Thursday, June 13, 2013

A tale of two plants -- Kemper and Edwardsport

Mississippi Power Company's Kemper County clean coal plant is following in the foot steps of Duke Energy's Edwardsport clean coal plant, which has been riddled by cost overruns and startup problems.

MPC has been in the news lately. Its CEO was relieved after reports of withholding information about the over-budget construction project. The project manager was fired a few weeks earlier. On April 23 the CEO of the Southern Company (MPC parent) reported a $540 million write off due to plant design mistakes and signaled the possibility of more write offs to come.

The new MPC CEO is a lawyer and former general counsel for Southern Company. This suggests a focus on legal and regulatory issues, not the plant.

However, in a WLOX TV interview May 23rd Leonard Bentz, chairman of the Mississippi Public Service Commission, said that he had contacted the CEO of Southern Company earlier (ex parte communication?) over concerns about Kemper. The chairman said the CEO had assured him that he would look into his concerns about the project.

So not to worry about the project. The Mississippi PSC is on it.

Latest cost estimate for the 580 MW plant is $4.6B before write offs and grants. (Initial estimate was $1.8B when announced by Governor Haley Barbour Dec. 12, 2006.)

In the TV interview chairman Bentz said customers will pay for $2.4B of the cost just as the PSC has been saying for two years. Has the PSC has already determined $2.4B of the cost to be prudent without benefit of hearings -- as required by law?

The chairman said further if the plant does not work, then ratepayers will not be tasked with it. He didn't say when or how the PSC will decide if the plant works or when or how ratepayers who have paid extra for it in the meantime will get their money back.

It may take years for the plant to work -- or for MPC to give up and admit it doesn't. It's not like flipping a light switch. You can bet it will take longer if customers are paying instead of shareholders.

Duke Energy's Edwardsport clean coal plant

It is enlightening to compare Kemper with a similar troubled project. Around 2005 Duke Energy decided to build a 618 MW coal gasification plant at Edwardsport, Indiana. The original cost estimate was $1.9B. Actual cost ended up at $3.6B. The Indiana Utility Regulatory Commission (IURC) ruled that customers would only pay $2.5B. So Duke ate $.9B of the cost. The resulting rate increase will be 14-16% for 700,000 customers.

An earlier agreement for customers to pay $2.9B fell apart after the Indianapolis Star revealed secret meetings and conversations between regulators and Duke executives stretching back several years. The commission chairman and several Duke Executives were fired, and the chairman was indicted on three counts of misconduct.

Construction took five years and was substantially complete about nine months late. Startup began in early 2012.The gasifier (converts coal into a burnable gas) was still in startup as of the last public report Nov. 30, 2012. Its longest continuous period of operation then was four days. Not like flipping a light switch.

The Indiana commission has held public hearings on the project every six months since construction began. Detailed reports presented at the hearings are a matter of public record. (These are posted at http://biggerpieforum.org/topic/mississippi-powers-kemper-county-coal-plant#Duke.) They reveal the complexity and problems of the project and its challenges -- which continue.

The Edwardsport plant is complex. A knowledgable source estimates it has over four times as many working components as a coal-fired generating plant. It is over four times more complex. Problems multiply with complexity.

Kemper is even more complex because it has more byproduct recovery systems and a low grade wet lignite feedstock vs high grade Illinois basin coal at Edwardsport. Kemper is also more risky because its gasifier is an experimental design vs a modified proved commercial design by GE at Edwardsport.
There was one design change at Edwardsport to add a wastewater treatment plant when the EPA wouldn't permit a disposal well. It cost $.1B. The other $1.6B of overruns were due to plant complexity. Kemper has had $.54B of design changes. Such large changes during construction suggest poorly understood basic concepts. They do not inspire confidence. They do add complexity.

The Edwardsport plant was conceived at a time of regulatory uncertainty about carbon emissions. The complex gasifier was in response to the fear of cap and trade and other onerous regulations under consideration. There were many other coal gasifier projects pending at the time. However, only Edwardsport went forward.

In hindsight it was a mistake because of its higher cost than a natural gas fired plant and the cost overruns. Records show that Duke's project management was forthcoming about the problems and addressed them immediately. They were not tainted by the scandals. The project was never out of control despite the overruns.

Not so with Kemper. This project suffers from design flaws, bad project management, great complexity, and suspect oversight. No wonder construction is out of control.

Startup could be worse. MPC has no experience with a lignite gasifier. It is a chemical plant, not a power plant. It can take an experienced operator over a year to start up a complex chemical plant and attain stable operations using a proved design that has been built before. Kemper is a plant that has never been built before with an experimental gasifier as the heart of the plant. Odds are it will not operate as expected for several years -- if ever. Why would the PSC approve it now?

Kemper was picked over a natural gas plant

The Kemper plant was conceived when the primary concern was rising and volatile natural gas prices. It was justified on the assumption of stable prices for lignite fuel that would produce syn gas cheaper than natural gas -- if natural gas prices went higher and higher.

But when the project was reviewed and kicked off in 2010, natural gas prices were going lower and lower. So, the justification became fuel diversification. The argument goes like this: It is less risky for Southern Company to have multiple fuel sources (coal, nuclear, lignite, natural gas) than to be too dependent on natural gas. Southern Company swapped natural gas price risk for experimental plant risk. It lost on both bets. Customers will too if the PSC makes them pay for Southern Company’s bad bets.

How much will they pay? It could be $300 million per year more for electricity vs cost from a natural gas plant -- or $12B over the 40 year projected plant life. Since most of the cost is absorbed by only 186,000 customers in MPC's monopoly service area, their electric bills could be 50% higher. (Costs were estimated based on reports by the independent project monitors for the PSC and its advisory body, the Mississippi Public Utilities Staff. Costs have been vetted by an independent utility consulting firm.)

