From: To: Cc: Subject: Date: Attachments: Importance: Brad Tomer Madden, Diane R. Gribble, Judy Fwd: FW: Meeting Request Wednesday, February 06, 2008 9:13:21 AM DOErequest.doc High Diane,   Give Judy the names of all the folks involved in Southern.  Judy, please set up a project team meeting.   We will need the full team.  Procurement, legal, NEPA, Rekos as DD of MPD, myself and whoever you think that we need.  Want to have this meeting this week.   Brad   Brad Tomer Director, Strategic Center for Natural Gas and Oil Acting Director, Office of Major Demonstrations National Energy Technology Laboratory Morgantown, WV 26507-0880 PH: (304) 285-4692 FAX: (304)285-4216 Email: brad.tomer@netl.doe.gov >>> "Slutz, James" 1/23/2008 9:20 AM >>> Brad, We will need to put background materials together for this meeting.  Raj will have the lead on the meeting memo. Thanks, Jim -----Original Message----From: Shaffer, Carrie Sent: Wednesday, January 23, 2008 9:08 AM To: Slutz, James Cc: Miller, Cheryl; Luhar, Raj; Patterson, Andrew Subject: FW: Meeting Request FYI Jim-- CI and GC are also in the loop.  carrie -----Original Message----From: Merchant, Anne Sent: Tuesday, January 22, 2008 3:27 PM To: Kupfer, Jeffrey; Getto, Ben; Shaffer, Carrie; Miller, Cheryl Subject: FW: Meeting Request All -- here is the formal request and background for the Gov. Barbour and Southern Company mtg request. I told Eric S1 agreed to do the meeting, and he is checking Barbour's schedule for Feb. 25th (b/c he may already be in DC for the Republican Governors Association Dinner).  Ben, I explained to him the info we needed about the proposal -- I think he envisions this as more of a "listening mode" meeting, but see the attached request. If you have additional questions or need more info, I can go back to him.  Thanks -- Anne Carrie, will you please send to CI and any other appropriate offices so they are aware of the request and that S1 agreed? Thanks! -----Original Message----From: Burgeson, Eric [mailto:EBurgeson@BGRdc.com] Sent: Tuesday, January 22, 2008 3:22 PM To: Merchant, Anne Subject: Meeting Request Attached is a formal meeting request for February 25. Thanks, Eric From: To: Cc: Subject: Date: Attachments: Thomas Russial Tomer, Brad Madden, Diane R. Fwd: Talking points final Friday, February 22, 2008 4:35:36 PM Gov Barbour meeting memo.doc Clear Day Bkgrd.JPG >>> "Myers, Edward" 2/22/2008 4:05 PM >>> FYI Edward Myers Attorney-Adviser Office of General Counsel U.S. Department of Energy 1000 Independence Avenue, SW Washington, DC 20585 Telephone: (202) 586-3397 Fax: (202) 586-4116 edward.myers@hq.doe.gov US. Department ofEnergy National Energy Technology Laboratory April 22, 2008 MEMORANDUM FOR JAMES SLUTZ ACTING PRINCIPAL ASSISTANT SECRETARY, OFFICE OF FOSSIL ENERGY THROUGH: VICTOR DER Mali/W DEPUTY ASSISTANT SECRETARY COAL AND POWER SYSTEMS FROM: - CARLO. BAUER DIRECTOR, NATIONAL ENERGY TECHNOLOGY LABORATORY SUBJECT: Southern Company Services Clean Coal Power Initiative 1. Introduction This memorandum requests: 1. Approval to modify Clean Coal Power Initiative Cooperative Agreement DE-FC26- 06NT42391 with Southern Company Services (Southern) to change the site from Orlando, Florida to Mississippi Power?s Kemper County, Mississippi site; and, 2. A Secretarial waiver of the repayment agreement associated with the Cooperative Agreement. Based on the continued programmatic need to demonstrate Southern?s gasi?cation technology at commercial scale and evaluation of Southern?s supporting material, NETL believes approval of site relocation and repayment waiver are warranted. 2. Background Southern was selected in October 2004 under the second CCPI solicitation. CCPI is a government/ industry partnership that implements the President?s National Energy Policy recommendation to increase investment in clean coal technology. This commitment to clean coal is in response to the Nation?s challenge of enhancing its electricity supply and availability brought on by the growing electricity demand. The CCPI Round 2 solicitation was seeking projects that (1) demonstrated advanced coal-based technologies that have progressed beyond the research and development stage to a point of readiness for operation at a scale that can be readily replicated into commercial practice within the electric power industry, and (2) accelerate the likelihood of deploying the demonstrated technologies for widespread commercial use within the electric power sector. FOR OFFICIAL USE ONLY CONTAINS BUSINESS CONFIDENTIAL INFORMATION In January 2006, DOE awarded a cost-shared cooperative agreement to Southern for the full-scale demonstration of the Kellogg Brown and Root (KBR) Transport Reactor Integrated Gasi?cation (TRIGTM) technology at the Orlando Utility Commission (OUC) facility in Florida. The initial project cost estimate was $568 million with a DOE/Southern split of $235l$333 million. The agreement was amended in March 2007 to increase the cost estimate to $844 million with a DOE/Southern split of $293/$551. additional contribution was the maximum allowed by law for the CCPI program.l Project work was proceeding well at Orlando. Preliminary design and NEPA activities were completed. Orders were placed for long-lead time items. Permitting was nearly complete. A new administration took of?ce in Florida in 2007 which did not support coal- based power production without carbon capture and sequestration (CCS). Project economics and distance to C02 storage sites made CCS impossible for Orlando. Consequently, Southern and OUC could not ?nalize the permits and the TRIGTM demonstration at Orlando was cancelled. In December 2007, Southern requested that DOE consent to relocation of the demonstration to a Mississippi Power Company site in Kemper County, Mississippi. Mississippi Power Company is a subsidiary of Southern Company. In the past, DOE has consented to site changes for Clean Coal demonstrations if the project at the new site will accomplish the same objectives as the original project at no greater cost to DOE than the original project. NETL requested detailed technical, siting, and cost information for the purpose of evaluating Southern?s site relocation request. NETL also requested a detailed ?nancial model in order to evaluate project economics. The Kemper project utilizes the same technology as Orlando except that Kemper will be con?gured with two gasi?cation trains, two combustion turbines and one steam turbine contrasted with Orlando?s single train con?guration. Kemper will generate approximately twice the power output of Orlando. Southern currently estimates the cost at $1.6 billion not including Southern labor or ?nancing charges.2 Approximately $23 million of $293 million contribution was spent for Orlando leaving $270 million for Kemper. absolute contribution for Orlando and Kemper will not exceed $293 million while proportionate share will be reduced from 35% to 18% if the site change is approved. CCPI agreements include a repayment obligation on the part of the recipient. For the Orlando project, Southern and KBR agreed to repay DOE through a royalty on sales, licensing and use of the demonstration technology in commercial applications. Southern requested a Secretarial waiver of repayment for Orlando due to an unanticipated change in IRS policy which made the recipient subject to federal tax on DOE funds. If repayment were eliminated, DOE funds would be considered a non-taxable contribution to capital under Section 118 of the Internal Revenue Code. The Orlando waiver request was denied. Southern has again requested a repayment waiver to help offset the additional cost for carbon capture and sequestration (CCS) technology at Kemper. Without the waiver, the effective reduction in DOE funds from federal taxation will make it dif?cult for Mississippi Power to justify use of Integrated Gasi?cation Combined Cycle (IGCC) technology with CCS to the Mississippi Public Services Commission. Repayment is discussed in detail in Section 8 below. 1 By statute, DOE may contribute not more than 25 percent of the original DOE share toward project cost increases. 2 By not including Southern labor in the cost charged to DOE, Southern believes it can save money on DOE compliant accounting practices. Southern will still be required to report the labor charges to DOE so that DOE has a full understanding of the cost of the technology. FOR OFFICIAL USE ONLY 2 CONTAINS BUSINESS CONFIDENTIAL INFORMATION On November 30, 2006, the Internal Revenue Service accepted Mississippi Power?s application for a tax credit pursuant to Section 1307 of the Energy Policy Act (EPACT) of 2005. The value of the credit is $133 million. To maintain the credit, Section 1307 requires that, by December 2008, Mississippi Power must have ?received all Federal and State environmental reviews necessary to commence construction of the project? and ?entered into a binding contract for the purchase of the main steam turbine or turbines for the project.? The facility must be put into service no later than 5 years after receipt of the certi?cation from the Secretary of Treasury. Mississippi Power was also invited to submit a full application for a DOE guaranteed loan pursuant to EPACT Title XVII. evaluation supports Southern?s premise that various types of Government ?nancial support, including the CCPI funds, are needed to justify the Kemper project as the least cost option to the Mississippi Public Services Commission. See Section 7 below. The Kenrper project requires the preparation of an Environmental Impact Statement for both the loan guarantee application as well as the CCPI project. If site relocation is approved for the CCPI project, NETL will take the lead on a single EIS for both activities. 3. Project Merit The Mississippi project has been under development since 2006 with the intention of building a lignite?fueled 2x1 IGCC facility using the air-blown TRIGTM technology. Originally the commercial operating date (COD) for the Mississippi facility was to follow the Orlando site by three years. With the termination of the demonstration project at the Orlando site, the Mississippi site will now confront the ?rst-of-a-kind risks that the Orlando project was going to bear and help resolve. The Mississippi Project now becomes the first full-scale demonstration of the TRIGTM technology with COD scheduled for June 2013. This is a still a very important project in portfolio. TRIGTM is well suited to gasify low- ranked coals which comprise approximately 50 percent of US reserves. This project is the last foreseeable opportunity for DOE to support demonstration of the technology. Both CCPI Round 3 and FutureGen are exclusively focused on CCS technology. The technical configuration of the Mississippi plant will be very similar to the con?guration that was planned for the Orlando site and therefore, all of the original project demonstration objectives will be met with the new site at no cost increase to DOE. The overall objective of the project is to design, construct, and operate a TRIGTM based IGCC power plant that uses U.S. coals to generate electricity. The sub-objectives of the project include: 1. To design, build, and operate a state-of-the-art IGCC facility utilizing KBR transport gasi?er technology. 2. To design, construct, and operate an advanced cleanup system that includes a sulfur removal system, high temperature high pressure particulate ?lter (HTHP) system, selective catalytic reduction (SCR), and a mercury removal system. 3. To demonstrate high availability, high thermal ef?ciency, low cost, and low emissions of the TRIGTM electricity generating system in commercial operating mode. 4. To develop an effective commercialization strategy to accelerate the TRIGTM technology penetration in the US. and international markets. FOR OFFICIAL USE ONLY 3 CONTAINS BUSINESS CONFIDENTIAL INFORMATION 5. To disseminate information on the development of the TRIGTM technology through reports and conference presentations. The information reported will include plant ef?ciency, environmental status, and cost successes for ready replication into commercial practice. Differences between the two sites that are relevant to the TRIGTM technology are as follows: 0 The Mississippi IGCC is based on a 2x1 combined cycle with two gasi?cation trains instead of a 1x1 combined cycle with a single gasi?cation train. Each gasi?cation train fuels a GE combustion turbine, the same turbine planned for Orlando, so the gasifrcation trains are similar in size to the Orlando design. GE has completed combustion testing with the expected syngas and found that the same burner design can be utilized for the lignite and PRB derived syngas. The Mississippi IGCC will use Mississippi lignite instead of PRB coal as its primary fuel. Mississippi lignite coal has been tested at the Power Systems Development Facility with good results. Southern Company plans to conduct a test with PRB coal in the Mississippi facility during the Demonstration Phase of the project, resulting in a wider range of fuel testing than the original Orlando site. a The sulfur removal and recovery system is different due to the higher sulfur content of the lignite coal. In both cases, selection of the sulfur removal and recovery system was based on commercially available technology and the best economics for each case. I The coal drying system has been modi?ed to include a commercially available ?uid bed dryer for ef?cient removal of the higher moisture content of the lignite coal. Letters from the CEO of Mississippi Power, the COO of Southern Company and Governor Barbour of Mississippi were submitted to DOE describing their commitment to the project. Governor Barbour stated that ?the jobs and economic opportunity brought to East Mississippi by this generating plant can result in a much needed economic catalyst for this region?s development and prosperity. In addition to serving its citizens, Mississippi will gain a new reputation as a leader in advanced, ef?cient clean coal technology.? Southern and Mississippi Power have expressed a desire and willingness to incorporate CCS into the Kemper design with an initial target capture rate of 90 percent of the native C02 in the syngas. The term ?native? means the CO2 produced by the gasi?cation process contrasted with that produced by the water-gas shift of CO in the syngas to CO2. Ninety percent capture of the native CO2 equates to approximately 25 percent of the CO2 emissions from the facility. Southern and Mississippi are considering adding a level of water-gas shift to increase the CCS rate to 50 percent. CO2 would likely be exported to a nearby pipeline for enhanced oil recovery. The preliminary estimate for CCS addition is $250 million, not including lost-opportunity cost for the parasitic power required to operate the CCS components. CCS will be done outside the scope of the CCPI II award. Southern may submit an application under a CCPI Round solicitation for partial support of the CCS components. FOR OFFICIAL USE ONLY 4 CONTAINS BUSINESS CONFIDENTIAL INFORMATION 4. Project Structure The project was originally structured into three Budget Periods and four Phases. Budget Period 1 (Phase I?Project De?nition) activities that supported the Orlando site were completed. These activities included Front-End Engineering Design (FEED), enviromnental permitting, simulated syngas combustion tests, and NEPA activities which resulted in a NEPA Record of Decision. Budget Period 2 (Phase II-Detailed Design and Phase Construction) activities had commenced before the demonstration project was terminated at the Orlando site. The revised cooperative agreement for Kemper will maintain the 4-phase structure with DOE joining the project in Phase II. Due to need for a new EIS, DOE support for Kemper during the first 18 months will be limited to NEPA activities. Southern will develop the FEED and detailed design at its own expense. Assuming a NEPA Record of Decision supports the project at Kemper, DOE will then share costs for construction and operation. The modi?ed Statement of Project Objectives (SOPO) and new Project Schedule (Attachment 1) submitted by Southern has been reviewed and accepted as reasonable by NETL. 5. Site Suitability The plant site will be located near the unincorporated community of Liberty in Kemper County, Mississippi on or about latitude 32? 38? and longitude 88? 46? W. The site totaling approximately 1,650 acres is currently controlled by Mississippi Power Company via ownership or option to purchase agreements with current landowners. The land where the plant will be located is relatively ?at with slight rolling terrain. Current land use of the site and surrounding area is agriculture and timberland. Of the 1,650-acre site, less than 300 acres will be used in development of the plant. The plant footprint is expected to occupy 80 acres including the gasi?er, the combined cycle power block, and the lignite handling facilities. The major infrastructure available to the site includes transmission, water, gas, and lignite. The proposed site is located 20 miles north of Interstate 1-20/59 and adjacent to State Route 493. It is also 22 miles north of Meridian Regional Airport. A new mine will be developed at the Kemper site to supply lignite to the project. 