Who you gonna believe?

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The Marx Brothers and their zany comedy are long gone. But they have been reincarnated as
an even zanier act: Mississippi Power’s Kemper County Lignite Plant. It is a small generating
plant with a monstrous seemingly unbuildable chemical plant on the back of it.

Kelley Williams, Chair Bigger Pie Forum, November 3, 2014

“Who you gonna believe, me or your lying eyes?” This was Grouch Marx’s retort when caught (frequently) in a compromising situation. He got it from Chico, one of the five Marx brothers, who were the kings of slap stick comedy three generations ago. Other lines include “Time wounds all heels,” and “A moose is an animal with horns on the front of his head and a hunting lodge wall on the back of it.”

The Marx Brothers and their zany comedy are long gone. But they have been reincarnated as an even zanier act: Mississippi Power’s Kemper County Lignite Plant. It is a small generating plant with a monstrous seemingly unbuildable chemical plant on the back of it. But it is described by its corporate and political supporters as the eighth wonder of the world. It would be comical if it weren’t a tragedy for the customers who will pay a lot more for electricity because of it – if the company has its way.

A technological marvel breaking bad. The Kemper plant was announced in 2006 as a technological marvel that would turn worthless lignite (low grade coal) into a cheap syn gas substitute for expensive natural gas to generate low cost electricity. It was supposed to cost $1.8 billion, than $2.2 billion, then $2.9 billion, then $4 billion, then $5.8 billion, and most recently $6.1 billion. It was supposed to start up in May 2014, then not before 2015, and most recently in 2016.

In the meantime predicted expensive natural gas has become cheap due to huge new supplies from horizontal drilling and fracking And cheap syn gas (if there ever is any) looks unaffordable due to huge construction cost overruns, delays, and challenges of building and operating the first of a kind experimental chemical plant.

It’s been obvious for a long time that the company underestimated the challenges and lacks the knowhow and competence to do the job. It is compromised and in way over its head. The job calls for the legendary Admiral Rickover’s nuclear sub program organization, discipline, and competence. Not the Marx Brothers.

Talking out of both sides of its mouth. Company spokesmen still say Kemper will be a great deal for customers in the long run because the company will pay part of the $5.2 billion extra cost of the chemical plant. They make it sound good when they talk to service clubs, customers, and the press. Mississippi Power’s CEO made it sound good recently in rebuttal to a Clarion Ledger article which said the company should pay the extra cost, not customers.

But when the company’s Southern Company parent reports to the Securities and Exchange Commission about Kemper, it doesn’t sound so good. That’s because it’s dangerous to fib or be glib with the SEC. It’s like testifying under oath. You can be held liable for false statements, exaggerations, optimistic projections, and Gilding the Lilly. So the company qualifies its comments with a long list of disclaimers that say in effect: “We aren’t responsible for anything we say about Kemper.”

Want some examples of company double speak? Here are some recent comments from Mississippi Power’s CEO and some disclaimers on the same issues from the Southern Company’s 8 K SEC filing. Who you gonna believe?

About the extra cost issue. The cost of the small generating plant with the monster chemical plant on its back is $900 million (per Southern Company’s CFO in an analysts call October 29). The cost of the monster chemical plant per the company’s latest forecast is $5.2 billion ($6.1 billion total less $900 million for the generating plant). So you would think the CEO meant the company will pay the $5.2 billion extra cost when he said customers won’t pay for “overruns.”

You would be wrong. The CEO’s “overruns” are costs over $2.9 billion plus some other costs which he said the Public Service Commission has “authorized.” Is the $2.9+ billion settlement agreement really settled? Will customers ultimately pay for anything other than the small generating plant? Not according to the Southern Company.

Here are Southern Company’s disclaimers on the issue. “The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance … Forward looking information includes, among other things, statements concerning the projected cost and schedule for the completion of construction and start-up of the Kemper IGCC. PSC review of the prudence of Kemper IGCC costs; the outcome of any legal or regulatory proceedings regarding the settlement agreement between Mississippi Power and the Mississippi PSC, the March 2013 rate order approving retail rate increases consistent with the terms of the settlement agreement…” In other words, the company told the SEC the extra cost is unknown and who pays it is yet to be determined.

Who you gonna believe?

Things are working? The CEO said things are working and customers are benefiting. As evidence he cited the operation of the small generating plant this summer to supply electricity to meet seasonal needs. He didn’t say the small generating plant is running on natural gas, not syn gas. That’s because the monster chemical plant which is supposed to produce syn gas hasn’t produced any. He didn’t mention the 18% rate increase prepayment for the monster chemical plant or customer hardships it caused or jobs lost.

Here are Southern’s disclaimers about whether the monster chemical plant will work. “The following factors … could cause actual results to differ materially from management expectations …shortages and inconsistent quality of equipment, materials, and labor, contractor or supplier delay, non-performance under construction or other agreements, operational performance, operational readiness, including specialized operator training, unforeseen engineering or design problems, delays associated with start-up activities (including major equipment failure and system integration), and/or operations…” In other words management doesn’t know if the chemical plant will work because almost everything can go wrong.

Who you gonna believe?

Time wounds all heels. One definition of a heel is an inconsiderate or untrustworthy person. Time will tell about the fate of Kemper’s heels. It would be poetic justice if Groucho is right.

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