Where is the outrage?

The PSC's secret project reviews make it hard to obtain information to quantify the loss. So do efforts by Southern Company and the PSC to compartmentalize costs without reporting the total and to circle the wagons to deny access to information. The Indiana commission has held eight public hearings on Edwardsport providing detailed cost and status reports. The PSC has held no such hearings on Kemper. None.

In the recent TV interview Chairman Bentz said be careful about numbers you hear because they come from "adversarial groups." Why does he think those who want to protect customers from Mississippi Power's mistakes are adversaries? That is his job. But others are concerned and want to help. Why disparage them? Why discourage them? Why not work together?

It is puzzling that there is only one intervener in Kemper, an environmental group. There were four interveners in Edwardsport: an industrial consortium, a steel company, a state agency consumer advocate, and an environmental consortium. They helped spotlight the problems and make Duke eat part of the cost.

Where are the Kemper interveners with an economic interest at stake? It's like a Sherlock Holmes mystery. Why aren't the dogs barking? Do they fear being money whipped by Southern Company? Do they think the game is rigged and the politicians bought?

Silence from the poor who will be hurt the most is understandable. They probably don't know about the coming higher bills and don't have money to do anything about it anyway. They have no voice now. But they do have the vote -- and can punish those responsible later.

Kelley Williams is the former CEO of First Mississippi/Chemfirst and a Jackson resident. He can be reached at kelley@greenover.com.

By Kelley Williams
Chairman, Bigger Pie Forum


This column ran in the Northside Sun; it is reprinted with permission.

This post is provided by Bigger Pie Forum, a nonprofit educational organization.  Bigger Pie Forum purchased distribution rights on Jackson Jambalaya. 

14 comments:

Anonymous said...

How about a list of the members of the Public Service Commission and what their stance has been on this project. I've heard a lot of "well it won't effect the ratepayers in my district." Dumbasses.

Anonymous said...

How about a list of the members of the Public Service Commission and what their stance has been on this project.

You can find that on your own? Please.

Anonymous said...

Brandon Presley--Against raising your electricity rates and against building the plant with unproven technology.
Leonard Bentz--for raising your rates and for building the plant.
Lynn Posey--for raising your rates and for building the plant.

Anonymous said...

Brandon Presley -- For raising taxes in Mississippi to pay for Medicaid expansion, to "fully fund" MAEP, and to pay for the myriad of other pipe dreams the Democrats want to foist on the backs of Mississippi taxpayers. The buzz word is "investment' and they use it repeatedly but never want to reveal where, and from whom, they want to forcibly extract the dollars to seed their "investments'.

Anonymous said...

Coal gas is an old idea. The first street lamps of Jackson used that fuel produced on the garden area just west of city hall. The industrial use of coal is over unless you are miners, barge owners, and traditional electricity distributors. We need to utilize solar which is less complex a process, utilize the grid to reverse meter, and use existing domestic roof tops. Plugs and battery for the electric auto should be the energy route for the future not ancient and dirty ones.

Pugnacious said...

Does anyone recall the matter of Jake Horton's "liquidation" when his Southern corporate plane flew out of Pensacola with him and the pilot and co-pilot, both Mississippians, aboard? The NTSB investigators claim that they were clueless as to what caused the aircraft to explode after takeoff. Horton was preparing to testify to corporate mis-billing before government investigators.

Chip Pickering claims that the Kemper Plant was the "crowning achievement of his thirteen years in Congress." It has been claimed that Congressman Pickering's Energy and Commerce House bill to repeal the 1934 Public Utilities Holding Company (PUHCA)Act was drafted in the corporate legal offices of Atlanta's Southern Company.

Pugnacious said...

The Miami Herald on the Silkwooding of Jake Horton:

http://tinyurl.com/n5bx9lr

Anonymous said...

Depends on the taters 7:58 PM. Depends on the taters.

Anonymous said...

New York state lawmakers have proposed a ban on anonymous online comments.

Called the Internet Protection Act (A.8688/S.6779), the legislation would require a web site administrator to pull down anonymous comments from sites, including “social networks, blogs forums, message boards or any other discussion site where people can hold conversations in the form of posted messages.”

The bill states:

A web site administrator upon request shall remove any comments posted on his or her web site by an anonymous poster unless such anonymous poster agrees to attach his or her name to the post and confirms that his or her IP address, legal name, and home address are accurate. All web site administrators shall have a contact number or e-mail address posted for such removal requests, clearly visible in any sections where comments are posted.

Pugnacious said...

Mrs. Silence Dogood and George Orwell are rolling in their respective graves.

Anonymous said...

New York state lawmakers have proposed a ban on anonymous online comments.

Proudly provided here for your reading pleasure by ... Anonymous.

Anonymous said...

Do those nitwits in NY think they have some secret technology that restricts the internet at the state line?

Ann Nonimoose said...

"...unless such anonymous poster agrees to attach his or her name to the post..."

Now there's a New York brain at work for ya.

Anonymous said...

Bunch of half-witted comments here.

This plant although perhaps not well thought out is a GREAT thing. Clean coal along with thorium based nuclear and solar are the energy sources of the future.

This is the 4th use of this process in the US and if we had any real leadership, an expert panel would be convened to examine the differences in the 4 and the mistakes to make a repeatable, mistake free process available to build many more plants like it.

The captured CO2 can be made directly into diesel or gasoline. THIS IS CLEAN ENERGY. wake up!


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If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

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