6. Host Site Commitment The host site is owned by Mississippi Power Company. Southern and Mississippi Power have executed a host?site agreement for the project, which has been reviewed by NETL. Mississippi Power requires new capacity by 2013. Kemper will be a rate-based plant. By late 2008, Mississippi Power must certify to the Public Services Commission that TRIGTM is the least cost option for new power generation. Mississippi Power has secured a mine mouth 15 year supply of liguite in collaboration with North American Coal Corporation. Negotiations are underway for additional supply. FOR OFFICIAL USE ONLY 5 CONTAINS BUSINESS CONFIDENTIAL INFORMATION The State of Mississippi has also expressed a willingness to contribute approximately $50 million in incentives for the project. 7. Southern Financial Model and Financing Plan for Total Project Cost The Mississippi Power Company (MPC) IGCC project will earn a regulated rate of return determined by the Mississippi Public Service Commission (MPSC). MPC evaluated several self build generation alternatives including IGCC, natural gas combined cycle (N GCC), nuclear, pulverized coal, and lignite circulating fluidized bed technologies. In addition, solicitations from the market were also evaluated against the self build options. The next best generation expansion alternative in the analysis was identi?ed to be the NGCC option. The Financial Model provided to NETL focused on comparing the Mississippi IGCC facility versus NGCC. NETL reviewed the model and found it to be consistent with the models that are used by rate-based utilities. Attachment 2 is the Financial Model Economic Analysis of the Mississippi IGCC Project. Table 1 shows the comparison between IGCC-CCS and NGCC which will be used by Mississippi Power to justify inclusion of Kemper costs in the rate-base. The ?rst row is the NGCC comparison case under 3 scenarios (No regulation, $10/tontax and $20/ton tax). Each subsequent row shows the cost impact of the cumulative incentives. Without C02 regulation and CCS the project may not need CCPI funds. However, Southern, Mississippi Power and DOE all recognize the likelihood of future C02 regulation and understand the dif?culty in getting a coal- based plant permitted without CCS. Therefore, columns 2 and 3 are the more realistic project scenarios. Focusing on column 2, without CCPI funds NGCC is more attractive than IGCC under the carbon regulated scenario because the IGCC is? than the NG I funds make IGCC viable if CCS is not required because the pl?OjeCt as a savings 0 NGCC. But once CCS is added to the IGCC, the DOE loan guarantee and tax free treatment of DOE funds are required to make IGCC marginally more favorable than NGCC (only a savings of With the additional challenges associated with a ?rst-of?a-kind plant versus proven NGCC technology there is a signi?cant risk that the Public Services Commission may reject Mississippi Power?s application as not in the rate-payers interest. The situation is even worse under the third scenario where the carbon tax is $20/ton. Potential EOR revenues mitigate the risk somewhat. FOR OFFICIAL USE ONLY 6 CONTAINS BUSINESS CONFIDENTIAL INFORMATION TABLE 1 SQUTHERN A Kemper Comparative Analysis COMPANY (5) Although Mississippi Power did not need CCPI funds at the time it submitted its [are-application for a DOE loan guarantee and application for an EPACT Section 1307 tax credits, the CCPI funds are now required since: (1) the cost estimate for Kemper is $142 million higher than at the time the earlier applications were submitted, See Table 2 below, (2) the risk at Kemper is greater since it is now the ?rst-of?a-kind demonstration, and (3) CCS will be added to the project. (5) FOR OFFICIAL USE ONLY CONTAINS BUSINESS CONFIDENTIAL INFORMATION The project?s Financing Plan was also reviewed by NETL and found to be reasonable. Frank Langhammer, a ?nancial consultant for NETL, reviewed the audited ?nancial statements, including the balance sheets, income statements, and cash ?ow statements for Southern Company and for its subsidiary Mississippi Power Company for the year ended December 31, 2007. He also reviewed current ?nancial analyses of each company separately that was prepared by the three principal credit rating agencies Standard Poor?s, Moody?s, and Fitch Ratings. The analysis shows that Southern Company and Mississippi Power Company have the capacity to provide the non?Federal cost share portion of the overall project costs. See Attachment 3. 8. Repayment Waiver Southern has requested the Secretary to waive repayment associated with the CCPI ro'ect. Without the waiver, DOE funds are subject to federal taxation resulting in (2013 dollars) in available project funds.3 Southern believes the additional private sector investment to offset the tax burden could jeopardize the project?s ability to incorporate CCS technology and receive a certi?cate of public convenience from the Public Services Commission. To understand the request, a recap of the taxation issue is required.4 During the Clean Coal Technology (CCT) Demonstration Program (the predecessor to CCPI), the IRS published a series of private revenue rulings which characterized DOE funds as a contingent loan and therefore not subject to federal taxation. Not long after award of the Orlando agreement, Southern learned that the IRS was reconsidering the tax treatment of DOE funds. Both Southern and DOE tried to convince the IRS that taxation of CCPI funds was inconsistent with the statutory purpose for which the funds were appropriated, and that the logic behind the earlier revenue rulings was still valid. However, on March 10, 2007, the IRS noti?ed Southern and DOE that it considered DOE funds to be taxable since the terms of repayment were too contingent to treat the agreement as a loan. The IRS rejected the alternate argument that to the extent the DOE funds did not qualify as a contingent loan, then the funds should be considered a non-taxable contribution to capital. To qualify as a contribution to capital under Section 118 of the Internal Revenue Code (26 U.S.C. 118), the funds must be a permanent part of capital of the recipient. The IRS believes the repayment agreement precludes consideration of the funds as non-taxable under this test since the contribution is not necessarily permanent. Therefore, if repayment is eliminated, DOE funds would qualify as a non- taxable contribution to capital under Section 118. After the original waiver request was denied, DOE prepared a legislative proposal for the purpose of amending the Internal Revenue Code to make it clear that ?nancial assistance provided for CCPI projects is not subject to federal taxation. The proposal is currently undergoing interagency review with OMB and Treasury?s Legislative Tax Counsel. The Legislative Counsel has indicated that he is reviewing the basis for the change in IRS policy. Mississippi Power must make a decision to proceed with IGCC at Kemper by the end of April and therefore cannot wait for a legislative correction or a change in position by the IRS. 3Mississippi Power will be taxed a rate of ?on DOE payments_ The amounts are adjusted to 2013 dollars which is the comparison asis used by ower or Its petition to the Public Services Commission. 4 Taxation of CCPI funds is not related to the tax credit available to Mississippi Power pursuant to EPACT Section 1307. FOR OFFICIAL USE ONLY 8 CONTAINS BUSINESS CONFIDENTIAL INFORMATION Authority to Grant Waiver Repayment has its roots in the CCT Program. For the ?rst three CCT solicitations, DOE incorporated repayment into the agreements without statutory direction. The third solicitation included a provision allowing for termination of repayment upon a determination by the Secretary, or designee, that repayment places the recipient at a competitive disadvantage in domestic or international markets. The standard was developed to avoid a no-win scenario in which DOE insists on repayment only to frustrate commercialization of bene?cial teChnology. Appropriation language directing the fourth and ?fth CCT solicitations required DOE to use the very prescriptive repayment approach from the third solicitation. Appropriation language directing the CCPI Program invoked the prior CCT legislation, except that DOE was provided ?exibility in structuring repayment agreements: That the Department may include provisions for repayment of Government contributions to individual projects in an amount up to the Government contribution to the project on terms and conditions that are acceptable to the Department including repayments from sale and licensing of technologies from both domestic and foreign transaction. (Public Law 108-108) Although the law permitted DOE to vary repayment terms and conditions, DOE continued to use the CCT waiver provision in CCPI agreements. Accordingly, to eliminate repayment for Southern and KBR, DOE must determine that repayment places the TRIGTM technology at a competitive disadvantage in the domestic or international markets.5 Analysis of Waiver Request Here, Southern seeks an advance waiver of repayment on the premise that the effective loss of DOE funds to federal taxation may prevent the project from proceeding - frustrating commercialization from the start. The added project cost would have to be recovered from the rate payers, thereby jeopardizing approval of the Mississippi Public Services Commission. Under Mississippi Law, a public utility must submit an application to the Public Services Commission for a certificate of public convenience and necessity prior to construction of a power generation facility. Section 77-3-14 of the Mississippi Code reads in relevant part: (2) The commission shall develop, publicize and keep current an analysis of the long-range needs for expansion of facilities for the generation of electricity in Mississippi, including its estimate of the probable future growth of the use of electricity, the probable needed generation reserves, the extent, size, mix and general location of generating plants and arrangements for pooling power to the extent not regulated by the Federal Energy Regulatory Commission and other arrangement with other utilities and energy suppliers to achieve maximum 5 For future CCPI solicitations, the 2008 Consolidated Appropriations Act, 2008 (Public Law 1 10-161), eiiminated repayment completely. While the 2008 law does not control the decision in this case, it demonstrates that Congress is not as concerned about repayment as it once was. FOR OFFICIAL USE ONLY 9 CONTAINS BUSINESS CONFIDENTIAL INFORMATION ef?ciencies for the bene?t of the people of Mississippi, and shall consider such analysis in acting upon any petition by any utility for construction. (4) As a condition for receiving such certi?cate, the utility shall ?le an estimate of construction costs in such detail as the commission may require. The commission shall hold a public hearing on each application, and no certi?cate shall be granted unless the commission has approved the estimated construction costs. As previously discussed in Section 7, tax?free treatment of DOE funds is necessary to make IGCC with CCS economically competitive to NGCC. Accordingly, with the challenges associated with a ?rst-of-a-kind plant versus proven technology, the Public Services Commission may reject Mississippi Power?s application as not in the rate-payers interest. If the Commission does not approve the application, TRIGTM technology will not be demonstrated. Under these facts, the Secretary may waive repayment consistent with the applicable standard since, without demonstration, TRIGTM would have no opportunity for commercialization in the domestic and international markets. Proposed Waiver Terms Southern?s waiver request is based on the need for additional funds to cover cost associated with CCS. Southern has no objection to repayment if the tax issue can be addressed through other means; however, Mississippi Power needs assurance now that the funds will not be taxed in order to make a decision to pursue TRIGTM. No actual tax burden will occur until DOE authorizes Southern to proceed with detailed design, construction and operation sometime in the second half of calendar year 2009. Therefore, in order to provide DOE additional time to deal with the tax issue and preserve the repayment requirement, and to have assurance that Southern will incorporate CCS into the Kemper design, NETL proposes the following terms for the waiver: l. DOE will execute the repayment waiver at the same time DOE approves the site relocation of CCPI II funds to Kemper County. However, the waiver does not becomes effective until the later of January 31, 2009 or the date when SCS presents to DOE its plans to design for at least 90% capture of the inherent (native) C02 exiting the gasi?er and to sequester such C02 via enhanced oil recovery (EOR) or other means that is intended to be permanent storage. 2. The repayment waiver is void if either of the following conditions occurs on or before the effective date: a. The law is amended such that funds from CCPI II are not taxable to the recipient, or b. The IRS agrees that CCPI II funds are not taxable to the recipient. Southern Company agrees to seek a private letter ruling from the IRS if DOE advises Southern that the IRS has indicated a willingness to entertain tax-free treatment of DOE funds. FOR OFFICIAL USE ONLY 10 CONTAINS BUSINESS CONFIDENTIAL INFORMATION 3. DOE and Southern agree that CCS is not included in the CCPI II scope cost-shared by DOE. Southern may apply to DOE for ?nancial support for the Kemper County project under CCPI or other DOE solicitations, to the extent that the new application is not within the scope of work for the CCPI II award. DOE agrees to treat any such application to DOE on its own merits without regard to any existing ?nancial support to the Kemper County project. Southern has indicated that these terms would be acceptable. 9. Project Cost Analysis Under the relocated project, Southern will absorb 100 percent of Southern and Mississippi Power labor and travel cost, and KBR design and procurement labor cost. DOE total project cost share is reduced from 34.8% to 18.1%. The cost estimate submitted was originally prepared in 2006 to support a Section 48A Application for DOE Certi?cation associated with investment tax credits and was updated in 2007 to re?ect some general escalation factors. The current total project estimate (excluding the labor and travel costs cited above) is $1,625,082,040. cost share is ?xed at the $293,750,000, therefore any additional cost increase is Southern?s responsibility. It is important to note that as FEED activities are completed, a revised cost estimate based on actual quotes will be prepared and submitted to DOE. Since the project is past the project de?nition phase, DOE can not share in any costs except those related to the NEPA activities. Once the Record of Decision is issued then DOE can participate in cost sharing in equipment/construction costs. Until the NEPA Record of Decision is issued DOE will only share in Southern?s NEPA related activities currently estimated at $271,649.6 The current estimate for Phase (Construction) is $1,197,517,256 which is based on equipment and material and subcontract with a general contractor for construction. The types of equipment and subcontractors proposed are consistent with those required for the construction of an IGCC plant. NETL has reviewed Southern?s current cost estimate and ?nds it to be reasonable based on the project scope and state of development. See Attachment 4 for the current estimated project costs. 10. NEPA NEPA for Kemper may be more complex than for Orlando. A new surface mine, CCS, and a pipeline will be evaluated in the EIS. Southern and Mississippi Power have indicated that they require a Record of Decision no later than November 2009 so that they can begin commercial operations by 2013. Since FE has already prepared a very similar EIS for Orlando, it makes most sense for FE to manage the NEPA for Kemper in close coordination with the Loan Guarantee Program Of?ce. A preliminary NEPA schedule based on Mississippi?s requirement is found at See Attachment 5. 