Tuesday, July 14, 2015

Ashby Foote: R.I.P. Kemper

It has been an expensive few weeks for Mississippi Power (MP).  On May 20, SMEPA (South Mississippi Electric Power Association), a tentative partner in MP’s controversial Kemper Integrated Gasification Combined Cycle (IGCC) plant pulled the plug on its 15% ownership of the plant, necessitating the refund by MP of SMEPA’s $332 million down payment.  June 11 brought more cash draining news as the Mississippi Supreme Court refused MP’s request for a rehearing of the Court’s earlier decision requiring MP to refund to rate payers $281 million from an 18% Kemper related rate increase imposed in early 2013.  Add to that amount another $600 million in IOUs and tack on millions more in future shortfalls of byproduct revenues from the sale of CO2.  Due to plant delays, no CO2 has been produced and the contracts expired on May 1.  Byproduct sales were projected to generate $50 to $100 million per year for the life of the plant.  For financially strapped Mississippi Power, these developments represent an existential crisis.

 
The Kemper IGCC plant was an iffy and risky proposition from its very beginning, especially for a company of MP’s modest size.  MP is the smallest service area in the Southern Company (SC) system with just 186,000 retail customers.  In 2010, when construction began, MP earned $82 million on sales of $1.1 billion.  That was just 3.7% of parent SC’s 2010 earnings.  But MP’s small size didn’t curb SC’s ambitious plan for its Mississippi affiliate – a complex and capital intensive $2.4 billion IGCC project designed to turn low grade coal into electricity.  Five years and $6 billion later, the start-up of the Kemper experiment is still a year away.

But more egregious than the IOUs and cost overruns is what MP and SC missed while they toiled away deep in the weeds of Kemper County.  While the Kemper project was piling up billions in debt the most significant energy revolution in 30 years was disrupting shale formations across the U.S. – fracking.  Wildcatters had been tinkering with hydraulic fracturing and horizontal drilling in shale for decades, but it wasn’t until 2010 and 2011 that the price of natural gas collapsed to $2 signaling to all who watched that a paradigm shift was underway.  The shale fracking paradigm continues to roil global energy markets and the world of geopolitics.  Meanwhile SC and MP, ensconced in their monopoly cocoons, trudged onward seemingly oblivious to the exploding abundance of natural gas that made Kemper’s future syngas obscenely overpriced.  By the summer of 2014 the frackers had worked their shale drilling magic on oil and once again a bonanza of abundance collapsed prices – this time it was oil falling from $100 to $50 in just six months.  In what seemed like the blink of an eye, the unimaginable had occurred – the U.S. had replaced Saudi Arabia as the world’s swing oil producer.  Still now, MP and SC trudge on at Kemper – promising electricity from lignite if only the Public Service Commission (PSC), rate payers and now the State Supreme Court would agree to pay 45% to 60% higher prices for their kilowatt hours.

By any reasonable business metric the Kemper IGCC project is a failure.  That often happens with business experiments.  Such is the nature of experiments.  It is nothing to be ashamed of provided the business recognizes the experiment’s shortcomings, admits failure, learns from it and moves on.  Such business actions are a vital and underappreciated element of a healthy and growing market economy.  Some timeless quotes on failure from revered business icons offer good counsel:  Thomas Edison, “I have not failed once.  I have just found 2,000 ways that don’t work.”  Henry Ford, “Failure is simply the opportunity to begin again, this time more intelligently.”  Steve Wozniak, “Failure is what moves you forward.  Listen to failure.”  Gordon Moore, “Failures are not something to be avoided.  You want to have them happen quickly as you can make progress rapidly.”

Running an electric utility in the 21st century should be a reasonable and stable business.  We have been producing electricity for 130 years and what business wouldn’t like a monopoly status selling something people can’t live without?  But imprudent business decisions, dismal execution and an unwillingness to adapt to the reality of fracking by MP and its parent, SC have put MP’s future in great jeopardy.  SC and MP’s current desire to have rate payers take responsibility for $4 billion of the $6.2 spent on the Kemper plant is outlandish and unfair to rate payers.  If accomplished it would put southeast Mississippi at an economic disadvantage for decades to come.  It is high time for Mississippi Power and Southern Company to pull the plug on Kemper and move on.

This column was written and submitted by Ashby Foote.  This post is a paid advertisement by Bigger Pie Forum. 

