Kelley Williams, Chair, Bigger Pie Forum | August 12, 2016
Surprise! Southern Company announced a $43 million cost increase for the Kemper Lignite plant its Mississippi Power sub is building. And another startup delay of its experimental gasifier that’s supposed to convert lignite into a syngas substitute for natural gas. Actually Southern’s subsidiary Southern Services is building the plant. Or trying.
Its cost is now up to $6.8 billion. That’s over twelve times the cost of a natural gas plant with the same capacity. It’s a disaster and an embarrassment. Like your college football team getting the dog beat out of it.
But nobody forced Southern to try to build the plant. Hey, if your team schedules the Packers or the Patriots, expect a disaster.
It’s a bigger disaster for the company’s customers if they pay for any more of the experiment than they already have. But then they had no choice. The Mississippi Public Service Commissioners forced them. They blessed the disaster.
The latest Kemper cost increase and schedule delay is really no surprise. It’s just more of the same. The company has been consistently wrong. It has also been consistent in its lies and misrepresentations. Here are a couple of examples.
A major milestone? Last year the company announced a major project milestone: “First Fire.” The announcement implied that the gasifier reactor had been fired or heated to operating conditions for the first time – a major step toward project completion. The actual event was something less: lighting the pilot on a reactor startup burner. The deception began earlier and fooled at least one financial analyst in a July 30, 2014 earnings conference call. He asked if first fire and gasifier heat up were the same thing. The CFO said they are. They aren’t. First fire was a minor event. Gasifier heat up is a major milestone. But heat up didn’t occur until this year. A year late. It looks like a deliberate deception.
The whistle blower the company is trying to discredit and destroy has documented many more deceptions. His name is Brett Wingo. He was project manager for Engineering and Procurement for the gasifier. In that role he managed the successful response to a serious refractory problem in 2012. It threatened the project schedule and safety. The refractory insulates the reactor’s metal shell from the 1800 F burning lignite and corrosive toxic gases under high pressure. If the refractory fails, the metal shell could melt with catastrophic consequences.
He received a “Southern Excellence Award” and bonuses for his good work and more responsibility: Project Manager over Startup Schedule.
No good deed goes unpunished. He took his new responsibility seriously. Too seriously. He recognized that the 2014 commercial operation target date was unrealistic, unachievable and unsafe. He thought his superiors would like to know and make appropriate adjustments. He was wrong. They didn’t. So he went direct to Southern’s CEO. Seems he already knew. Bad career move for Wingo. He was sidelined, muzzled, put on ice, fired, and blackballed. OSHA has ruled the firing unjustified and illegal. But it hasn’t found Wingo a job.
These events were reported in detail in a recent two page spread in the New York Times. I have read the details and have talked with Wingo. For what it’s worth, I think he’s credible. I don’t think the company is.
Subsequent events have proved Wingo right. It’s 2016. Still no commercial operation. Gasifier startup has slipped another month – at least. The company needs some good news. So it makes it up.
Another milestone? It recently announced first syngas production – a major milestone indicating that startup is imminent. However, the company provided few details. Did the troubled lignite feed system work? What was the fuel source? Length of the run? Quantity and quality of syngas? Reactor performance? And so on. But the company did provide a long list of disclaimers about the announcement. It essentially said: you can’t believe or hold the company responsible for anything it says. Maybe the company doesn’t believe its announcements either.
This looks like another exaggeration to set the stage for a bigger exaggeration and condition the PSC commissioners to bless it. Odds are the gasifier will never run consistently and reliably. Or produce syngas economically to compete with natural gas. It may not run at all given the company’s construction disasters. It may explode.
More lipstick. But if the company can rig a gasifier test run and claim success like it has with first fire and initial syngas production, it may convince the PSC that the gasifier is a prudent back up for natural gas. Hence, the company’s “dual fuel” campaign. And its touting of Kemper’s turbines running on natural gas as a good deal for customers – even though they cost twice as much as an off-the-shelf plant. The company is trying to put enough lipstick on the pig for the PSC to kiss it.
The company is desperate. It’s like a football team that’s getting beat a hundred to nothing, with no first down, minus yardage, and ten seconds left. So it tries an 80 yard field goal. The kick goes five yards. The coach asks the refs (the PSC) to call the game a tie because the kick wasn’t blocked and the ball wasn’t centered over the kicker’s head.
A tie means customers will pay half the gasifier’s cost or $3 billion or so. Don’t be surprised if at least one of the PSC commissioners votes to split the gasifier cost baby. That’s easier than dealing with the “awful task” of a Mississippi Power bankruptcy.
Easier for the PSC that is, not customers.