Kemper is Mississippi Power’s $5.8 billion experimental plant to produce electricity from lignite (low grade coal). It is under construction, behind schedule, and way over budget. It was supposed to start up in May. Rates increased 18% assuming it would. It won’t. But rates won’t go down. In April the company announced two more cost overruns totaling $380 million and postponed startup to sometime next year. The Kemper plant is now over three times its announced cost and eleven times the cost of the same size natural gas plant – with more cost increases coming.
Kemper’s abusive electricity cost
If the experimental plant does run, customers will not be able to afford its electricity from lignite. It will cost over twice as much as electricity from natural gas. Its extra cost will suck over $400 million per year out of Mississippi Power’s 23 county monopoly service area in SE Mississippi. This will mean over $16 billion that customers won’t have to spend and invest during the 40 year life of the plant. The 50% higher electric bills will mean real hardship for 155,000 residential customers whose median income is under $40,000 per year. Less money invested could mean 100,000 fewer jobs and a weaker economy.
The PSC is the Mississippi Public Service Commission. It regulates electric utilities. It authorizes and approves new plants and their “prudent” construction cost and operating costs. It sets electric rates by this process for utility monopolies. The process is supposed to assure customers affordable reliable electricity. But the process has been compromised. Customers can’t afford Kemper’s expensive electricity from lignite. So, what to do about it? The PSC had scheduled hearings May 19 to talk about it. Then it cancelled the hearings. Why? Awkward to talk about unaffordable electricity in public?
Cheap electricity good for customers
Customers could get cheap electricity from Kemper’s turbines running on natural gas. It is half the cost of electricity from lignite. It’s available now. Mississippi Power made a million dollars selling it to the power hungry North East in January. It would eliminate the18% rate hike to prepay for the expensive electricity. Why won’t the PSC order the company to sell its cheap electricity to its own customers?
Try this: If customers get cheap electricity from Kemper’s turbines running on natural gas, who will buy the expensive electricity from lignite to pay for the plant? This is a dilemma for two PSC commissioners who say the PSC’s process blessed the expensive plant. Seems they have painted themselves into a corner and are looking for a face saving way out – behind closed doors.
(After the hearings were cancelled, the company announced it will sell electricity from its turbines to customers this summer. Apparently decided behind closed doors. The price was not announced.)
Cheap electricity bad for company
If customers get cheap electricity from natural gas, Mississippi Power will have to write off about $5 billion for the expensive plant. The company says this is not fair because the PSC said it was OK to build the plant. However, the third commissioner says the OK to build the plant did not OK its cost (which was grossly understated). The PSC’s process says an OK to build is not a blank check to spend and that spending must be prudent if customers are to pay for it. The company wants to evade the prudent spending test.
PSC process compromised
The process looks compromised. Take the certificate of need, for example. The process says the PSC must determine the need for a new plant before it authorizes its construction. The key word is “before.” The PSC determined the need in 2009. But he governor announced the plant in 2006.
The process also requires the PSC to evaluate alternative plants (e.g., coal, natural gas, nuclear, etc.) and pick the best one. However, the governor picked the “clean coal plant” before the evaluation process ever started. So much for the best alternative. And the DOE awarded a $270 million demonstration grant for the experimental coal plant in 2008. This was two years before the evaluation. Looks like the expensive plant was a done deal from the git-go. Seems the PSC rubber stamped a sham and is trying to make it look legitimate.
Then, there’s the face saving “settlement agreement” between the company and the PSC. It pretends to put a band-aid on the cost overruns. It would cap plant cost at $3.9 billion as the max prudent cost to set Kemper’s rates. However, it violates the PSC’s process to determine prudent cost and does not include all costs. It pays the company five times the $800 million cost of the plant’s turbines running on natural gas. Correction, customers pay. Looks like the complicit parents of the illegitimate plant have conspired to stick innocent customers with child support payments for forty years.
High stakes PSC decision
The stakes are high for the company: $7 billion in write offs avoided and extra profits if the PSC decision goes its way. The stakes are higher for customers and jobs: $16 billion extra cost if the decision goes against customers. This could mean 100,000 fewer jobs. Kemper could be the biggest job killer in the history of the state.
Don’t look for the PSC to decide who pays for the expensive electricity anytime soon. Or let customers buy cheap electricity in the meantime. Customers are overpaying now. They will pay more if there are start up and operating problems. These could make the construction problems look easy and the cost overruns look small. Things can get a lot worse.
Kick the can
The PSC will probably kick the embarrassing Kemper can down the road again. Too bad the cheap electricity solution doesn’t satisfy the process. Too bad you can’t trust the process. Or those who compromised it. Too bad they seem more interested in saving face and money for the company than in saving customers. Who speaks for or cares about customers?
Kelley Williams, Chair Bigger Pie Forum, May 1, 2014