6 NETL and Southern are discussing the possibility of Southern placing the contract for NEPA support rather than NETL place the contract directly. Southern, NETL and the NEPA contractor would enter into a tri-party MOU in accordance with NEPA procedures. In that case, the costs will be included in Phase and shared by Southern on a pro-rata basis. FOR OFFICIAL USE ONLY 11 CONTAINS BUSINESS CONFIDENTIAL INFORMATION 11. Conclusion NETL recommends that the site relocation and repayment waiver be approved consistent with the discussion set forth above. ATTACHMENTS Statement of Project Objectives and Project Schedule Financial Model Economic Analysis of the Mississippi IGCC Project Langhammer?s Analysis Memo Project Cost Estimate Preliminary NEPA Schedule 9:?pr FOR OFFICIAL USE ONLY CONTAINS BUSINESS CONFIDENTIAL INFORMATION 12 ATTACHMENT 1 STATEMENT OF PROJECT OBJECTIVES AND SCHEDULE STATEMENT OF PROJECT OBJECTIVES DEMONSTRATION OF A COAL-BASED TRANSPORT GASIFIER Originally this demonstration project was to he conducted at the Orlando Utilities Commission (OUC) Stanton Energy Center near Orlando, Florida; however, due to unforeseen circumstances the project demonstration was terminated at the Orlando facility in November 2007. In December 2007, Southern Company requested that the project be relocated to the Kemper County site in After performing a due diligence review of the site relocation request, DOE approved the request and as a result the Statement of Project Objectives was modi?ed to re?ect the activities that were perform ed for the Orlando site and the activities which will be perforated for the Kemper County site. On Budget Periods and Phases that overlap on work perform ed at both demonstration sites, the designation of ?a refers to the Orlando site and the designation of refers to the Mississippi site. J) Statement of Proiect Objectives for Activities Associated with the Orlando Site A. Project Summary (as proposed for the Orlando demonstration site) Southern Company Services, Inc. (SCS), in a team effort with Southern Power Company Orlando Gasi?cation, LLC (SPCOG), Orlando Utilities Commission (OUC), and Kellogg Brown and Root (KBR), will design, constluct, and operate a coal-based 285-MW Integrated Gasi?cation Combined Cycle (IGCC) power plant to demonstrate Transport Reactor Integrated Gasi?cation (TRIGTM) combined cycle technology. The TRIGTM plant, to be located at the Stanton Energy Center near Orlando in Orange County, Florida, will have two main islands: 3 Gasi?cation Island and a Combined Cycle Island. The Gasi?cation Island will use air-blown transport gasi?er technology to generate syngas from US. coal Powder River Basin coal). The syngas, cleaned in the Gasi?cation Island, would be used for fueling the Combined Cycle Island - - a new combined cycle power generating facility - planned for installation in 2010 by OUC and SPCOG. Except for the incremental items required for syngas operation, the Combined Cycle Island, which includes a gas turbine, heat recovery steam generator, and a steam turbine, will be built without DOE funds. Whereas, the Gasi?cation Island, which includes the fuel handling, Transport Gasi?er (TG), syngas clean up system, and ash handling would be jointly owned by SPCOG and OUC and would be cost shared by DOE. A key performance target for the TRIGTM plant is to achieve 80% availability without the use of a spare gasi?cation train. In addition to demonstrating a ?rst-of-a-kind gasi?cation system with potential ef?ciency, capital cost, and operating cost advantages, this technology holds substantial potential for demonstrating the usability of abundant low-rank coals in an advanced power generation system. The project also demonstrates advanced technologies for particulate removal using high temperature-high pressure ?lters, mercury removal, and operation of a sulfur removal system for syngas cleanup. Prior to the decision to terminate the demonstration at the Orlando site, the project had initiated tasks in the following three phases: Project De?nition, (ii) Detailed Design, and Construction. B. Project Objectives (as proposed for the Orlando demonstration site) The overall objective of the project is to design, construct, and operate a Transport Gasi?er based advanced integrated gasi?cation combine cycle power plant that uses U.S. coal to generate 285-MW (net) electricity. The sub-objectives of the project include: 1. To design, build, and operate a state-of-the-art coal Gasi?cation Island utilizing KBR Transport Gasi?er technology and integrate it with a Combined Cycle Island. 2. To design, construct, and operate an advanced cleanup system that includes a sulfur removal system, high temperature - high pressure particulate ?lter (HTHP) system, selective catalytic reduction (SCR), and a mercury removal system. 3. To demonstrate high availability, high thermal ef?ciency, low cost, and low emissions of the electricity generation system in commercial operating mode. 4. To develop an effective commercialization strategy to accelerate the TRIGTM technology penetration in the US. and international markets. 5. Through reports and conference presentations, disseminate information on the development of the technology. The information reported should include plant efficiency, environmental status, and cost successes for ready replication into commercial practice. C. Project Phases The demonstration project was to be conducted in four phases; however, since the demonstration at the Orlando site was terminated during Budget Period 2a, only the first three phases were initiated. Phase Ha and Phase were not completed: Phase I. Project De?nition (Budget Period 1): This phase includes front-end engineering design, environmental permitting activities, simulated syngas combustion tests, and NEPA Record of Decision. Phase I activities include: Veri?cation of funding and schedule commitment by SPCOG and OUC for the Combined Cycle Island and its schedule match with that of the Gasification Island, Completion of NEPA Record of Decision and scheduled site permitting activities. Phase Detailed Design (Budget Period 2a): This phase includes detailed design engineering, equipment procurement, and continuing environmental permitting activities. Phase Illa. Construction (Budget Period 2a): This phase includes Gasi?cation Island construction, installation, commissioning, startup, integration with the Combined Cycle Island, and continued engineering and environmental activities. D. Work Statement SCS, the Cooperative Agreement Recipient, in collaboration with the other principal Project Team members, namely SPCOG, OUC, and KBR, shall: i. Provide all services, materials, labor, and management necessary for the design, construction, installation, startup, and demonstration of a coal?based 285-MW TRIGTM plant at the Stanton Energy Center, near Orlando, Florida. ii. Obtain all necessary licenses, permits, and agreements. Develop all detailed plant engineering and design drawings, equipment lists, plant layouts, detailed equipment speci?cations, construction speci?cations, bid packages, bid reviews, piping and instrumentation diagrams plant controls, instrumentation, and associated software, and other activities for the construction, installation, staitup, operation, data collection, and data evaluation of the demonstration plant. iv. Perform all site preparation, civil engineering and utilities, buildings, enclosures, site support, and other site services. v. Perform system integration of the Gasi?er Island with the Combined Cycle Island for electricity generation and dispatch. vi. Prepare and deliver to DOE all reports related to the management, budget, and control of the project as described in the Cooperative Agreement. vii. Produce and deliver to DOE all conference records, technical reports, topical reports, and informational reports as listed in the Cooperative Agreement. Closeout activities associated with the Orlando site, following the decision by OUC and SPCOG on November 14, 2007 to terminate the Gasi?cation Island portion of the Orlando facility. The details are given below. 1.0 Project De?nition (Phase I) The tasks in this phase include completing a detailed project management plan, ?nancial plan, environmental information volume, NEPA requirements, and front-end engineering design. The major subcontracts shall be awarded. The major technology components shall be ?nalized and the process design of the TRIGTM plant shall be completed. Task Project Management A detailed Project Management Plan shall be developed encompassing the four project phases. For each phase, the scope, cost, and schedule baselines shall be developed. The organizational structure for project implementation and technology commercialization shall be elaborated. The statements of work and procurement packages shall be developed for major subcontracts including enviromnental/NEPA support, design, and turbine testing. The design documents shall also address the fuel supply arrangements, electricity and by-product sale, plant emissions, waste disposal, and safety issues. The project management shall include the following business functions to support the project: development and/or application of appropriate cost accounting, property management, procurement methods, and human resources guidelines to meet all Federal, State, and local regulations and standards. Methodologies shall be developed to track cost and scheduling activities throughout the project. The other activities shall include monitoring of actual cost against budgeted cash ?ows, tracking material costs, tracking progress based on labor-hours, and tracking cost and schedule variances on a basis for the total project, and updating the project schedule. A checklist of the sequential activities shall be prepared from the project schedule. The project schedule diagram shall indicate the mandatory and external dependencies, important milestones, decision points, and budget periods. A Financing Plan shall be developed that includes ?nalizing all ?nancial commitments by the managements of the Southern Company and the OUC pertaining to the non-DOE cost share for all four phases of the project and the combined cycle system. The project costs and corresponding sources of funds shall be documented for each phase. Deliverables Deliverables marked (1) will be available for inspection on?site by DOE and deliverables marked (D) will be delivered to DOE. Notwithstanding designation of a deliverable as DOE may call for delivery of the item pursuant to the provisions of the cooperative agreement. Formal Project Management Reports listed in the Federal Assistance Report checklist. (D) Project Management Plan encompassing: Project Team and Structure (D), (ii) Technical Baseline (involving preliminary plans of design, construction, and demonstration/tests; process overview and block diagram; outline of the total concept from fuel receipt to electricity sale), (D) Cost Baseline, (D) (iv) Schedule Baseline (D), Communications Plan (D), (vi) Management and Control Procedures (1), (vii) Work Breakdown Structure at the same level as cost information, except combined cycle (D) Technical Risk Management Plan (I), and (ix) Final Major Subcontracts (1). Task 1.2 Environmental/NBPA Requirements This task prepares an Environmental Information Volume (EIV), documentation for obtaining environmental permitting for the site/project, and supports preparation of an Environmental Impact Statement (EIS) for making a Record of Decision per the National Environmental Policy Act (NEPA) requirement. . This subtask shall collect and document the data required to obtain appropriate environmental permits to construct and operate the demonstration plant on an ongoing basis. These permits shall be obtained from appropriate Federal, State, and local regulatory agencies. The following activities shall be performed. 1.2.1 Prepare an Environmental Information Volume in accordance with NETL guidance. The EIV shall contain a detailed description of the environmental aspects and projected impacts of the project and shall meet the information needs of the NEPA EIS. 1.2.2 Prepare an Environmental Compliance Plan (ECP) to implement an environmental monitoring and reporting strategy and to meet DOE reporting requirements. The strategy shall include plans for submitting a quality assurance/quality control plan and a pollution prevention plan conducting environmental monitoring, a Hazardous Substance Plan and Hazardous Waste Report, and submitting environmental status reports. 1.2.3 Prepare an Environmental Monitoring Plan (EMP), which speci?es the location, duration, frequency, and substances to be monitored to evaluate air, water, and land resources, as well as waste production. The EMP shall consider requirements for compliance monitoring, and NEPA-related monitoring. Deliverables Environmental permitting, data and milestones EIV and related NEPA-supporting documentation an Environmental Compliance Plan and an Environmental Monitoring Plan (D) Task 1.3 Front End Engineering and Design Initially a conceptual design of the project shall be performed. This shall involve an overview of all design aspects of TRIGTM plant (both Gasi?cation Island and the Combined Cycle Island) and the basis of the Front End Engineering Design (FEED) activities. The major equipment list for the Gasi?cation Island and the Combined Cycle Island shall be separately identi?ed. The Front End Engineering and Design (FEED) shall involve complete process design and about 30 percent of the total engineering design. This task shall include developing the basis for process design and the information necessary to support environmental permitting and NEPA. Cold?flow modeling shall be included for ?nalizing the designs of the transport gasi?er mixing zone, the cyclone, and the disengager. The process design of the gasification island shall be completed and integrated with the combined cycle system. The major technology components shall be selected including gasi?cation, sulfur removal, particulate removal, and mercury removal systems. The basis for this selection shall be documented. The - major sections to be addressed include: fuel delivery and handling, (ii) transport gasi?er, syngas cleanup, (iv) water treatment, combined cycle equipment, (vi) ash handling, and (vii) balance of plant. The project site shall be characterized with regard to topography, and soils to obtain the necessary data for designing layout and foundations of structures and buildings comprising the power plant, solids and water handing systems, and waste disposal. Deliverables a) Conceptual Design Report. This report shall present an overview of all design aspects of TRIGTM plant (both Gasification Island and the Combined Cycle Island) and the basis of the FEED activities. The major equipment list for the Gasi?cation Island (D) and Combined Cycle Island shall be separately identi?ed (1). b) Front End Engineering and Design Report. This report shall encompass: speci?c technical objectives (D), overall design basis (D), summary ?as designed? heat and material balances (critical components, Gasi?cation Island, and the complete TRIGTM plant (D) detailed heat and material balance (1), process flow diagrams (PFD) (D), process speci?cation sheets (I), site interfaces (D), gas turbine syngas combustion test report (1), equipment (D) and instrument lists (I), all safety reviews including Hazop (I), updated project schedule (D), controls documentation and support (D), technical speci?cations for procurement of all long lead (greater than 12 months) items (I), quotations on all major equipment (I), design drawings, detailed construction plan tepographic site map, soils report, site plan, and site and plant water balance report. The design basis, process speci?cations, material and energy balances, and ?ow diagrams shall be included in the report separately for the Gasi?cation Island, each of its sections, and each equipment. Task 1.4 Long Lead Equipment Vendor SelectiOn and Engineering In this task, the long lead items and quali?ed vendors shall be identi?ed and the necessary engineering shall be initiated. For critical path items, a detailed schedule for design, procurement, fabrication, delivery, structure consnuction, installation, and checkout testing shall be prepared. (Invoices against this task will not be accepted until after completion of NEPA ROD). Deliverables The long lead equipment report and detailed schedules of critical path items (D) 2.0 Detailed Design (Phase Ila) The detailed design shall develop the information and documentation necessary to construct and operate the demonstration plant. In this phase, all detailed design packages, bid speci?cations, and engineering drawings of the plant shall be developed. This task shall develop complete facility design documents required for installation and operation of the Gasi?cation Island, including commissioning and startup. The design documentation shall re?ect the ?as-built? conditions upon completion of construction. The design shall include a test plan development for measuring the performance of the TRIGTM plant from ef?ciency and emissions perspective under different operating conditions alternate sub bituminous coal test, gasi?er temperature and pressure, part load, ramp-up, shutdown), and corresponding data analysis methodologies. 2.1 Project Management The Project Team shall perform all project management activities plamn'ng, tracking, executing, controlling, and communicating) necessary to meet technical, cost, and schedule goals per the Cooperative Agreement. The technical, cost, and schedule information shall be updated. The environmental permitting and compliance management efforts shall continue during this phase. Deliverables Formal Project Management Reports listed in the Federal Assistance Report checklist (D). 2.2 Major Engineering Tasks The major subtasks include structural steel and concrete, architectural, mechanical design, electrical design, instrumentation and controls, equipment procurement packages, construction bid packages, and integration of the Gasi?cation island with the Combined Cycle Island. 2.2.1 Structural Steel and Concrete: This subtask shall include all civil, structural, and geotechnical engineering associated with the design of the facility, including 3-D computer modeling of the process structures. 