flooding) oil

21 recovery methods. EOR uses a compressed gas such as CO2 and under pressure injects it

22 into the depleted oil field to mix with the OOIP and to facilitate its extraction. On

23 average, the EOR process recovers up to approximately 20% of an oil field's OOIP. It is

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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1 estimated that the total United States volume of oil that can be recovered through EOR is

2 85 billion barrels,' including 7 billion barrels in the Gulf Coast region." It is also

3 estimated that the sequestration capacity of EOR in depleted U.S. oil fields is

4 approximately 98 gigatons of CO2, representing some thirty-six years of current CO2

5 emissions from U.S. power generation facilities. This process provides benefits when

6 compared to geological sequestration methods that produce no revenues and actually

7 represent a pure cost to the customer. Therefore, the Company has determined that

8 entering into a long-term sales agreement with one or more potential EOR purchasers is

9 the best option to mitigate these uncertainties.

10 Q. What is the status of the Company's negotiations to sell the Project's CO2?

11 A. MPC has been in preliminary discussions with multiple firms that have expressed an

12 interest in purchasing the CO2 produced at the Plant for use in EOR projects. MPC is

13 currently negotiating CO2 off-take arrangements that would govern this transaction.

14 Once an agreement is executed the Company will supplement its filing to include a copy

15 of the agreement.

16 Q. Where would the transfer of the CO2 from MPC to the purchaser take place?

17 A. The current economic analysis and project development plans are to sell the CO2 to the

18 purchaser at the Plant gate, a point on the Plant site located downstream from the CO2

19 capture equipment, that can be isolated and at which the volume of CO2 can be monitored

'

Carbon Dioxide Enhanced Oil Recovery, National Energy Technology Laboratory, September 2009, page

16.

"

Id. at 16.

*

Enhanced Oil Recovery Scoping Study, EPRI, Palo Alto, CA, October 1999. TR-113836.

Phase Two Direct Testimony of Thomas O. Anderson

On Behalfof Mississippi Power Company

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l and measured. The design specifics of such a transfer point will be incorporated into the

2 Plant's detailed design after execution of the CO2 contract.

3 The Company believes ownership of the approximately 55 mile CO2pipeline that

4 transports CO2 from the Plant gate to oil fields suitable for EOR may have strategic

5 value. This option has been conceptually agreed to by the counterparties the Company is

6 negotiating with; however, the details will be finalized when a CO2 sales contract is

7 executed. If the Commission grants a certificate for this option, the Company will notify

8 the Commission when the option is exercised.

9

10 Summary

11 Q. Please summarize your testimony.

12 A. As described throughout my testimony, I have provided an update to the Kemper County

13 IGCC Project to reflect changes in design and cost since our January 16, 2009, filing.

14 The changes to the Project since the Company's original filing are normal, expected and

15 as provided in Mr. Brazzell's and Ms. Flowers's testimony, the Project is still the best

16 generation resource alternative to meet MPC's identified need and is in the overall best

17 interest of customers. The Project is estimated to cost a total of $2.4billion. For

18 purposes of the economic analysis and financial projections contained in this filing, the

19 Company has assumed a May 2014 commercial operation date, which will maximize the

20 federal, state and local benefits available to reduce the cost of the Project. The Company

21 believes any delays in the Project schedule jeopardize its viability, which is not in the

22 overall best interest of the Company or its customers.

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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l Based upon my testimony above, the Company submits that the present and future

2 public convenience and necessity require or will require the construction and operation of

3 the Project and that the Company's activities to date to study, screen and evaluate MPC's

4 need for additional generation have been necessary and prudent.

5 Q. Does this conclude your testimony?

6 A. Yes, it does.

Phase Two Direct Testimony of Thomas O. Anderson

On Behalf of Mississippi Power Company

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DEC- 7 2009

BEFORE THE MISSISSIPPI PUBLIC SERVICE COMMISSIoWiss· PUsi-ics

MISSISSIPPI POWER COMPANY DOCKET NO. 2009-UA-0014

EC-120-0097-00

IN RE: PETITION OF MISSISSIPPI POWER COMPANY FOR A CERTIFICATE

OF PUBLIC CONVENIENCE AND NECESSITY AUTHORIZING THE

ACQUISITION, CONSTRUCTION, AND OPERATION OF A ELECTRIC

GENERATING PLANT, ASSOCIATED PIPELINES, ASSOCIATED

TRANSMISSION LINES, ASSOCIATED RIGHTS-OF-WAY, AND

RELATED FACILITIES IN KEMPER COUNTY, MISSISSIPPI

AFFIDAVIT OF THOMAS O. ANDERSON

Personally appeared before the undersigned officer authorized to administer oaths,

Thomas O. Anderson, who being duly sworn, deposes and says; that the foregoing testimony was

prepared by him or under his supervision; that said testimony was for use as testimony on behalf

of Mississippi Power Company in the captioned proceeding; that the facts stated therein are true

to the best of his knowledge, information and belief; and that if asked the questions appearing

therein, his answers, under oath, would be the same.

Dated this the day of December, 2009.

Th as O. Ander on

Sworn to and subscribed before me this the day of December, 2009.

Notary Public tu "4

My Commission Expires: i

i i

NOTARY PUBLIC STATE Of M1SSISSIPPI AT LARGE

MY COMAUSSION EXPIRES: Aug 10, 1010 g

•, p

BONDELl THRU NOTARY PUBLIC UNDERWRITERS '.

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