Kemper – The Red Coats are Coming.

Kelley Williams, Chair, Bigger Pie Forum, March 31, 2017

Rate cuts are coming, not Red Coats. The 15% rate increase passed in December 2015 by two lame duck Public Service Commissioners (with an assist from the current chairman) is under attack and up for review this June. It was for $875 million of the costs for Mississippi Power’s Kemper County Lignite Plant.

About $700 million was for the turbines now running on natural gas – that are supposed to run on syngas from the gasifier that’s supposed to turn lignite into a substitute for natural gas.

Defective crystal ball. That’s the gasifier that the CEO of Southern Company (Mississippi Power’s parent company) has predicted will run next month – for the last thirty months. His crystal ball is defective. So is his plant. That may be dawning. He hasn’t made a startup prediction for next month.

He and some brand name politicians and their two pet commissioners are responsible for the $7.3 billion (and counting) disaster. It looked like it was going to be a disaster for rate payers. Now it’s looking like a disaster for him. So what’s changed?

Not pets. One change is two new commissioners – who are not pets. Another is thirty months of failed predictions – and the CEO’s fallibility. Another is thirty excuses for the gasifier’s failures – and the realization that there are lots more unused excuses.

Another change is the political ambition of the current PSC chairman and other politicians – and the albatross effect of Kemper. It’s time to blame Kemper on the CEO and move on.

The new PSC commissioner from the Southern District spoke in Jackson recently. He was refreshingly forthright – if you are a ratepayer. Not so much, if you are the CEO.

He talked about who pays for the disaster. He was not entirely forthright because he’s just one vote and because he can’t say how he is going to vote because that depends on if the gasifier works and because he can’t say beforehand anyway. But you could get his drift.

Among other things he said Kemper isn’t the plant it was represented to be. He wasn’t a commissioner when it was first pitched. So presumably, he’s read the record and found some discrepancies – maybe some misrepresentations. Not a surprise.

Does it work? He was asked about the definition of “work” as in “does the gasifier work?” He said it will take more than a week to tell. Some experienced observers say it will take a year to tell if it works. The CEO says a week will do it.

The CEO would probably celebrate two days of operation now without another excuse. By the way, each excuse costs about $30 million in startup delays. (See Charles Grayson’s latest on Kemper –  Kemper: Stranded On A Dead-End Road)

So it’s very unlikely that the gasifier will work by the June hearing. Which means there will be no consideration of its “used and usefulness.” Which means it will not be deemed “prudent.” Which means customers don’t have to pay for it. Except they already are.

They are already paying $175 million of gasifier related costs that were included in the last rate increase. The illogical reason is that the costs were so the turbines could run on syngas from the gasifier. So it could be a “dual fuel” plant. But the rate increase was for Kemper’s turbines running on natural gas. And the odds of the gasifier ever working and making syngas are not looking good. Go figure.

Refund? If you did, you would figure the PSC will rescind the part of the rate increase due to gasifier related costs and give customers a refund. Especially since the increase was subject to the used and usefulness and the prudence of the gasifier.

However, when asked, the new commissioner was not so forthright about this. It seems it depends on Mississippi Power’s filing. It’s unlikely the company will volunteer a refund. So, it will probably take some time. But a rate cut is probably coming. And a refund. And there may be some further reductions which could drop the increase back to 10%. (But Mississippi Power’s rates will still be the highest in the state.)

Meantime, on top of everything else, along comes a new POTUS. He’s not a fan of things like Kemper’s high electricity prices. He has the idea that energy should be cheap and plentiful and that government shouldn’t promote boondoggles like Kemper.

Jaws. And Jaws just appeared. A top 20 law firm with “significant recoveries achieved on behalf of defrauded investors” has filed a lawsuit in Delaware Chancery Court for a Southern Co. shareholder. It’s aimed at the CEO and his directors.

So it seems unlikely that there will be more rate increases for Kemper’s gasifier. The CEO hasn’t admitted it’s a disaster – yet. And some shills still push the “dual fuel” justification. That’s the argument that the gasifier is insurance against high natural gas prices because cheap shale gas won’t be around forever.

Madness. That argument ignores that the gasifier doesn’t work. And that it will be very expensive anyway. And that insurance is where you pay a little along now in case you have a big loss later. It’s not insurance to pay a lot now so you can pay even more later. That’s madness.

Paying more is how this all started. That’s because the more utilities spend, the more they make. That’s because they get their money back plus 15% or so – if the plant is prudent. That was the potential disaster for ratepayers if the PSC decided part of the $6.6 billion gasifier was prudent. That likely zero now.

The flip side is if it’s zero for the ratepayers, it’s the whole $6.6 billion enchilada for the CEO. It used to be his baby. He now says the PSC ordered him to build it.

I’m thinking: Man up. It’s still your baby. And your directors’ too.

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One Response to Kemper – The Red Coats are Coming.

  1. Fred_Flintstone April 19, 2017 at 8:21 pm #

    Thanks BPF, I always love your comments. As I’ve said before, Kemper is a failure. I could tell this was the case in 2010 when I had friends working at the plant telling me details about many basic engineering failures of just construction and fabrication. This has nothing to do with the general ‘process’ which is even more complex. Plus, gasifier tech is not new. If you do some basic research you will see people have been trying to figure out gasifiers for decades and decades. Seems like when you refractory line a metal structure that processes a chemical ‘dirty’ material you start having lots of problems. I know….from experience.

    Anyways, Kemper is a boondoggle and people’s heads need to roll for not asking the hard questions early in the concept phase. But this is what you get with an organization like Southern with a bunch of YES men. They have probably been fouling up projects for years and hiding their problems by passing on rate increases to paper them over. Maybe there should be a much deeper dive into ALL of Southern’s projects to see if they are on budget, time and meet all objectives that were set out from the projects inception (or if they are constantly changed and meet the final change right before a project goes online).

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