2.2.2 Architectural: This subtask shall include the design of all buildings and facilities including the administration building, mechanical shop, and warehouse. 2.2.3 Mechanical: This subtask includes the following: mechanical design of all equipment including the development of fabrication drawings and speci?cations for procurement, (ii) piping layout, stress analysis, and support design, generation of isometric drawings for all piping and de?nition of the piping and valve speci?cations for procurement, and, site service systems including ?re protection, water supplies, sewage, and plant air. 2.2.4 Electrical Design: This subtask includes the following: development of the single-line configuration to determine the electrical distribution throughout the facility, (ii) development of plans for electrical grounding, lighting, cable trays, and conduit, design of the station service and plant communication systems, (iv) development of interconnection wiring diagrams for all the equipment, programmable logic controllers, and the integrated control system (ICS), design and procurement speci?cations for the motor control centers. 2.2.5 Instrumentation and Controls: This subtask includes the following: con?guration of the Southern Company standard plant data archiving system, (ii) instrument sizing, speci?cation, and selection, instrument location drawings and installation details, (iv) inshument loop drawings, control schematics, logic diagrams, and interlock logic diagrams, ICS control con?guration, (vi) performance management con?guration programming. 2.2.6 Construction Bid Packages: This subtask includes all engineering activity needed to prepare construction bid packages. This work includes assembly of plans, drawings, and speci?cations for the construction bid packages. it also includes developing a list of quali?ed bidders for each package, issuing each package to qualified bidders, evaluating construction bids, and preparing requisitions and purchase orders for award of construction contracts. 2.2.7 Procurement: This subtask includes the development of bid inquiry packages, bid evaluation, selection and procurement for all equipment, bulk materials, and services for the Gasi?cation Island. 2.2.8. integration with Combined Cycle Island: This task shall address the design and schedule related activities for the process integration of the gasi?cation island with the Combined Cycle Island. The major equipment in the Combined Cycle Island shall include a gas turbine, a heat recovery steam generator (includes Selective Catalytic Reduction), condenser, and a steam turbine. 3.0 Construction (Phase 111a) The tasks in this phase include construction, installation, commissioning, and startup, and the remaining engineering and environmental compliance support. Project Management The Project Team shall perform all project management activities planning, tracking, executing, controlling, and communicating) necessary to assure technical, cost, and schedule goals per the Cooperative Agreement. The technical, cost, and schedule - information shall be updated. The environmental compliance efforts shall continue during this phase. Deliverables Formal Project Management Reports listed in the Federal Assistance Report checklist (D). 3.2 Site Preparation The selected site shall be developed for installation of structures via grading and excavations, machinery and equipment foundations, and building and service facility foundations. 3.3 TRIGTM Plant Construction The Project Team shall erect the demonstration plant and all related support systems and facilities. This task includes all equipment, materials, labor, and supervision required to install the foundations, process structures, buildings, bulks for the facility, and balance-of?plant utilities including: Indirects I Site, General 0 Steam Generation Area 0 Turbine and Generation Area 0 Fuel Facilities 0 Plant Water Systems 0 Electrical Distribution and Switchyard I Plant Instrumentation and Controls 0 Other 0 Gasi?cation Facilities Gasification Building Other Gasi?cation Feedstocks Storage and Handling Feedstock Prep Gasi?cation Gasi?cation Ash Removal/Recycle Syngas Treatment Syngas Cooling/Heat Recovery Host Plant Interconnections 3.4 Commissioning and Startup The Project Team shall prepare commissioning and startup/test plans, procedures, and schedules for the systems and components to be tested. Detailed test requirements and acceptance criteria shall be provided for all advanced equipment to be operated during the commissioning period. During this period most of the equipment acceptance tests shall be completed per the American Society of Mechanical Engineers Performance Test Code (PTC) procedures, modi?ed for local, seasonal weather conditions as necessary. The Project Team shall address all preparations necessary for operating the demonstration plant including, but not limited to, the types of sample analyses necessary to evaluate component and system performance, methods of collecting, reducing, and analyzing data from various components, and, methods for storage and retrieval of raw and re?ned performance data. E. Federal Assistance Reporting Checklist In addition to reports listed in the Federal Assistance Reporting Checklist, the Recipient shall submit the following to the COR. Note that the following is not to be submitted through the of?cial NETL document control system. The due dates of the Topical Reports will be determined by the Government Contracting Of?cer?s Representative (COR) in discussions with the Recipient. These reports will be submitted as a draft until reviewed and approved by the COR. F. TOpical Reports i. Conceptual Design Report ii. Front End Engineering Design Report G. Brie?ngs and Technical Presentations The Recipient shall prepare detailed brief'mgs for presentation to the Government Contracting Officer?s Representative (COR) at a NETL site or at a different location as designated by the Government COR. The briefings shall be given by the Recipient to explain the plans, progress, and results of the project effort. i. Progress Review and Planning Meetings (every six months) ii. Project Kick-off Meeting (soon after the award) Conceptual Design Review Meeting (before beginning FEED) iv. Front End Engineering Design Review Meeting (end of Phase 1) v. Conference Participations H. Status Reports Project Management Meetings Weekly or as?needed project management meetings (either via phone conference with minutes, web/net meetings, or face-to-face) will occur to discuss progress, issues, accomplishments, deliverables, milestones, the work plan, press inquiries, upcoming events, etc. Once a month, typically linked with invoice submission or cash advance request, the Recipient shall include in its email update current value management data as follows: Lab or Performance Indicator (LPI) Schedule Performance Indicator (SP1) Planned Value and Actual Cost should be reported for the current reporting month and cumulative for the project along with Estimate to Completion (ETC), Expended-to?Date (ETD), and Estimate at Completion (EAC). The projected planned and estimated cost for the upcoming reporting month should be assessed. DOE shall have inspection rights to the project management systems and data used to produce standard project progress reporting. Schedule (Gantt Chart) The Participant shall maintain a Gantt Chart and report on the project progress through updates to the Gantt Chart as part of the Quarterly Technical Progress Report required by the Federal Assistance Reporting Checklist, NETL Form 540.3-1. Statement of Project Objectives for Activities Associated with the Kemper County Site A. Project Summary Southern Company Services, Inc. (SCS), in a team effort with Mississippi Power Company (MPG), and Kellogg Brown Root LLC (KBR), will design, construct, and Operate a coal?based Integrated Gasification Combined Cycle (IGCC) power plant to demonstrate Transport Integrated Gasifrcation (TRIGTM) combined cycle (IGCC) technology. The TRIGTM plant, to be located at an undeveloped, lignite- mine mouth site in Kemper County, Mississippi, will have two main islands: a Gasificatien Island and a Combined Cycle Island. The Gasi?cation Island will use air-blown transport gasi?er technology to generate syngas from US. coal Mississippi Lignite). The syngas, cleaned in the Gasi?cation Island, will be used for fueling the Combined Cycle Island. The Gasi?cation Island will include two Transport Gasi?ers (TG) each with its own fuel handling and ash handling systems. The Combined Cycle Island will include two gas turbines each with its own heat recovery steam generator, both feeding a single steam turbine. A key performance target for the TRIGTM plant is to achieve 80% availability without the use of a spare gasi?cation train. In addition to demonstrating a ?rst-of-a-kind gasi?cation system with potential ef?ciency, capital cost, and operating cost advantages, this technology holds substantial potential for demonstrating the usability of abundant low-rank coals in an advanced power generation system. The project also demonstrates advanced technologies for particulate removal using high temperature-high pressure filters, mercury removal, and operation of a sulfur removal system for syngas cleanup. B. Project Objectives The overall objective of the project is to design, construct, and operate a TranSport Gasi?er based advanced integrated gasi?cation combine cycle power plant that uses U.S. coal to generate approximately 600-MW (net) electricity. The sub-objectives of the project include: 1. To design, build, and operate a state-of-the-art IGCC facility utilizing KBR Transport Gasifier technology. 2. To design, construct, and Operate an advanced cleanup system that includes a sulfur removal system, high temperature - high pressure particulate ?lter (HTHP) system, selective catalytic reduction (SCR), and a mercury removal system. 3. To demonstrate high availability, high thermal ef?ciency, low cost, and low emissions of the TRIGTM electricity generation system in commercial operating mode. 4. To develop an effective commercialization strategy to accelerate the technology penetration in the U.S. and international markets. 5. Through reports and conference presentations, disseminate information on the development of the TRIGTM technology. The information reported should include plant efficiency, environmental status, and cost successes for ready replication into commercial practice. C. Project Phases The demonstration project at the Kemper County site will be conducted in three phases: Phase Detailed Design (Budget Period 2b): This phase includes detailed design engineering, continuing enviromnental permitting activities and Completion of a NEPA Record of Decision for the Kemper County site. Phase (Budget Period 2b): This phase includes TRIGTM plant, equipment procurement, installation, commissioning, startup, and continued engineering and environmental activities. Phase IV. Demonstration (Budget Period 3): This phase includes the commercial operation and maintenance of the demonstration plant with the execution of the test plan. The operating period for the demonstration plant is 48 months. Following demonstration, data analysis and process evaluations will be completed and ?nal reports will be prepared to characterize the technical, environmental, and economic performance of the TRIGTM plant for power generation. D. Work Statement SCS, the Cooperative Agreement Recipient, in collaboration with the other principal Project Team members, namely MPG and KBR, shall: i. Provide all services, materials, labor, and management necessary for the design, construction, installation, startup, and demonstration of a coal-based TRIGTM plant at a site in Kemper County, Mississippi. ii. Obtain all necessary licenses, permits, and agreements. Develop all detailed plant engineering and design drawings, equipment lists, plant layouts, detailed equipment specifications, construction speci?cations, bid packages, bid reviews, piping and instrumentation diagrams plant controls, instrumentation, and associated software, and other activities for the construction, installation, startup, operation, data collection, and data evaluation of the demonstration plant. iv. Perform all site preparation, civil engineering and utilities, buildings, enclosures, site support, and other site services. v. Prepare and deliver to DOE all reports related to the management, budget, and control of the project as described in the Cooperative Agreement. vi. Produce and deliver to DOE all conference records, technical reports, topical reports, and informational reports as listed in the Cooperative Agreement. The details are given below. 1.0 Detailed Design (Phase Ilb) The detailed design will develop the information and documentation necessary to and operate the demonstration plant. In this phase, all detailed design packages, bid speci?cations, and engineering drawings of the plant will be developed. This task will develop complete facility design documents required for installation and operation of the TRIGTM plant, including commissioning and startup. The design documentation will re?ect the ?as?built? conditions upon completion of construction. The design will include a test plan deve10pment for measuring the performance of the plant from ef?ciency and emissions perspective under different operating conditions alternate sub bituminous coal test, gasi?er temperature and pressure, part load, ramp-up, shutdown), and corresponding data analysis methodologies. 1.1 Project Management The Project Team will perform all project management activities planning, tracking, executing, controlling, and communicating) necessary to meet technical, cost, and schedule goals per the Cooperative Agreement. The technical, cost, and schedule information will be updated. The environmental permitting and compliance management efforts will continue during this phase. Deliverables Formal Project Management Reports listed in the Federal Assistance Report checklist (D). 1.2 Major Engineering Tasks The major subtasks include structural steel and concrete, architectural, mechanical design, electrical design, instrumentation and controls, equipment procurement packages, and construction bid packages. 2.2.1 Structural Steel and Concrete: This subtask includes all civil, structural, and geotechnical engineering associated with the design of the facility, including 3-D computer modeling of the process structures. 2.2.2 Architectural: This subtask includes the design of all buildings and facilities including the administration building, mechanical shop, and warehouse. 2.2.3 Mechanical: This subtask includes the following: mechanical design of all equipment including the development of fabrication drawings and speci?cations for procurement, (ii) piping layout, stress analysis, and support design, generation of isometric drawings for all piping and de?nition of the piping and valve speci?cations for procurement, and site service systems including ?re protection, water supplies, sewage, and plant air. 2.2.4 Electrical Design: This subtask includes the following: development of the single-line con?guration to determine the electrical distribution throughout the facility, (ii) development of plans for electrical grounding, lighting, cable trays, and conduit, design of the station service and plant communication systems, (iv) development of interconnection wiring diagrams for all the equipment, programmable logic controllers, and the integrated control system (ICS), design and procurement speci?cations for the motor control centers. 2.2.5 Instrumentation and Controls: This subtask includes the following: con?guration of the Southern Company standard plant data archiving system, (ii) instrument sizing, speci?cation, and selection, instrument location drawings and installation details, (iv) instrument loop drawings, control schematics, logic diagrams, and interlock logic diagrams, ICS control con?guration, (vi) performance management con?guration programming. 