Questions as to need and cost put $3.8 billion Dixie A-plant in peril

In a state that ranks 49th in the nation in per capita income, support for a huge new nuclear power plant - now expected to cost six times as much as its original estimate - has eroded rapidly.

Mississippi's three public-service commissioners are expected to decide late this month whether to cancel construction of the $3.8 billion Grand Gulf Unit II nuclear power plant.

The rural Mississippi Delta region appears to need little additional electricity. Even if it did, consultants for the commission staff say, it should come from coal-fired plants, possibly using the state's low-grade coal. But if the plant is scrapped, state officials, investors, and utility customers will have to decide who will cover the $866 million that Middle South Utilities Inc. has already sunk into it.

''It's an awesome decision,'' Public Service Commissioner Nielson H. Cochran said last week. ''It's a pocketbook issue and it's something that's going to affect Mississippi for the rest of its statehood.''

It isn't only Mississippi that will be affected. Grand Gulf is being built to serve customers in Arkansas and Louisiana as well as Mississippi. Already officials in those three states are battling over who will pay for the plant's $ 3.4 billion sister facility, Grand Gulf I, expected to begin commercial operation later this fall. That issue, now before the Federal Energy Regulatory Commission, raises questions about states' rights and may wind up in the US Supreme Court, says Frank Spencer, special assistant attorney general in Mississippi.

Middle South, the New Orleans-based holding company that owns the Mississippi Power & Light Company, Arkansas Power & Light, Louisiana Power & Light, and New Orleans Public Service Inc., began building Grand Gulf in 1974 as a way to provide additional generating capacity for its four electric companies. The South Mississippi Electric Power Association, a group of rural cooperatives and small municipal utilities, owns 10 percent of Grand Gulf.

Middle South plans to build two nuclear reactors at Grand Gulf, a small town near Port Gibson in southwest Mississippi. Each reactor would power a 1,250 -megawatt generator, which would make Grand Gulf one of the largest nuclear power plants in the nation. Grand Gulf I is essentially complete. It began low-power testing last month.

Middle South halted construction of Unit II in 1980, citing capital constraints and lower-than-projected growth in regional electricity demand. The company intends to resume construction sometime next year and hopes to bring Unit II into commercial operation in 1991.

Cost overruns incurred at Unit I, coupled with low growth in the region, prompted the Mississippi Public Service Commission to hire Touche Ross & Co., the accounting firm, to assess the risks and benefits of completing Grand Gulf II. In a report released in August, Touche Ross concluded: ''The best interests of the ratepayers and stockholders would be served through cancellation of Grand Gulf II and replacement with coal-fired generating capacity.''

But Middle South is little interested in starting from scratch to build a new coal-fired generating plant. ''We'd rather complete Unit II,'' says Patrick McGinn, spokesman for Middle South Services Inc., a Middle South subsidiary that provides technical support for Grand Gulf.

Mississippi Public Service Commissioner Lynn Havens says when Grand Gulf I is brought on line next year, electricity rates will probably rise some 44 percent for Mississippi Power & Light's 317,000 customers in western Mississippi.

Mr. Havens said he is already wondering how that kind of increase can be absorbed in an area where workers' annual income averages $818 below the national poverty level in 41 of the 42 counties that MP&L serves. MP&L spokesman Lincoln Warren admitted the increase would be closer to 30 percent, although he said that number was several years old.

Havens recently said he intended to vote to cancel Grand Gulf II, and Commissioner Cochran indicated that he was leaning in the same direction.

''Mothballing is out,'' Havens says, citing company figures that show that Middle South is paying more than $10 million a month to maintain Unit II and service the debt that has been incurred in building the unit.

''It's down to either stop or go,'' Havens says. ''I have seen nothing that has moved me off the position of stop.... It's too great a risk to put on some ratepayers.''

As far as the investment community is concerned, Grand Gulf II may already be dead. Raymond Moore of E. F. Hutton & Co. in New York notes: ''I just never think of Grand Gulf as being built.... I don't know of anyone who does. The big question is, if it gets canceled, how is the investment handled?''

This uncertainty has already hurt Middle South's stock, Mr. Moore says. In early October the stock was selling at 121/8, about 70 percent of book value.

The financial implications of the decision on whether to cancel Grand Gulf II have not been ignored by the commissioners.

''There are consequences that must be considered and domino activities from a ratepayer's standpoint and from a legal standpoint,'' says Mr. Cochran. But, he adds, ''if I feel like it's not right, it won't scare me one bit to say no.''

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