Kelley Williams, Chair Bigger Pie Forum, March 19, 2015
Here’s a recent quote from a security analyst about Southern Company’s hefty dividends: “Southern Company’s competitive advantage comes from its monopoly electricity provider status in the markets it serves.” Translation: Southern has a lock on its markets and can charge more for power to pay high dividends. Southern’s Mississippi Power subsidiary is the monopoly provider in one of those markets in south east Mississippi. Here’s a recent quote from its CEO about high cost power: “The higher our rates go, the less energy our customers use, it impacts economic development. It impacts job growth in our area.” Translation: Customers can’t afford high cost power, and it kills jobs and economic growth. Conclusion: Southern’s competitive advantage causes south east Mississippi’s competitive disadvantage.
Just trust us. The CEO’s quote above was about higher rates due to the company’s experimental Kemper County lignite plant. He then said: “We are all about our customers. We are all about economic development. We are all about attracting jobs to our service territory.” Sounds contradictory, doesn’t it? He airbrushed the contradiction with his familiar spiel about why Kemper is not so bad. It goes like this: Customers won’t pay a dime more than $2.1 billion, er $2.88 billion, er $4.1 billion, er whatever for Kemper. And we would have said that earlier except we didn’t know its cost because we hadn’t done the engineering. And actually we still don’t know the cost because it’s not built yet. But don’t worry, customers won’t pay a dime more than whatever even though the cost is now over $6.2 billion. And regardless of what whatever turns out to be, it’s a good deal for customers. And you can trust us on that.
However, customers are paying 18% more for construction interest on the Kemper plant now. The Supreme Court told the company to stop billing it, and refund the $283 million it had illegally collected. The company is upset that the court presumed to tell it what to do and wants a rehearing. Meantime, it’s collecting the 18%. Looks like it’s treating the court like the Public Service Commission which purports to regulate it. It usually tells the PSC what it’s going to do, and its powerful friends explain things to the commissioners. The CEO made the quotes above while explaining why the Supreme Court was wrong and would surely change its mind. The company’s powerful friends can explain things to the Justices too.
What’s it cost? Kemper’s construction interest charges have now sucked $300 million out of state. That’s 15,000 new jobs that won’t happen assuming one new job per $20,000 invested. A careful analysis of BLS data shows 9,000 existing jobs lost in Mississippi Power’s service area from April 2013 to December 2014. It also shows 5,000 jobs normal growth deficit versus the rest of the state. That’s two Nissan plants. That’s twenty jobs per day. It gets much worse if rates go up 40% to pay for the experimental gasifier.
Who’s hurt? The company’s monopoly covers 23 counties or about a third of the state’s economy. It also supplies electric coops serving 32 other counties. The effect of its job killing prices ripples throughout the state. And don’t forget the effect of Kemper’s crony capitalism on the state’s image.
Boss Hogg image. What’s the effect if the image is good ole boy politics and a pay to play culture? If it appears utilities control the politicians and set rates as they please? If it looks like the playing field is not level and the referees (regulators) favor the home team? If Boss Hogg comes to mind when you think about Mississippi? It could discourage honest investors and encourage those who know how to deal with a Boss Hogg. Who know how to promote a Kior pine trees to diesel scam and stiff taxpayers for its $70 million bad debt. Who know how to make a Kemper happen. Who know how to make its customers pay millions for illegal construction interest. Who may know how to make them pay billions for an incomplete experiment instead of $800 million for a plant that’s complete and running.
So, is image important for competitive advantage? “Image Is Everything” according to a once successful ad theme to sell Canon Rebel cameras. It featured a young tennis star with flowing locks and bevies of tennis groupies. But he got old and bald. Image may not be everything, but it matters. A bad image has handicapped Mississippi’s home grown catfish industry. It might have boomed like poultry, but catfish are ugly and yucky and swim in muddy water. Many people can’t get past the image to try them. A metaphor? Experts have tried in vain to rebrand catfish. Say as a southern rainbow trout. We have tried to rebrand Mississippi too. Say as a good place – an honest safe place to live, work, and do business. We need to keep trying.
How to fix it. Voters can fix the competitive disadvantage due to Kemper’s high rates in November. They can elect responsible PSC commissioners to see that customers get reliable affordable electricity. But it’s not a sure thing. There are lots of people who make money from Kemper’s high rates. They are well organized and well funded. The 187,000 retail customers who pay those high rates and the 412,000 coop customers aren’t well organized. Some don’t know they are being over charged. Others think it’s hopeless.
We can improve our image too over time. It will do more for growth than job fairs, junkets, handouts, special deals for friends, clever slogans, and other gimmicks. It will take voters and candidates and elected officials who want to change it and many elections for many offices. We can take a step this fall toward a better image and a competitive advantage. We can start with Kemper.