A myth is a widely held false belief. An ancient Chinese myth says the world is flat and rests on the back of a great turtle which in turn rests on a greater turtle, and so on. It's turtles all the way down. Today this means endless fantasies or fabrications one on top of another.
Which brings us to Mississippi Power's Kemper County Lignite Plant boondoggle. Kemper's fantasy is that worthless lignite can be turned into a syn gas substitute for natural gas in an experimental plant and burned in a slightly modified conventional natural gas plant to produce electricity cheaper than from natural gas.
Kemper's fantasy rests on two other fantasies. One, that the experimental plant would cost $2.2 billion and produce syn gas that would be cheaper than natural gas. Actual cost so far is $5+ billion. No syn gas yet. The higher the plant cost, the higher the fantasy syn gas cost.
And two, that natural gas prices would increase sharply and be over $9 by 2014. Average cost year to date is under $4 per mmbtu.
Reality has intruded. Plant cost is much higher and gas cost much lower than fantasized. It looks like turtles all the way down for Kemper - one fantasy on top of another.
The great turtle at the bottom of Kemper's stack could be the powerful and popular politician and lobbyist and former governor who promoted the lignite plant and said it would be good for the state.
The next turtle up could be his client, the Southern Company. It made a big investment in the experimental plant. Customers would pay for the experiment, and Southern would make a guaranteed 15% on its investment. It would sell the technology to the Chinese if it worked.
The next turtle could be Southern's wholly-owned subsidiary Mississippi Power Company. It operates in a friendly regulatory and political environment and has a monopoly. So regulators and politicians could make customers pay for the experiment and tell them it was a good deal.
The next turtle could be the fixers: lawyers, lobbyists, consultants, company executives. They convinced regulators and legislators that natural gas would cost more than syn gas. They predicted higher and higher gas prices and ignored looming vast new supplies from horizontal drilling and fracking. They low balled the cost of the lignite plant and hence the cost of its syn gas. They based the plant cost on 10% engineering, pilot plant data scaled up 50 times, and other fantasies.
The next turtle could be the Public Service Commission which approved construction of the plant and an 18% rate increase to prepay some construction. The PSC had help from legislators who passed the Base Load Act authorizing prepay. (It's possible the fixers misled them all. It's possible two commissioners were less than diligent.) The third commissioner was diligent and was not misled, however, and consistently voted against the plant.
The end of a relationship? The PSC has approved the construction, but not the cost of the lignite plant. Early this month it cancelled a scheduled hearing on the cost and issued a unanimous unexpected decision that it will not consider the cost of the plant before it runs. This followed a 92 page report by commission consultants about the company’s Kemper misrepresentations. And this followed a 999 page filing by company consultants saying the PSC's approval of construction in effect told the company to build the plant. Therefore the PSC should approve its cost and make customers pay for it.
Dueling consultants. Like dueling banjo and guitar in Deliverance. There are no heroes in this story either. Sounds like the end of a beautiful relationship though. Look for more "he saids, she saids."
So what are the company's misrepresentations? Here are a few.
The fixers "studied" 600 cases or scenarios of natural gas plants vs the lignite plant for the PSC. The natural gas plant options were better in all cases except where projected natural gas prices were very high. For example, $9.50 or higher in 2014 and increasing. This appears to be the plug number (whatever it takes) to make lignite win. Actual price has averaged under $4 this year. The Energy Information Agency projected 2014 natural gas price at the time at $6 with warnings of significant downward price pressure. .
All of the winning lignite cases had a plant cost under $2.4 billion. The company represented it could build the plant for this cost. The PSC approved construction in 2010 based on this cost. However, it turns out this was essentially a back of the envelope estimate. The company admitted it started construction with engineering only 10% complete. The PSC re certified construction in 2012 in a 45 second meeting based on the same cost estimate. Two weeks later the company announced $500 million of cost overruns. Surprise! Surprise!
So, how to explain all this? Intentional misrepresentations? Incompetence? Don't worry, customers will pick up the check?
The turtle at the top of the stack represents these customers who have already picked up part of the check. Their rates are up 18%. They will go up a lot more if the PSC approves the lignite plant.
What's next? Some facts and a forecast: The cost of the natural gas plant is about $900 million. It has 60% more capacity than the lignite plant. It is operating and producing electricity for 5.3 cents per kWh on $4.00 natural gas today. Its electricity will average 5.5 cents per kWh over the next ten years based on Energy Information Agency gas price forecasts. (EIA's forecasts have been better than the company's.)
Some more facts and a forecast: The cost of the lignite plant so far is $5+ billion. It has not run. It may not. If it does run and customers pay only for its operating and maintenance costs, the cost of its electricity for the next ten years will be over 11 cents per kWh. That's right. If the company writes off all construction cost, electricity from lignite will still be over twice as expensive as electricity from natural gas. (Forecasts based on EIA data.)
A question for the company: So what's the point of the lignite plant now?