2.2.6 Construction Bid Packages: This subtask includes all engineering activity needed to prepare construction bid packages. This work includes assembly of plans, drawings, and speci?cations for the construction bid packages. It also includes developing a list of quali?ed bidders for each package, issuing each package to quali?ed bidders, evaluating the bids, and preparing requisitions and purchase orders for the award of construction contracts. Deliverables Detailed Design Report: This report includes the following items: updated plant capitai and costs (D), and schedules (D), (ii) design, costs, and conshuction and installation schedules for each major section and each major equipment TRIGTM plant Demonstration Test Plan outline (D), estimated environmental emissions, discharges, waste disposal, and compliance (D), and (iv) plant safety features, such as ?re and hurricane considerations (D). Task 2.3 Environmental/NEPA Requirements This task prepares an Environmental Information Volume (EIV) and supports preparation of an Environmental Impact Statement (EIS) for making a Record of Decision per the National Environmental Policy Act (NEPA) requirement. Environmental Information Volume for the Mississippi site in accordance with NETL guidance. The HIV will contain a detailed description of the environmental aspects and projected impacts of the project and will meet the information needs of the NEPA EIS. The due date for the submission of the Draft EIV will be determined based on a detailed plan that will be developed by the DOE, SCS and MPC personnel working on NEPA. 2.3.2 Prepare an Environmental Compliance Plan (ECP) to implement an environmental monitoring and reporting strategy and to meet DOE reporting requirements. The strategy shall include plans for submitting a quality assurance/quality control plan and a pollution prevention plan conducting enviromnental monitoring, a Hazardous Substance Plan and Hazardous Waste Report, and submitting environmental status reports. The due date for the submission of the Draft ECP will be determined based on a detailed plan that will be developed by the DOE, SCS and MPC personnel working on NEPA. 2.3.3 Prepare an Environmental Monitoring Plan (EMP), which speci?es the location, duration, frequency, and substances to be monitored to evaluate air, water, and land resources, as well as waste production. The EMP shall consider requirements for compliance monitoring, and NEPA-related monitoring. The due date for the submission of the Draft EMP will be determined based on a detailed plan that will be developed by the DOE, SCS and MPC personnel working on NEPA. Deiiverables EIV and related NEPA-supporting documentation an Enviromnental Compliance Plan and an Environmental Monitoring Plan (D) 2.4 Commercialization Strategy Development The Project Team will develop a commercialization strategy to market the TRIGTM technology by identifying the applicable coal-based markets in different geographic regions of the world, and (ii) by developing Technology User Groups? for later dissemination of information on the demonstrated benefits of efficiency, environmental emissions, and cost compared with competing IGCC technologies for coal-based electricity generation. This strategy will include site visits for stakeholders interested in the technology. - Deliverables A commercialization strategy document presenting target markets, technology merits and licensing revenues, and marketing approaches A summary report (D). 2.0 Construction (Phase Illb) The tasks in this phase include construction, installation, commissioning, and startup, and the remaining engineering and environmental compliance support. 3.1 Project Management The Project Team will perform all project management activities planning, tracking, executing, controlling, and communicating) necessary to assure technical, cost, and schedule goals per the Cooperative Agreement. The technical, cost, and schedule - information will be updated. The environmental compliance efforts will continue during this phase. Deliverables Formal Project Management Reports listed in the Federal Assistance Report checklist (D). 3.2 Procurement: This subtask includes the development of bid inquiry packages, bid evaluation, selection and procurement for all equipment, bulk materials, and services associated with the activities under Phase 3.3 Site Preparation The selected site will be developed for installation of structures via grading and excavations, machinery and equipment foundations, and buiiding and service facility foundations. Deliverables A site preparation plan, schedule, and layout diagram(s) (D). 3.4 TRIGTM Plant Construction The Project Team will erect the demonstration plant and all related support systems and facilities. This task includes all equipment, materials, labor, and supervision required to install the foundations, process structures, buildings, bulks for the facility, and balance-of-plant utilities including: Indirects Site, General Steam Generation Area Turbine and Generation Area Fuel Facilities Plant Water Systems Electrical Distribution and Switchyard Plant Instrumentation and Controls Other Gasi?cation Facilities Gasi?cation Building Other Gasi?cation Feedstocks Storage and Handling Feedstock Prep Gasification Gasi?cation Ash Removal/Recycle Syngas Treatment Syngas Cooling/Heat Recovery Deliverables Construction Report (D). 3.5 Commissioning and Startup The Project Team will prepare commissioning and startup/test plans, procedures, and schedules for the systems and components to be tested. Detailed test requirements and acceptance criteria will be provided for all advanced equipment to be operated during the commissioning period. During this period most of the equipment acceptance tests will be completed per the American Society of Mechanical Engineers Performance Test Code (PTC) procedures, modi?ed for local, seasonal weather conditions as necessary. The Project Team will address all preparations necessary for operating the demonstration plant including, but not limited to, the types of sample analyses necessary to evaluate component and system performance, methods of collecting, reducing, and analyzing data from various components, and, methods for storage and retrieval of raw and re?ned performance data. Deliverables Commissioning and Startup Report. A draft Demonstration Test Plan (including commissioning and startup) will be provided prior to start of commissioning and review comments shall be resolved (D). 4.0 Demonstration (Phase IV) The tasks in this phase include the commercial operation and maintenance of the demonstration plant and execution of the test plan. At the conclusion of the demonstration period, data analysis and process evaluations will be completed and final reports will be prepared to characterize the technical, environmental, and economic performance of the TRIGTM plant used for power generation. 4.1 Project Management The Project Team will perform all project management activities planning, tracking, executing, controlling, and communicating) necessary to meet technical, cost, and schedule goals per the Cooperative Agreement. The technical, cost, and schedule information will be updated. The environmental compliance efforts will continue during this phase. The Project Team will maintain safety and environmental compliance programs and procedures, including but not limited-to: establishing operations and maintenance procedures to ensure safe and efficient operation, maintaining documentation of procedures for storage, transportation, and disposal of solid waste, and establishing safety procedures needed to comply with the Occupational Safety and Health Administration regulations. Deliverables Formal Project Management Reports listed in the Federal Assistance Report checklist (D). 4.2 Operations The Project Team will ensure that the demonstration plant is operated and maintained for commercial generation of electricity and for achieving the project objectives. The Project Team will ensure, either directly or through appropriate subcontractors that all technical support, operators, mechanics and technicians, management, supervision, equipment, and materials are provided to operate the facility and perform testing in accordance with its commercial nature and test plans. The Project Team will provide training for all operating personnel, with safety being the top priority. The Project Team will determine technical performance of the demonstration plant by evaluating heat rate and other key parameters fciiowing PTC procedures, modi?ed for local, seasonal weather conditions as necessary. The Project Team will analyze the data and produce ?nal reports detailing environmental, process, and economic performance of the TRIGTM technology. The Project Team will ensure that the environmental performance of the demonstration plant is documented through such categories as gasi?cation ash discharge, stack gas monitoring, water analysis, and gas cleanup performance results. 4.2.1 Test Plan The Test Plan wili be developed for the operation of the facility consistent with the commerciat nature of the demonstration plant. The test program for the demonstration phase will be planned for four (4) years to achieve reliable plant operation with high thermal efficiency, low costs and emissions, and a plant availability of at least 80%. Testing will involve plant measurements to improve the performance of all process equipment items and to develop a deeper understanding of the process. Gas measurements shall be performed. Dust measurements to determine HTHP ?lter particulate capture ef?ciency will be conducted. The test program objectives will include the following: i. Optimizing gasi?er performance ii. Monitoring equipment thermal and mechanical performance Investigating HTHP ?lter Operational performance iv. Optimizing gas turbine syngas combustor performance v. Monitoring gas turbine internals vi. Monitoring and optimizing HRSG performance vii. Optimizing SCR performance Optimizing and improving process control systems ix. Improving startup and load?following capability x. Evaluating the use of gasifier ash as a fuel source xi. Completing a full survey to characterize all the egress streams xii. Compiling plant repair and maintenance records Completing thorough inspections of all plant equipment xiv. Alternative sub bituminous coal test The plant will be operated under commercial dispatch and the test data will be collected at commercially representative conditions. The ?nal equipment inspections will be made and the test results will be reported by the end of the demonstration phase. 4.2.2 Data Analysis The plant operating information system will be used to achieve real-time data collection and archiving such that the Project Team can perform complete measurement and characterization of input and output streams for each component being tested. The analytical procedures and plans wili be prepared and maintained for all sampling needs. The analysis of the results will be performed to evaluate performance of the process components and systems, and to fulfill the objectives of the test plan. Deliverables Final TRIGTM Project Report. A comprehensive ?nal report based upon all activities accomplished during the Cooperative Agreement. The ?nal report will include the results of process, engineering, environmental, and economic evaluations of the complete TRIGTM plant and It will also include ?nal process overview, signi?cant operating achievements, operational problems, plant modi?cations, operation and production statistics, and recommendations for plant performance optimization, scale up, and commercialization (D). 4.3 Commercialization Strategy Implementation The Project Team will implement the activities relating to the commercialization plan to market the TRIGTM technology, such as conducting site tours for interested stakeholders and user groups, and disseminating information on the demonstrated technology bene?ts. A ?nancial model and economic analysis will be developed for a commercial stand-alone TRIGTM plant based on the ?nal capital and cost data of the demonstration plant. Deliverables An updated commercialization strategy report. This report includes target markets, technology merits and licensing revenues, marketing strategies, ?nancial model and economic analysis for a commercial TRIGTM plant, a target list of stakeholders interested in the technology, and the preliminary results of marketing efforts during the four-year demonstration A summary report (D). E. Federal Assistance Reporting Checklist In addition to reports listed in the Federal Assistance Reporting Checklist, the Recipient will submit the following to the COR. Note that the following is to be submitted through the of?cial NETL document control system. The due dates of the Topical Reports will be determined by the Government Contracting Of?cer?s Representative (COR) in discussions with the Recipient. These reports will be submitted as a draft until reviewed and approved by the COR. F. Topical Reports Front End Engineering Design Report iv. Detailed Design Report v. Construction Report vi. Commissioning and Startup Report vii. Commercialization Strategy Report(s) Final TRIGTM Project Report G. Brie?ngs and Technical Presentations The Recipient will prepare detailed brie?ngs for presentation to the Government Contracting Of?cer?s Representative (COR) at a NETL site or at a different location as designated by the Government COR. The brie?ngs will be given by the Recipient to explain the plans, progress, and results of the project effort. vi. Progress Review and Plamiing Meetings (every six months) vii. Front End Engineering Design Review Meeting (begimiing of Phase lib) Detailed Design Review Meeting (during Phase 11b) ix. Construction Review Meeting (during Phase x. Final Review Meeting (end of Phase IV) xi. Drawings/Photographs/Site Visits xii. Conference Participations H. Status Reports Project Management Meetings Weekly or as-needed project management meetings (either via phone conference with minutes, web/net meetings, or face?to~face) will occur to discuss progress, issues, accomplishments, deliverables, milestones, the work plan, press inquiries, upcoming events, etc. Once a month typically linked with invoice submission or cash advance request, the Recipient will include in its email update current value management data as follows: Labor Performance Indicator (LPI) Schedule Performance Indicator (SP1) Planned Value and Actual Cost should be reported for the current reporting month and on a cumulative basis for the project along with Estimate to Completion (ETC), Expended?to-Date (ETD), and Estimate at Completion (EAC). The projected planned and estimated cost for the upcoming reporting month should be assessed. DOE will have inspection rights to the project management systems and data used to produce standard project progress reporting. Schedule (Gantt Chart! The Participant will maintain a Gantt Chart and report on the project progress through updates to the Gantt Chart as part of the Quarterly Technical Progress Report required by the Federal Assistance Reporting Checklist, NETL Form 540.3?1. S: :thcm Senna-.1. Inc. Change chlIk'M - Paw: 4 of !7 Fehman? Sum Wily Early Ell?! ID Sun - mm 01mm I ammo: 95:04 31m:- om and le?u?mh Complain mm! 30mm; Om (Raf?e-Go cesium mm mumm- . 310cm whim-.1 rumor 31am: remowmum mm I emu? our Pom?lhwud mm DZJANW 3m?10_ Gnl?or - Engineer"; 3. Premium . P?l??h?wll' - . mm mmnu 180360! m_um-mmamm Bit-?10? . mm 0349.119- m-zan Gul?orSm Cedar-Fame:- We 15%11 C-ul?or Puma-m. Control Dubai-Hm mm otm1 mm cc 3mm. Grading. Pl?llnn r. Una-wru- mono mimw ammo II- cum-r. 3m Work 4mg: omcm mum-mung o1ocm- ouum _o1ocnq- i awamr 1mm: cc 1&me emu-man @wmr . 91.1qu Equip 1mm? - mum; pm 1m11- mum cc Ham-mm 15:91:41; cc on Turhlno -hmnon 01mm: 014mm? mar-Hum mm 9149;11- :oqgc-I 1 mun-mm? 2 mm. mun-sun Em: (4005: o1wc11~ mum: . m- anupr_._aogm_um urn-mum mm_ 1m? 1 gamg_ mmnos Osman Sonic. Emulation m. . L. Orin-Hm m1: 1mm:- - 15mm cc Syllol'n seam-Inlay a. sun-Up W16 moan:- ?Mmmum "my macro mom-12- 1mm . in: Gullah emlnlonhg moss 150m:- Tuhlnl 1: Hal! mum mm? In cc rm Tuung mm mm:- muma ?ice Mp a. scam-m lnhurl??on Triu- Ilmz: auuma Ommr-ngw Damn-alien Mun IV . ludoot Pal-Ind 3 mm 1 Wm"? Com DispuchaTantoarlm - ., auunw omacar Rum Flnloh mg. South-m Goa-many Generation _Dm men cmm__ 1 um um antenna Bur Run an. unseen: 121s cnuw mm MPG IGCC . KEMPER COUNTY DOE$un1rnuyRopon . Figure 1 anm Svsm. Inc. The Rama-m mmhlu? the nun-ml f?uminlml hen-in {u mnruin cun?dmlinf hunlncu which Is ru b1: I'rtm de-clmmu Humid: Ihc 1.3.5. Gin-murmur tn the extent by law. ATTACHMENT 2 FINANCIAL MODEL ECONOMIC ANALYSIS Economic Analysis of the Mississippi IGCC Project Basis of Analysis MPC has identi?ed a need for additional generating capacity beginning in 2013 caused by load growth and the scheduled retirements of older, uneconomic generating units. MPC has conducted economic and technical analyses of the alternatives to meet that need. At this time, it appears that the best alternative for its customers is to build the Mississippi IGCC facility. This conclusion is contingent upon successfully obtaining CCPIZ funding from DOE, the loan repayment waiver from DOE, Investment Tax Credits and certain State and Local incentives. This economic analysis is the culmination of an integrated resource planning process by which MPC makes decisions regarding generation expansion. In this particular case, MPC evaluated several self build generation alternatives including IGCC, natural gas combined cycle (NGCC), nuclear, pulverized coal, and lignite circulating ?uidized bed technologies. In addition, solicitations from the market were also evaluated against the self build options. The next best generation expansion alternative in the analysis was identi?ed to be the NGCC option. Thus, the economic analysis provided to the Department of Energy (DOE) will focus on comparing the Mississippi IGCC facility versus the NGCC. Analysis Methodology The Mississippi IGCC is expected to be a regulated asset. It will be included in regulated rate base and will earn a regulated rate of return determined by the Mississippi Public Service Commission (MPSC). Because of the regulated nature of the project, comparative analysis is done using ?Revenue Requirements" methodology. This method is typically used within the utility industry to evaluate and compare regulated investment alternatives. Revenue Requirements is de?ned as the revenue that is required from customers to cover all cost associated with a