Frogs in a pot

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Will Kemper be the boondoggle that’s so bad it’s a game changer? Will it show customers the disdain that politicians and the company have for them? And make them say: Enough is enough. Stop it. We will not bail out companies who mislead us. Or elected officials. Let’s hope so. It’s time.

Kelley Williams, Chair BiggerPieForum,  August 8, 2014

I recently told some Mississippi Power customers in Gulfport they were like frogs in a pot of warming water that would soon be boiling. The point was the 18% rate increase to prepay for the company’s Kemper County lignite plant experiment is just the first of many more to come.    Their rates are already the highest of any regulated utility in the state.  Their pain will only get worse.  One lady said she didn’t like being treated like a frog.  What to do?

What would a real frog do?  Mythology says a frog placed in a pot of gradually warming water will stay there until it is boiled.  However this is not so according to Professor Emeritus Dr. Victor Hutchinson in the University of Oklahoma’s zoology department.   When the temperature reaches the “critical thermal maxima,” the frog will get active.  It will jump out if it can.

Critical electric rate maxima.  When Mississippi Power’s rates reach the “critical electric rate maxima,” customers will probably get active too.  Rates are already critical for some.  Another lady said she has unplugged all appliances in her house trailer to save power so she can afford to run the air conditioning.  She didn’t look happy about it.

Most customers can’t jump out (move).  But they can influence rates.  They can ask the Public Service Commission to do its job: assure that customers have reliable affordable electricity.   They can be insistent and persistent.   The three commissioners will meet in early September to divide the cost of the Kemper between the company and its customers.  This will determine rates.   Customers can influence the decision if they show up and speak up for their interests.  The company will be there.   But it won’t speak for customers.

How to lower rates.   Kemper is actually two plants: a natural gas generating plant that cost $900 million and a lignite plant experiment that has cost $5 billion so far.   If the commissioners decide customers will pay only for the generating plant running on natural gas, rates can go down.  If they decide customers will pay for both the generating plant and the lignite plant experiment, rates will continue to go up.

The generating plant has already run on natural gas.  It uses proved technology.  It meets the used and useful test that the commission usually follows to make such decisions.  The way to make rates go down is to declare it prudent, put it in service, and charge customers only for its $900 million cost.

The lignite plant has not run.  In fact, it is still being built and will not be completed before mid 2015.  It’s an experiment.  It has not meet the used and useful test.  It may never meet this test.  It will take until 2018 under the company’s most optimistic projections to see if it does.   The company’s optimistic construction projections proved unreliable and unattainable.  It’s start up and operating projections may too.  Why should customers bear this risk?   Why are they paying 18% more for the plant while it’s being built?   Why don’t the commissioners wait to see how the experiment turns out before they make customers pay for any of it?

Even if the experiment works, its electricity will cost over twice as much as electricity from natural gas.   Why should customers pay more than the natural gas alternative then?   What can customers do now.

Misplaced loyalties.   Customers can remind commissioners that their first duty and loyalty is to customers, not the company.  This should be obvious.

However, some commissioners seem to feel responsible for the company’s mistakes because they approved construction of the lignite plant.   This seems irrational since they did not approve (and still have not approved) its cost or order the company to build it.  In fact the company jumped the gun and started construction before it received approval and before completing design and engineering.   It lowballed the construction estimate and missed by a factor of three.    It said the experiment would provide cheaper electricity for customers and missed by a factor of more than two.  The commissioners have no duty to ignore these misrepresentations and mistakes and stick customers with the cost.

Some commissioners say the company’s chicken little scenario of scarce natural gas at three or four times current prices might make expensive electricity from lignite look cheaper and more reliable (the fuel diversification argument).  This conveniently ignores the risk of the experiment.  It may not run as represented and won’t run without natural gas in any event.  The commissioners have a duty to deal with the real world, not the company’s imaginary world.   Customers are paying real dollars now for imaginary savings later.

Turnip truck voters.  Some commissioners and politicians say the state’s honor is at stake.   The argument goes like this:  The governor and other elected officials promoted the lignite plant.  If customers don’t pay for it, CEO’s won’t trust our politicians and invest in Mississippi.  One lobbyist calls this the turnip truck view of voters:  Mindless dolts just off a turnip truck who believe whatever politicians say no matter how self serving.

Mississippi Power’s CEO appears to view customers the same way politicians view voters.  He says it’s good for them to pay 18% more now under the Base Load Act so they can pay even more later.

Enough is enough.  There will be more boondoggles as long as politicians avoid responsibility for their failures and view voters as turnip truck rubes.   Look at Kior, Stion, Calisolar, HCL Clean Tech, and other recent failures.  The Kemper experiment is the biggest boondoggle in Mississippi history – over 100 beef plants.  If customers pay for it, billions will flow out of the state that could be spent and invested here.  The harm will last for decades.

Will Kemper be the boondoggle that’s so bad it’s a game changer?  Will it show customers the disdain that politicians and the company have for them?  And make them say:  Enough is enough.  Stop it.  We will not bail out companies who mislead us.  Or elected officials.  Let’s hope so.  It’s time.

Will it prompt commissioners do their job?  Let’s hope so.  It’s time.

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