Some questions for the PSC: Why don't you approve the natural gas plant and cut rates? Why don't you refund customer payments to build the lignite plant? What are you waiting on?
A question if you care about Mississippi: How to prevent other boondoggles like Kemper?
This column was written by Kelly Williams of Bigger Pie Forum. It first appeared on the Bigger Pie Forum website.
Monday, September 29, 2014
Bigger Pie's Kelly Williams: Turtles & Kemper
Bigger Pie Forum forum purchased distribution rights on Jackson Jambalaya.
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11 comments:
A question for the company: So what's the point of the lignite plant now?
Wait Wait don't tell me!
Getting everyone paid like a boss?
Lignite plant, beef plant, looks like we are plagued with fantasies and boondoggles! I wonder how much more this will cost the taxpayers.
When the staggering losses from Kemper are added up with the red-ink drenched "fiscally conservative public-private partnerships" from the disasterous Barbour regime the total will make the Beef Plant look like a small rounding error.
I distinctly remember Phil Bryant standing directly in front of me at a PSC Commission hearing testifying publicly what a great and wonderful project Kemper would be. 2015 yet, Phil?
I keep wanting to hear why Mississippians( who already have paid for Grand Gulf out of our pockets) should finance power to be sold for profit to others .
We were promised " nearly free" power from Grand Gulf once it's building costs were satisfied ( that happened long ago). We were told the costs of " running the plant" would be covered by selling excess power to neighboring states.
Someone please explain to me under what theory of capitalism a citizen can be forced via taxation to " invest" in businesses without any monetary return on the investment? Shouldn't we have gotten shares at least?
If I'm going to invest, don't I get shares or a bond or some direct monetary consideration in a capitalistic society?
If a business venture is such a " great deal", where are the private investors?
The taxpayers get to pay for all costs so there are no risks for actual shareholders! How is that capitalism!
I'm willing to pay for road or bridge improvement and anything else that can be demonstrated to benefit me, the taxpayer, but now we've been " had" Magnolia Venture, the meat plant and Kemper with nothing to show for it.
And, I'm more than a little pissed off with what seems to me either extreme laziness and stupidity or corruption by the utility commission !
8:32 - evidently you don't understand anything about what you are spouting off about. There is no 'taxation' involved in either the MPC Kemper Plant or the Entergy Grand Gulf Plant. As a taxpayer, you have not invested in either of these facilities or companies. These are private companies and have private investors who have purchased shares in them. You can, if you choose, invest your private money in either company. Then you can get that "bond" or "stock certificate" you are looking for. Otherwise, you may be a customer of the regulated company and if so, then you pay for the electricity you use - just as you purchase water from a city or gasoline from a service station.
Yes, with Magnolia Venture, and with the Beef Plant, taxpayer money was invested in private ventures. But even with Kelly Williams continued personal venting of his dislike of Haley Barbour - and his distortion of the process - you can't find any taxpayer money invested in Kemper.
No surprise that the Repubs dredge up the Beef Plant while ignoring Kior and the other Barbour eco-devo failures.
Well they are this close now, they will have to see if the process will actually work. If it does not, there will be fallout of epic proportions, fodder for many blogs to come....
5:59 pm Thank you for pointing out my lack of clarity.
If my rates go up because a state government agency allows rates to go up to cover construction expenses for a utility to expand when more than enough energy exists for ratepayers in the State for the foreseeable future, it is forced investing if I pay for costs rather than those who buy bonds or hold shares or receive energy generated from the plant.
With Grand Gulf, our rates went up to pay for the plant with the promise that our rates would drop dramatically once the plant's constructions costs were satisfied. And, we were told that would happen quickly as excess would be sold as well.
That promise was why Mississippians didn't oppose the plant.
The separate promises to the local community were kept, at least, originally.
If Kemper is being built solely on the sale of bonds or by profits that would have gone to stockholdes then I am sorry investors made a bad investment but they assumed a risk.
When those I elect sell a plan and take money out of my pocket to pay for the plan and I don't benefit, it hardly matters if it's done by taxation or by rate increases. They have forced me to pay and receive no personal benefit whether it's a crime like Magnolia or something that works like Grand Gulf.
And, frankly, if a business wants to locate here and will bring jobs and thus increase revenues to the State and are enticed with help on costs to locate, the implied promise is that that's less revenues that have to come out of my pocket. Either my taxes will be lowered or else not raised as a result. That's what should happen but we don't hold our elected officials accountable for where the revenues are generated or spent.
To me the real issue is the lines being blurred between government and business in ways that don't benefit citizens but rather benefit the businesses and the politicians.
Government's only role in business should be to create a level playing field for competition and at times, to encourage production of needed goods and services.
Do you see any of these "turtles" going in the soup?
"To me the real issue is the lines being blurred between government and business in ways that don't benefit citizens but rather benefit the businesses and the politicians."
Once you start making campaign contributions as large as businesses do then those who are elected will begin worrying whether you benefit from anything, or not.
And not one second sooner.
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