particular project. All cost would include operating and maintenance expenses, taxes, depreciation and the return on invested capital (both debt and equity). The equity return would be determined by the MPSC. In ranking alternatives, the project with the lowest net present value revenue requirement will have the lowest cost to customers and is thus the preferred alternative. Financial Model Overview The ?nancial model used is a basic analysis model (BAM) built in Microsoft Excel by Southern Company. The methodology in BAM is consistent with the modeling methodology used by Southern Company for more than twenty years. BAM has been used for analysis with respect to rate recovery, other non?regulated investment opportunities, and other new business opportunities within Southern Company. It considers customer revenue requirements, ?nancial strength measures, and other project parameters to generate full ?nancial statements and related statistics. A complete working version of the model has been provided to DOE. All of the calculations are performed within the model. The model is divided into three parts: Inputs, Analysis Engine, and Reporting Statements. Inputs: The following inputs were used for valuation and screening: Capital Structure, Capital Cost, Tax Rates, Capital Expenditures, Revenues, Expenses, and other balance sheet items. The inputs are divided into two worksheets. The first is an input template with the inputs unique to a particular technology/scenario. This allows for quick analysis of many different scenarios. The second input page feeds in the unique data from the ?rst and contains assumptions that are the same across all technologies/scenarios. Analysis Engine: The analysis engine is a separate worksheet that contains all calculations for full ?nancials and cash ?ow analysis. The ?reporting? section lays out the standard ?nancial reports such as the Income Statement, Balance Sheet, and Cash Flow Statement, as well as, a summary report of key items. The ?other reporting? section contains reporting on key ?nancial parameters related to credit quality and ?nancial performance. The ?working? section contains all of the inputs that drive the analysis and all of the calculations that feed the reporting sections above. Reporting Statements and Graphs: The reporting statements consist of standard ?nancial statements and other metrics that may be necessary to evaluate the project. Key Financial Assumptions A 40 year life was assumed for all alternatives The book depreciation was calculated using the straight-line method over a 40?year life. Tax depreciation was calculated using the Modified Accelerated Cost Recovery System (MACRS) method over a 20~year life. Composite tax rate? 38.25% Cost of Capital Debt? 7.2% cost rate, 50% of capitalization. For the loan guarantee scenario, a 5.8% cost rate was assumed (Federal Financing Bank rate plus 25 basis points). I Preferred 6.50% cost rate, 5% of capitalization I Equity? 13.5% cost rate, 45% of capitalization General Assumptions Comparison of Facilities: Technology NGCC IGCC Con?guration 2-on-1 2?on?l Gas turbines MHI Summer Peak Capacity (MW) 840 581 Location Meridian, MS Kemper County, MS For purposes of the economic analyses, the size and costs of the NGCC were scaled from 840MW to 581MW. This ensures that the economics are evaluated on equivalent sized resources while retaining the economies of scale associated with building the larger NGCC facility. Kev Financial Model Outputs The for a particular alternative is calculated on the NPV Breakdown worksheet of the ?nancial model for that alternative. Financial models were provided to DOE for the following alternatives. NGCC IGCC IGCC, Include CCPI2 Funds IGCC, Include CCPI2 Funds, 25% CO2 Capture IGCC, Include CCPI2 Funds, 25% C02 Capture, Loan Guarantee IGCC, Include CCPI2 Funds, 25% CO2 Capture, Loan Guarantee, Repayment Waived Each line item on the NPV Breakdown worksheet represents the revenues required to recover a category of costs. Although most of the line items are self explanatory, a few comments are provided for clarity. Capital Revenue Requirements covers costs associated with the initial and ongoing capital investment needed to operate the generating facility. Included in the Capital Revenue Requirements are depreciation, return on capital, and related income tax implications. For IGCC models, the impacts on capital costs from CCP12 funds, loan guarantees, and state and local incentives and related income tax implications would be included. Investment tax credits only apply to the IGCC case. These credits must be returned to the ratepayer over the life of the project. The negative values indicate this is a reduction in revenue requirements. By-product Revenues are proceeds from the sale of by?products produced by the IGCC. These include ammonia, sulfuric acid and ash. The proceeds from the sales of these by? products reduce the revenues required from customers. Fixed costs: ?xed expenses associated with operating the facility such as labor and benefits cost. Fixed Fuel: ?rm transportation charges for natural gas pipeline capacity reservation. This only applies to the NGCC option. While the IGCC does have natural gas backup, MPC does not intend to purchase ?rm pipeline capacity for that purpose. Insurance: cost to insure the facility against catastrophic events such as ?re, weather, etc. This is a function of capital cost. administrative and general expenses associated with adding generation. This is input as a value and is thus the same dollar amount for all alternatives. Ad Valorem Tax will re?ect any statutory abatement opportunities available to MPC. Variable fuel expense is the cost of fuel. Variable expenses are operation and maintenance expenses that vary with the production of the facility such as planned outage costs. Emissions include projected costs associated with ef?uent that have economic cost, e. allowances for sulfur dioxide or nitrous oxide emissions. In the models provided, these costs also include a projected penalty cost for C02 emissions. This penalty could take the form of allowance purchases or a tax. MPC does not assume the penalties in these models are based on any particular piece of legislation. However, to assume there will be no penalty to emit C02 in this time frame is not appropriate given the current momentum of climate change proposals in Congress. System production cost savings represent the additional production cost savings associated with the IGCC. The IGCC dispatches to a higher capacity factor than the NGCC and thus reduces the operation (and costs) of other generating resources in the system. These system production cost savings will benefit regulated customers. Summary of results The table below shows the results of the economic analyses. The values in the middle column, labeled $10/Ton Esc. correspond to the ?nancial models provided to DOE and represent a reasonable assumption for future C02 emission cost that begins in 2017. The ?rst column represents the economics assuming there will never be any C02 penalties. MPC feels this assumption is not realistic but includes the results as a sensitivity. The last column assumes a $20/Ton C02 penalty that begins in 2015 and escalates at MPC considers this a less likely scenario, but includes the results to illustrate the range of risks MPC faces with the project. Focusing on the center column, the results show that the IGCC is not the most economical choice for its ratepayers, unless the CCPI2 funds are available. MPC believes that the opportunity to add equipment to the Mississippi IGCC project that will demonstrate the capture and compression of approximately 25% of the C02 that would otherwise be emitted is one that should be pursued. MPC is actively pursuing this opportunity and prefers to incorporate this capability. However, as shown in the table, the additional cost of approximately $125 Million and loss of approximately 40 MW of generating capacity associated with C02 capture render the project uneconomical even with the inclusion of the CCPIZ funds. Since there is no current legislative or regulatory requirement to capture CO2, MPC would likely not be allowed by the MPSC to recover the additional costs for this capability. Thus, MPC is required to ?nd other ways to offset these additional costs. As shown in the table, if MPC is successful in obtaining the loan guarantees provided for in the Energy Policy Act and repayment of CCPI funds is waived to make the funds non-taxable, the project economics remain marginal when risks associated with technology demonstration and the possibility of more aggressive C02 regulation are considered. The last case re?ects the potential to sell the C02 captured for enhanced oil recovery (EOR). While there is an active EOR market and installed CO2 pipelines approximately 60 miles from the IGCC project, there are considerable risks that could prevent the attainment of the economics shown. Threats to this upside include contention that EOR is not an acceptable, proven means of sequestration, securing a long term agreement to purchase all of the C02 produced, and the ability to build the additional pipeline needed to transport the CO2 to the existing pipeline infrastructure. Conclusion The economic analyses furnished to DOE supports conclusion that the waiver of the repayment provision in the Cooperative Agreement is required to not create a competitive disadvantage for the Mississippi IGCC compared to other self build options and the market. Without this ?rst demonstration of the technology, the technology would be at a competitive disadvantage when competing for future sales. Table: Kemper Comparative A nabsis (5) ATTACHMENT 3 FRANK LANGHAMMER MEMO MEMORANDUM To: Diane Madden, NETL From: Frank Langhammer, Langhammer Company LLC Re: Southern Company/Mississippi Power Revised CCPI Application Date: April 10, 2008 My: Southern Company Services, Inc. (SCS) has submitted a request to change the site for the project under the previously awarded Cooperative Agreement DE-FC26-06NT42391 from Orlando, Florida to Kemper County, Mississippi. The relocated plant will be owned by Mississippi Power Company (MPC), a subsidiary of Southern Company (SC). An important requirement of the application by SCS in response to the NETL Funding Opportunity Solicitation was a demonstration that the applicant had the capacity to fund their portion of the project costs. Since the ownership of the project has changed, the funding sources will be somewhat different under the revised request from SCS. NETL has asked that we review these funding sources to con?rm that the sponsoring companies have the capacity to provide their portion of the funding as agreed. The total project costs are expected to be $1,625,082,040. The NETL Federal cost share portion of this will be $293,750,000 and the applicant cost share portion will be $1,331,332,040 The applicant's cost share portion will be provided by SCS and MPC, through a combination of funding sources that may include accumulated cash reserves, internally generated funds, issuance of senior long~tenn debt, and bank borrowings. Conclusion We have reviewed the audited ?nancial statements, including the balance sheets, income statements, and cash ?ow statements for Southern Company and for its subsidiary Mississippi Power Company for the year ended December 31, 2007. We have also reviewed current ?nancial analyses of each of the Southern Company and Mississippi Power Company prepared separately by the three principal credit rating agencies: Standard Peor?s, Moody's, and Fitch Ratings. In our opinion, Southern Company and Mississippi Power Company have the capacity to provide the non-Federal cost share portion of the overall project costs. Discussion Southern Company is the parent corporation for one of the largest and most experienced public utility groups in the United States. Operating primarily in the southeastern region, Southern Company owns all of the outstanding common stock of Alabama Power, Georgia Power, Gulf Power, and Mississippi Power, each of which is an operating public utility company. In addition, Southern Company owns all of the common stock of Southern Power, which is also an operating public utility company. Southern Power constructs, acquires, owns, and manages generation assets and sells electricity at market? based rates in the wholesale market. The territory in which the traditional operating companies provide electric service comprises most of the states of Alabama and Georgia together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems which obtain some or all of their power requirements either directly or indirectly from the traditional operating companies. The territory has an area of approximately 120,000 square miles and an estimated population of approximately 13 million. Southern Power sells electricity at market-based prices in the Super-Southeast wholesale market to investor-owned utilities, IPPs, municipalities, and electric cooperatives. In the year ended December 31, 2007, Southern Company had operating revenues in excess of $15 billion, and net income of 1.7 billiOn. During the same period, Mississippi Power Company had operating revenues of over $1 billion and net income of over $85 million. Southern Company Year Ended 12/31/2007 Year Ended 12/31/2006 Operating Revenues $15.4 billion $14.4 billion Net Income $1.73 billion $1.57 billion Total Assets $45.79 billion $42.85 billion Total Liabilities $32.32 billion - $30.74 billion Shareholders' Equity $12.38 billion $1 1.37 billion Mississippi Power Company Operating Revenues $1.1 billion $1.0 billion Net income $85.8 miilion $83.7 million Total Assets $1.73 billion $1.70 billion Total Liabilities $1.08 billion $1.08 billion Shareholders' Equity . $614 million $590 million Credit Ratings Southern Company and Mississippi Power both have strong long-term debt credit ratings from each of the three major credit agencies: Southern Company Mississippi Power Standard Poors A A Moody's A3 A1 Fitch Ratings A AA- SC and MPC have had frequent and unimpeded access to long?term debt obtained in the capital markets and from money center commercial banks. The strong and consistent ratings from the principal rating agencies support the conclusion that both SC and MPC are likely to continue to enjoy such access and funding opportunities. Summary Comments by Rating Agencies Because rating agency opinions are so critical to the ability of companies to access debt and equity capital markets, we believe it useful to highlight some of the key comments made by the agencies in their recent reviews. Southern Company Rating Agency Comment Standard Poor's (November 27, 2007) Very strong operations with high availability and capacity utilization factors for owned generation Regulatory and operating diversity with a presence in four states Competitive rates for the region that provide some cushion for ?tture rate increases to recover fuel costs and increasing capital expenditures No meaningful unregulated operations Prudent and reasonably conservative management practices Cash ?ow protection has been consistent and strong The current outlook for the company is stable, although the agency noted that the company has a signi?cant ($11,4 billion) capital spending plans and that this could pressure the ?nancial pro?le if Southern Company cannot recover such expenses on a timely basis. Moody's (December 21, 2007) The rating outlook is stable, reflecting ?nancial and cash ?ow coverage metrics that are expected to remain adequate for its current rating category (A3), despite declining trends exhibited over the last several years. It is Moody's expectation that the core regulated utility business will continue to remain the primary source of consolidated earnings and cash flow and that Southern Power?s growth strategy will not diverge from its historical, contracted focus. This stable outlook also incorporates the expectation that the core utility subsidiaries will continue to bene?t from constructive, above- average regulation and continue to receive timely recovery of costs through rate adjustments. Fitch Ratings (January 22, 2008) Southern's rating include: constructive state regulation; low business risk, above-average growth of economically vibrant territories; strong performance of the mainly coal and nuclear-based capacity and conservative strategy and access to capital markets and manageable debt maturities. In addition, Southern and its subsidiaries have strong liquidity. The stability of cash flows and timeliness of cost recovery at the utility subsidiaries are supported by numerous annual tariff adjustment mechanisms at subsidiaries. No base rate ?lings for any of the four utilities are expected to be necessary for several years, limiting regulatory risk. Rating concerns for the Southern group include: some weakening of consolidated ratio trends, risks of delay is in recovery or under recovery of operating costs or capital projects; environmental related risks such as stricter laws or adverse legal outcomes; and the location of service territories in hurricane prone regions. While coal is a relatively low?cost fuel compared to natural gas, the impact of any carbon legislation cannot be predicted and could result in significant capital spending requirements and adversely affect Southern Company's constructive regulatory relations. Power Company Credit Agency Comment Standard Poor's (February 20, 2008) MTC is one of Southern's smaller subsidiaries. . . providing about 7% of operating income and cash ?ow of the Southem group during 2006. The small service territory was adversely affected by Hurricane Katrina, which caused severe damage and reduced the customer base by about 11% in 2005. Customer growth has rebounded, reaching more than 4% in 2006. Retail rates are competitive at about 80% of the national average, but could come under pressure as the company recovers deferred fuel costs and invested capital. The stable outlook and the rating on MPC re?ects the outlook of its parent, Southern Company, and it?s stable, regulated electric utility operations. The outlook could be revised to negative if Southern Company is unable to recover its signi?cant capital spending budget or the deferred fuel cost balance. Moody's (December 21, 2007) The Al senior unsecured rating of MPC reflects the utility's strong though recently variable credit metrics and a service territory that has historically demonstrated good customer growth, although the 2005 hurricane season and subsequent business disruption and housing shortage slowed the pace of this growth. The rating also considers the abovewaverage and supportive regulatory and legislative environment in Mississippi, which helps to support its high senior unsecured rating. The rating also inco1porates the company's conservative management approach, with an emphasis on the ?nancial ?exibility and liquidity, and position as part of the large Southern Company system. Fitch Ratings (February 19, 2008) MPC's ratings are supported by constructive state regulation, low operating costs and solid partnerships with wholesale customers. In addition, the company's conservative capitalization provides ?exibility. MPC received signi?cant state and federal govemment support to recover storm repair and restoration costs. Fitch's outlook incorporates the expectation that MPC will maintain strong credit ratios and earn returns in the top quartile of the utility industry. A negative rating action could result from cost overruns or delays in potential baseloadconstruction projects or credit downgrades at Southern Company. We believe it is noteworthy that with an A rating, Southern Company and MPC could be downgraded four notches and still keep an investment grade credit rating of which would continue to allow them access to capital markets, albeit at a signi?cantly higher cost. We did not see anything in our review which suggests that a downgrade of this magnitude is likely in the foreseeable future. CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2007, 2006, and 2005 Southern Company and Subsidiary Companies 200? Annual Report 2.007 2006 2005 (in millions) Operating Revenues: .: .1355 . . . . Retail revenues 123?39 Wholesale. revenues 5:535?? FELSZZ Other electric revenues Other revenues 3. 1,301 3 1 1,165 446 13,554 Total operating revenues operating Fxpenses Fuel Purchased pewter . Other operations menswear-2:: Depreciation and amortization Taxes other than income-taxes #3195 --..--731 Total operating expenses Oli?fatilig Income. i Other Income and (Expense): Allon?ance for equity fundslused ?irting construction Interest income Equity in losses of unconsolidated subsidiaries Let?eraged lease income Impairment loss on etiuity method inveShnents Interest expense, net of amounts capitalized Preferred and preference hfstitsidiari?} Other income (expense), net . (41) 3- i (776) Earnings Before Income Taxes . . . .23186 income 13x3 $95 . Consolidated Netlncome 1,734 3 l.573 3 1,591 Tote! other income'an'ci (expais'e) 35-3 CONSOLIDATED BALANCE SHEETS At December 31, 2007 and 2006 Southern Company and Subsidiary Companies 2007 Annual Report Assets 2007 zoos (in million-Is}- Current Assets? .- . .- -- - Cash and cash equivalents Restrict-ed cash . . Receivables Customer accounts receivable 943 Unbilled revenues 294 233 Under retrovered regulatory 716 '51? Other accounts and notes receivable fAccumi?ated swim] le?tibl?. aceoittits Fossil fuel stock, at average cost Materiaisand has: Vacation my Prepaid. etii?eiseii Other 167' 'lotatcurrentassets Property, Plant, and Equipment: In sen'iee Less accumulated depreciation Nuclear fuel at amortized cost Censtruction a0rk' In progress Total property, plant, and equipment Ot'lrer'Pr'oper'ty arid lme'sttiien'tsr'r? . .. . Nuclear trusts, at fair value 1,132 1,058 Leveraged leases-' . -. -- . Other 1?0th other property arid Deferred Charges and Other Assets: Deferred charges related to income taxes Prepaid pension costs Un'araortEZEd debt "isseahce expense .35: Unamortized loss on reacquired de D?ferr'?d tinder twee-fret? regulaerrwememes Other regulatory assets Other. Total deferred charges and other assets Total Assets :32: CONSOLIDATED BALANCE SHEETS At December 31, and 2006 Southern Company and Subsidiary Companies 2007 Annual Report Liabilities and Stockholders? Equity 1007 2006 _H(1n millions) Current LiabilitiesSecurities due within one )car 1,1'lS 3 1,413 News payabje . . 1.9.41 Accounts payable 1,214 1,081 Customer degmsits :249 Accrued taxes Income taxes Other Accrued vacation pay 171 151 Accrued compensation {riff-?1118 if- I '1 444 Other 349 384 330 391 1:233:21'3 21:3; 34 Tomi-current liabilities" Long- term Debt (See accompanying" statements) 14,143 12,503 Deferred Credits and-Other I Accumulated deferred income Deferred credits related to income taxes .. . .3 Accumulated deferred imestment tax credits 479 503 Employee benefit obligations - -- Asset retirement obllgatlons Other cost ofrerii0val obligations .. . . . .. . Other regulatory liabilities 1,613 794 Other .. Total deferred credits and other liabilities 12,551] 1 1,887 Total Liabilities . 32,324: 930,743 Preferred and Preference Stock of Subsidiaries (See accompanying statements) 1,080 7?44 common (see'iac?ia'iniia??n'g?s'i?tem .. . . . . . . . . Total Liabilities and Stockholders? Equity 45,789 42,858 STATEMENTS OF INCOME For the Years Ended December 31, 2007, 2006, and 2005 Mississippi Power Company 2007 Annual Report 2001 2006 2005 (in thotuonds) Operatilthevenues: Retail revenues Whotesale revenues 35 -.--: -.: . -. . Non~a?tiiates 323, 120 .268, 850 283, 413 :A?tiiate?s? tit: . 439. SD ,460- Other retenues i7, 241 16,762 17,000 5.12". . 9.69.733. . Total operating reVenues 3 Operating Expenses Purchased power 1?5 Non-af?liates 3-. "3 33? Af?liates Other Mamtenanoe . Depreciation and amortization Takes _o?tet__t_ltan" meome taxes 251353.572 356,313 835,293 I ?'35 2' i=3! 34,440 Total operating expenses Operating meme Other Income and. (Expense): Intereatmoome . . Interest expense, net of amoun Other? income (expense), net. (13 639).? (13,328) ?ii? 1114.?) Total other Income and (expense) (10,143) (21,079) . (12,525) Earnings Before-Income Taxes "3 '555132594 555131340 3 53 121,915 - Income taxes 51,830 48,097 46,374 BALANCE SHEETS At December 31, 200'}Ir and 2006 Mississippi Power Company 2007 Annual Report Assets 200? 2006 (in thousands) Assets: :1 2 I 'ftf 5' Cash and cash equwalents Receivables?Customer accounts rccewable 43 946 42,099 Unbilied res enucs - 23,23 163.. 2325 2' 5- Under recovered regulatory clause revenues Other accounts and notes Insurance receivable Af?liated companies -- Accumulated provision for uncoIlecnble accounts Fossil fuel stock,- at average cost Materiais and supplies at Izaverage cost Prepaid Income taxes Other re ulator assets Diner 2.. .. Total current assets 254,852 320,2 79 4827 . 4.21.4 se'Vice . . . . Less accumulated provision forldep'r'eciation 2,054,151 836922. .2 350 01533-13". ,603 Total property, plant, and equipment 1,300,702 125183? Other Property and Investments 9,556 4,636 2,130,835 Construction work in progress 5-523 Deferred'Cltarg'es and Other-Assets: - -- - Deferred charges ?13?ng to. income taxes 9,280 Prepaid pension costs: --. 52.? "'2'336,424 Other regulatory assets _'62"746 61,086 Other-- .. '2 "33.313334 . Total deferred charges and other assets 162,555 125,624 Total Assets" 3 BALANCE SHEETS At December 31, 200? and 2006 Mississippi Power Company 20 07 Annual Report Liabilities Ind Stockholder?s Equity 2007 2006 {in thousands) Current Liabilities: 3-73 - Securities due within one )earh Notes payable Accounts payable 3 Other Customer depogigg . . . Accrued taxes income taxes - - . Other 50,346 Accrued interest 21: -. :2 332 . Accrued compensatton 21,965 23 953 1.1.1.138. . *24'3515 73,236 ?3,676 -- Total current liabilities long?teriiji?ebt Deferred Credits and Other Lia_b' Accumulated deferred "iconic tax Deferred credits related to income taxes Accumulated deferred investment tat credits Employee bene?t obligations Other cost ofrerttOV'ai Other regulatory liabilities 0ther_ . .. . . Total deferred credits and other liabilities 563,723 522,505 Total Liabilities -. 1,085,776 Preferred Stock (See accompanying statements) 32,780 32,730 "232} 3:333 ?539,820; -3 Total Liabilities and Stockholder-?5 Equity 8 1,727,665 1,708,376 ATTACHMENT 4 CURRENT ESTIMATED PROJECT COSTS Company Scmm, lint. SIR Changi- Ruquun - Pig: 6 (If 17 Budget Period 1 Actual Federal Cost Share Non-ngeral Cost Shara Federal Cost Share Non-Federal 6051 Share Total Table 1 Overall Cost Budget Period 2A 271 1 197 17 37 154.050 1 Proposcd Dbl-m 2008 Agreement Amendment A903 The Recipient cum-idem [he mamial Fumllhed hem-in conmln um?dcmin] bunimu which Is to bl.? from the U5. no the extent permlmud by law. Samara Gap-m)- Sum-hm. Inc. F.- 5k 035;: Rap?: P152 7 (If Primary 2033 TABLE 2 - COST BREAKDOWN BY COST ELEMENT Th: Rcr'pimt (Justina; the mam-in! hid-?1 beach so ton-Elia amide-n34 bus-Jan: vh?xh ?n haw In: 336mm omit US. (1-: mm: pmizxd b5 11w. Sm hm (Zn-mu; 5min. to; Damm?mml TABLE 3 COST ESTIMATE FOR BP 23 50mm 13mph; Sen-keg Inc. S1cCh1ngelcq2m?Pagr90fl? Rbrury 1-33 TABLE 3 COST ESTIMATE FOR BP 23 1h: ?mi-duct: the 1112!le to contain mEkn?z! bashes! hfm?na dish 'u bewkh?hc? {mm Mm: @332: Lb: US Gun [117:2]: no {he mm: pun-Jud by Liv. Company Sex-11311, lat. Ste 0mg: Rhea.? Fag-100!? FcEmuy 373 Summa Table_4 Cost S_umma for Demo Th: 3:62:35: (We: Ihc snafu} des?ud_hcr?a E) 006351 mafia-mid bas?nm infammim t?m'd? an be u-Zdri'at'd {run 63mm 01:53: 1.12 US. Gav-rum to the gnu-,1: [run-lard bf hm. ATTACHMENT 5 PROPOSED NEPA SCHEDULE Kemper County IGCC Project NEPA Schedule Summary WIDFLom?misu?am Qumiloa__i 40.033 '00 Jul '08 ?08 1 LlnIlPlpellno 242 days Tue ROW Identi?cation 45 days Tue 4.11103 Thu 511 5103 I 3 ROW Camertlno and Surveying 89 days Mon 52203 Fri 329103 l: 4 E3 Env Baseline Studios 105 days Wed 6:13:00 Tue 0:30:03 E: Engineering Design 133 days Tue 411mg Tue 91:30:03 I wet?Hi Impacts Analysiafwriie up 1 51 days Tue 7r1l?08 Fri 1 1mm :3 7 Plant 214 day- Tue ?1100 Fri 1w31ioa 9 i Env Baseline Studies 122 days Tue 4:11:00 Thu hence Preliminary Engineering Design (FEED) 152 days ma Tue macros 3 Erw impacts AnalyslaMrito up 92 days Fri81?1f08 10:31.03 :1 12 13 Mine 22 day: Mon ma mm 14 a ram Emeline (NAG) 213 day: Mon ma Wed 12.31/08 15 a SocioeconomicsINolae (BOT) 121 days Mon ma Tue QBOIOE 15?? Engineering at opomliorr Plan 92 days Tue mics Tue mores E3 1? E3 Erw impacts Anelyele 193 day: Tue 7/1l?08 Fri 1% 10 . NEPA 579 days Thu mica Mon 1 1:30:09 . NOI published In FR 1 clay Thu 511103 Thu 511100 i . 5:1 21 1 E3 Public Comment Period 30 days W03 Set 501MB: "32% [a Public Scoping Meeting 1 day Tuu moms Tun 5:20:03 5 I 23 Applicant Submitted 1 day Mon 212109 Mon 21209 i .. 2:2 24 DEIS NOA ln FR 1 day 5i1r09 511mg i . 5:1 25 I Public Comment Period 45 Gaye Fri Sun $14109 26 Public hearing 1 day Mon 611109 Mon 511.day Thu 1011.109 Thu 10mmday Mon 1130.09 Mon11faol'09 . 11:30 Aleumptlom: Task Milestone External Tasks I EIV submittni date requires Information from MAC be roceivod err-time Split Summary Extemol Milestone Proposed ROD milestone date will require DOE cooperation at highest levels Progress Deadline P090 1 of1 BGR HOLDING, LLC. TENTH FLOOR 1275 AVE. NW WASHINGTON, DC 20004 (202) 333 4936 FAX (202) 833 - 9392 MEMORANDUM Date: February 6, 2008 To: Anne Merchant From: Eric Burgeson Re: Meeting Request I would like to request a meeting with Secretary Bodman and David Ratcliff, Chairman, President and CEO of Southern Company and Anthony Topazi, President of Mississippi Power. I understand from Southern Company that Governor Haley Barbour will accompany Mr. Ratcliff to the meeting as well. We are hoping that the Secretary has time to meet on February 25, 2008. The purpose of the meeting will be to discuss allowing the remaining Clean Coal Power Initiative funding for Cooperative Agreement to be used for an integrated gasi?cation combined-cycle (IGCC) demonstration project in Kemper County, Mississippi. The owner of the Kernper County plant will be Mississippi Power Company which is a wholly owned subsidiary of Southern. The plant will use local Mississippi lignite and the TRansport Integrated Gasifieation (TRIGTM) technology originally proposed to the Department of Energy. Front-End Engineering and Design (FEED) for Kemper County is currently underway to support commercial operation in June 2013. Southern Company believes TRIGTM is a key piece of America?s and indeed the World?s energy future and look forward to continuing our work with the Department in this important project. Thank you in advance for your consideration. United States Department of Energy Washington, D. C. 20585 MEETING MEMORANDUM To: Secretary Bodman From: Lisa Epifani, Assistant Secretary Office: Of?ce of Congressional and Intergovernmental Affairs Direct Number: 202 586-4967 Home Number: Cell Number: Meeting: Governor Haley Barbour (R-MS) and David Ratcliffe, CEO of Southern Company Location: Secretary?s of?ce Meeting Date: February 26, 2008 Time: 2:00 pmu2:30 pm Requested by: Governor Haley Barbour and David Rateliffe Outside Attendees: Erie Burgeson Anthony Topazi, President and CEO of Mississippi Power (a subsidiary of Southern) Paul Bowers, President of Southern Company Generation John Pemberton, head of Southern's DC of?ce Southern has identi?ed three items for discussion: 1) Southern requests DOE to approve a site change from Orlando to Mississippi and to approve use of the remaining CCPI cost-sharing funds previously designated for its Orlando IGCC project for an IGCC project in Mississippi by March 31, 2008. 2) Southern requests DOE to expedite the NEPA review required for the Mississippi project. 3) Southern requests DOE to waive the CCPI repayment obligation for the Mississippi project. Background: Effective February 1, 2006, the Department and Southern Company Services (SCS), a Southern subsidiary, entered into a Cooperative Agreement and a Repayment Agreement to share a portion of the costs of an Integrated Gasification Combined Cycle (IGCC) electric generating plant in Orlando, Florida. The Department?s estimated share of costs under the Cooperative Agreement was approximately $295 million; of this amount, approximately $270 million is available for the Mississippi project. The balance was spent on the Orlando project. The Orlando project represented the first full~scale demonstration of an innovative technology, Transport Reactor Integrated Gasi?cation (TRIG), under the second round of the Clean Coal Power Initiative (CCPI). However, in November 2007, SCS cancelled the Orlando project. Independent of the Orlando project, Southern is also the sponsor of an IGCC project in Mississippi. Southern is seeking to transfer the CCPI cost?sharing funds that it received for the Orlando project to the Mississippi project and, as discussed below, has asked for expedited NEPA review of the Mississippi project and for waiver of its obligations under the Repayment Agreement. The Mississippi project, if built, will use the same TRIG technology that was proposed for the Orlando project. However, the Mississippi project will use lignite from a mine that is situated on site whereas the Orlando project would have used coal transported from another location. This will make the Mississippi project the first IGCC project fueled by lignite; in addition, Southern is considering incorporation of carbon capture and sequestration in its Mississippi project; Orlando did not offer this feature. Southern is one of 16 pre-applicants invited to submit a full loan guarantee application under 2005. The loan guarantee application is for the Mississippi project and, therefore, Southern may raise the topic of the loan guarantee application. In talks with the Loan Guarantee Program Of?ce (LGPO), Southern has not committed to a specific level of guaranteed debt financing but is seeking to assess the credit subsidy costs associated with several alternative guarantee levels, including 50% of project costs (~$650 MM), 65% of project costs (~$780 MM), and 80% of project costs (~l.04 billion). Mississippi is the last foreseeable opportunity for DOE to support commercial demonstration of the TRIG technology as both the CCPI Round solicitation and FutureGen are focused exclusively on carbon capture and sequestration technology. Southern also is a member of the FutureGen Alliance. However, this topic is not scheduled for discussion. What process will Southern?s requests have to go through within Site Change Proposal: DOE has permitted the transfer of cost-sharing funds in other instances in the past for other applicants. The criteria used to determine whether to permit such a transfer is whether the new site will accomplish the same technical and commercialization objectives at the same or lesser costs relative to the first site. On February 14, 2008, Southern submitted a Technical Information Package to in support of its request to change the site for the project under Cooperative Agreement from Orlando, FL, to Kemper County, MS. This package is being evaluated on an expedited basis. NETL is satis?ed that the new site will accomplish the same technical objectives as Orlando. The ?nancial, cost and business review are ongoing. Southern is working with DOE to provide the necessary additional information as part of due diligence review of the site change proposal. NEPA Review: An environmental impact statement (EIS) and Record of Decision (ROD) were completed at the Orlando site, but relocation of the project to the new site in Mississippi would require a new EIS and ROD. This NEPA review would cover both the CCPI funding and the proposed loan guarantee. DOE can not provide a loan guarantee or unconditional CCPI funding until the NEPA review is completed. Therefore, if a decision is made to proceed, the NEPA process will have to begin as soon as possible to avoid project delays. Of?ce of Fossil Energy will work with the Loan Guarantee Program Office (LGPO) and the Office of General Counsel, including the Office of NEPA Compliance, to coordinate the NEPA process. 0 Waiver of Repayment Obligation. The Repayment Agreement provides that DOE will be repaid for its ?nancial assistance out of royalties on anticipated sales, licensing, and use of the TRIG technology in future commercial applications. Prompted by a change of IRS policy that had the effect of treating CCPI financial assistance as fully taxable, Southern requested a waiver of the repayment obligation. You denied the request for waiver at the Orlando project but DOE has drafted a legislative proposal that would make CCPI financial assistance a non?taxable event; this proposal, if enacted, would accomplish the result that Southern is seeking. The legislative proposal is now with Treasury undergoing interagency review. However, in connection with the change of site from Orlando to Mississippi, Southern has renewed its waiver request. 0 Loan Guarantee Application: Southern has not yet ?led its full loan guarantee application although the LGPO has met with Southern?s representatives regarding the due diligence effort associated with processing the anticipated application. In addition to the NEPA review, any full loan guarantee application will be independently reviewed for its technical, legal, and ?nancial merits. Actions taken on the site change request and request for waiver of the repayment obligation will not determine decision on the loan guarantee application. What is the timeline for processing Southern?s requests? Feb. 14 ??21 March 14 April 151 April 30 April 30 Review the Technical Information Package and request any additional information needed to perform the technical and cost review of the site change request. Receive any additional information requested from Southern Company, including sufficient project and environmental information, to begin preparation of a Notice of Intent to Prepare an EIS. Make conditional decision on Southern Company?s request for site change subject to Mississippi Power ?nal decision to pursue project. If a favorable decision is reached and agreement is achieved with Southern, modify the Cooperative Agreement and issue Notice of Intent to Prepare an EIS. Receive complete environmental information from Southern Company to begin preparation of a draft EIS. What you can say at this time? Site Change Proposal: DOE has initiated a review of the Technical Information Package received on February 14 and understands the urgency of Southern Company?s request for a decision and intends to have a decision by April 15 subject to Mississippi Power?s ?nal decision to pursue the project. 0 It can also be observed that the FY 2009 budget request provides that funds appropriated for prior CCPI solicitations but not required by DOE to meet its obligations on projects selected under such solicitations may be utilized in the future for the third round of CCPI solicitations or for FutureGen solicitations under the FY 2009 budget. If enacted, it appears that this provision would have the effect of making the unreleased $270 million (awarded under the second round of CCPI) available for other purposes in the future. 0 NEPA Process: The DOE Of?ce of Fossil Energy will work with the LGPO and the Of?ce of General Counsel to develop an ef?cient process for In the briefing materials sent to you by Southern in advance of the February 26 meeting, Southern indicates that it is seeking a decision on the transfer of the CCPI funds by March 31, 2008. However, in the package Southern submitted to NETL, Mississippi Power has indicated that it will not make its final decision to pursue the project until the end of April. The proposed timeline re?ects this information. completing the necessary EIS and ROD that works for both CCPI and the Loan Guarantee Program. 0 Southern may wish to discuss the merits of expediting the review by transferring results from the EIS at Orlando to the Mississippi project. This argument, however, has only limited merits. Because Southern proposes to use the same technology at the Mississippi project as that proposed for the Orlando project, it is true that some of the technical elements of the earlier EIS may be transferable to the Mississippi project. By and large, however, the Mississippi project presents a set of unique environmental considerations not present at Orlando. In addition to other site speci?c factors, these include the on?site mining of lignite, different emission profile, and the impacts from CO2 transport and sequestration. 0 One reason that Southern may be seeking expedited review relates to Mississippi Power?s tax credit of $133 million under section 1307 of 2005. The statute provides that the credit will expire if Southern has not received all Federal and State environmental authorizations necessary to commence construction and if it has not placed an order for the purchase of the main steam turbines at the Mississippi plant within two years of the date that the Secretary of Treasury has certi?ed its eligibility to receive the tax credit. The two year deadline expires in November 2008. Southern may argue that it needs expedited NEPA review in order to avoid loss of the tax credit. However, this is not necessarily the case since the environmental reviews relating to the Cooperative Agreement and the loan guarantee application may not be needed to satisfy IRS requirements for the tax credit. 0 Repayment obligation: DOE will review and evaluate Southern?s request for waiver of the repayment obligation. DOE understands that the resulting tax exposure is one of the main issues associated with repayment. To that end, DOE has prepared a legislative proposal, which if passed, would establish that CCPI funds are not subject to federal taxes. The proposal is currently at Treasury undergoing interagency review. 0 Loan Guarantee Application: DOE is awaiting receipt of Southern?s full loan guarantee application which will be independently reviewed on its technical, legal, environmental, and ?nancial merits. 0 Southern may wish to discuss whether the CCPI ?nancial assistance that it seeks to transfer to the Mississippi project will be considered equity for purposes of satisfying the loan guarantee regulation requiring applicants to make a ?signi?cant equity contribution?. Such a question should be referred to the General Counsel for consideration. (The answer to this question is ?no? because the rule clearly states that equity does not include ?the value of any form of government assistance or support?.) 0 Southern has indicated to the LGPO that it may seek to purchase the lignite mine in Mississippi. The LGPO has taken the position that the loan guaiantee under Title XVII of 2005 1s not intended to I cover the cost of the mine. DOE Staff Attending: Epifani, Hill, Getto Open to Press: ]Yes No Department of Energy Washington, DC 20585 April 29,2008 MEMORANDUM F THRU: C. H. ALBFUGHT, FROM: SUBJECT: Action: Approve a request ftom Southern Company Services (SCS) for contingent waiver of repayment under its Clean Coal Power Initiative (CCPI) cooperative agreement. ISSUE: SCS has requested DOE's approval to change the project site from Orlando, Florida to Mississippi Power's Kemper County, Mississippi site; and, a Secretarial waiver of the repayment agreement associated with the Cooperative Agreement. The site change is necessitated by a regulatory policy change in Florida making it impossible to complete permitting without the addition of carbon capture and sequestration (CCS) technology. CCS is not technically or economically feasible at Orlando. I have approved the site change request as reasonable and necessary to accomplish program objectives. The waiver is necessitated by an unanticipated change in IRS policy which now subjects DOE funds to Federal taxation, thereby jeopardizing Public Service Commission approval of the project as the least cost alternative for the Mississippi ratepayer. Waiver of repayment permits DOE finds to be treated as non-taxable. BACKGROUND: In February 2006, DOE awarded a cost-shared cooperative agreement to SCS for the full-scale demonstration of the Kellogg Brown and Root (KBR) Transport Reactor Integrated Gasification (TRIGTM)technology at the Orlando Utility Commission (OUC) facility in Florida. In December 2007, SCS announced it was discontinuing the Orlando project due to Florida's new requirement for CCS technology on coal-based power plants. Addition of CCS at Orlando was not technically or economically feasible. SCS has requested DOE approval to relocate the project to Kemper County, Mississippi, on a site owned by southern Power subsidiary Mississippi Power. Kemper will use the same technology as Orlando except that Kemper will have two power trains compared to the single train at Orlando. Although the project cost at Kemper is significantly larger than at Orlando, DOE's absolute contribution will not exceed the amount committed to Orlando and DOE's percentage share will be reduced from 35 to 18 percent. During the first phase of the relocated project, DOE will @ Rinted with soy i& on recycled paper only contribute funds for NEPA related activities until a NEPA Record of Decision (ROD) is issued. Southern will absorb all engineering costs prior to issuance of a ROD. If a ROD is issued that supports the project, DOE will share in the cost of the construction and operation of the facility. Mississippi Power has been granted a tax credit for the Kemper facility pursuant to Section 1307 of the Energy Policy Act of 2005, and also is seeking a loan guarantee fiom DOE; Mississippi Power has been invited to submit a full loan guarantee application. SCS and Mississippi Power have expressed a willingness to use CCS technology at Kemper, however the cost of CCS coupled with the funds lost to federal taxation, creates a significant risk that the project would not be viewed favorably by the Mississippi Public Service Commission when compared to the next likely alternative - natural gas combined cycle technology. Historically, the IRS viewed DOE Clean Coal finds as contingent loans not subject to federal taxation because the funds were subject to a repayment agreement. Not long after DOE made the award of Clean Coal funds for the Orlando facility, SCS and DOE learned that the IRS was changing its position based on its belief that the repayment agreements were too contingent to qualify for loan treatment. Attempts to convince the IRS to follow its past practice were unsuccessfil. The IRS also rejected the alternate argument that to the extent the DOE funds did not qualify as a contingent loan, then the funds should be considered a non-taxable contribution to capital. To qualify as a contribution to capital, the funds must be a permanent part of capital of the recipient. The IRS believes the repayment agreement precludes consideration of the funds as non-taxable under this test. If repayment is waived by DOE, the funds would be eligible for tax-fiee treatment as a contribution to capital. The IRS's change in tax policy results in the loss of $1 12 million dollars to the project. Earlier, with respect to the Orlando project DOE rejected SCS's request for a waiver of the repayment requirement and instead said it would pursue a legislative proposal which, if passed, would provide for tax free treatment of CCPI funds. The proposal has been under interagency review at OMB and Treasury for several weeks. We do not know when or if it will be cleared for submission to Congress. To maintain its Section 1307 tax credit and meet its 2013 target for new capacity, Mississippi Power believes it must make a decision on technology choice within the next few weeks. Accordingly, DOE has been asked to approve site relocation and repayment waiver by April 30,2008. SCS and Mississippi Power do not believe they can wait for legislative action to correct the tax problem. Therefore, to provide certainty, they have asked DOE to agree to waive repayment now, with the condition that the waiver is void (and repayment reinstated) if the legislation is passed or the IRS changes its position by January 3 1,2009. SCS does not wish to incorporate CCS into the scope of the CCPI Round 2 project in order to preserve its right to apply for CCS funds under future solicitations, such as CCPI. However, SCS and Mississippi Power are willing to void the waiver if they do not present plans to DOE for CCS at Kemper by the January 3 1,2009. BASIS FOR WAIVER: Public Law 108-108, which appropriated funds for the CCPI Round 2 solicitation states: ...the Department may include provisionsfor repayment of Government contributions to individual projects in an amount up to the Government contribution to the project on terms and conditions that are acceptable to the Department including repayments from sale and licensing of technologies from both domestic and foreign transactions" " For the CCPI Program, DOE used the CCT standard for repayment waiver: The repayment agreement may be terminated upon a determination by the Secretary of Energy, or designee, that repayment places an Obligor at a competitive disadvantage in domestic or international markets. NETL and the Office of Fossil Energy have analyzed the information supplied by SCS and Mississippi Power and have concluded that Mississippi Public Service Commission approval would be at significant risk if the ratepayers must bear the cost that would have been covered by the amount lost to taxes. The assessment is discussed in detail in Attachment 1. If the Commission rejects the TRIGW technology in favor of the next favorable alternative (Natural Gas Combined Cycle), TRIGW will likely not be demonstrated in the foreseeable fbture and therefore not commercialized in domestic or international markets. Based on these facts, the Department may reasonably waive repayment under the applicable standard. RECOMMENDATION: That you approve SCS's waiver request subject to the terms outlined above and discussed more fully in Attachment 1. SENSITIVITIES: DOE would waive potential recovery of $293 million in repayment so that SCS may avoid a $112 million tax burden. This would be the first request for repayment waiver considered and granted by DOE. While the tax policy change is not likely to impact existing or fbture projects, other CCPI recipients may nonetheless believe they are entitled to a waiver. Attachments: 1. Bauer Memo to Slutz dated April 22,2008 2. See the attached Determination for the Approval Line and Approval Terms and Conditions. APPROVAL DETERMINATION The waiver request of Southern Company Services is APPROVED, with the condition that the waiver is void if any of the following occur: (1) On or before the earlier of DOE's issuance of a Record of Decision for Southern's planned Mississippi plant or January 1,2010, the Internal Revenue Service agrees that CCPI I1 funds are not taxable to the recipient, even if the funds are accompanied by a requirement of repayment to DOE. Southern Company agrees to seek a private letter ruling from the IRS if DOE advises Southern that the IRS has indicated a willingness to entertain tax-free treatment of DOE CCPI I1 funds. (2) On or before the earlier of DOE's issuance of a Record of Decision for the Mississippi project or January 1,2010, the law is amended to make CCPI funds not taxable to the recipient. (3) Southern Company (andlor its affiliated companies) does not, with respect to the planned coal-fired power plant in Mississippi receiving CCPI I1 funds: (a) design, build, and operate the facility with the intent to, capture and geologically sequester one mlllion tons per year of C02 (approximately 25% capture rate); and (b) establish, and actively work toward, the goal of capturing and sequestering 50% of C 0 2 emissions from the plant by 2020 and thereafter. Secretary of Energy