28 comments:

Anonymous said...

After reading this, I wonder if Ashby can handle the mental rigors of the Jackson City Council?

Anonymous said...

Is there any salvage value for what's been done to this point? This is the beef plant times a hundred. Who is going to be left holding the bag for the borrowed money? Mississippi taxpayers? Bond holders? It's all well and good to want to pull the plug, but what is the fallout of a Mississippi Power bankruptcy?

Anonymous said...

Sure, natural gas is cheap now. But, 10 years ago it cost five times as much as it does today. I think I heard Mississippi Power is running all their plants on natural gas right now to take advantage of the low price.

Looks like the Southern Company stockholders are going to have to eat the overages on Kemper.

But in the near future, when gas prices go up again, the folks at the Southern Company are going to look like they made the right call on lignite.

Anonymous said...

Sure, natural gas is cheap now. And I think Mississippi Power is taking advantage of that by running all their plants on natural gas right now.
Just a few years back, however, natural gas was nearly 10 times as expensive as it is today.

Looks like the Southern Company stockholders are going to have to eat a lot of overages on Kemper. But, when gas prices go up again, they are going to look like they made the right call to bet on lignite gasification.

Anonymous said...

Gotsta spend money to make money!

The guvnah got paid anyway.

Anonymous said...

@11:44- they don't even know if the lignite gasification is going to work. They've spent billions and don't even know if it will work the way they thought it would.

Is That You Haley? said...

... 10 years ago it cost five times as much as it does today.

Spike prices were the exception not the norm. There is little to no historical basis supporting your multiplier becoming the price rule.

But in the near future, when gas prices go up again, the folks at the Southern Company are going to look like they made the right call on lignite.

Haley, you gotta find some new bullshit to sell because that crap lost its stink a long time ago.

Anonymous said...


Wish that Ashby would spend even half as much time addressing the issues of Ward 1. Little wonder he wants to cut Council meetings back to only twice a month. He needs the time to focus on other stuff beside his job as Councilman.

Anonymous said...

12:54. He is doing a better job than you are not doing. Thank you.

Anonymous said...

@12:54. The official council meetings are already 2 times a month. Pick another topic to be a prick about.

Anonymous said...

11:22 and 11:40 your posts are not clones, but so many details are identical that I assume you are paid hacks (or a single paid hack) trolling for Southern Company.

Anonymous said...

Bankruptcy would be good for the state. The service areas could be sold to Coast Electric, Entergy, and other power companies who could sell electricity at reasonable rates.

Anonymous said...

MPCO is not going bankrupt. SO can always dilute their stock with another offering to pay for their mistakes at Kemper. And pay they must because with no apparent ability to sell the millions of pounds of CO2 the plant will generate in a year, the plant will be no more used and useful as a lignite plant than a paper weight to hold down the woods north of Meridian. Lordy mercy.

Anonymous said...

Utilities can and do go bankrupt. Entergy New Orleans did after Katrina. Don't think that Ms. Power can't or won't.

Anonymous said...

Why not make dry ice with the unwanted CO2 and then store it at a refrigerated warehouse until oil prices go up?

Don't they have some extra freezer warehouse space in the port at Gulfport?


Anonymous said...

11:11 Brilliant! Trade the unwanted CO2 for a mountain of dry ice. I guess it be Meridian's first ski slope (might kinda burn though if you fall).

Anonymous said...

I've talked to someone actively pursuing patents for utilities in the biofuels arena. Apparently the experts of now ( or yesterday- depending on how ya look at it) that make the plans for this kind of crap are close but no cigar.
That's why most of these things are failing. Not to mention the monstrous cost of paying the bill.
Capturing carbon is a goal that needs to be pursued, however, putting it in MS when the technology hasn't been perfected to please domestics and foreigners that want to 'cap and trade' their pollution is insane. This of real concern when our air pollution isn't all that bad considering places like California or NY.
*So, we've got "experts" ginuea pigging climate friendly technologies in one of the poorest states in the U.S.A.
Said 'experts' realized it wouldn't work as was, hence the delay and continued construction. I feel sorry for the poor fools who invested in this load of Bologna and the customers. Oh well. Probably won't work as intended when finished.

So, when the current 'experts' are long gone and the ones who know what they're doing step up to the plate, we'll likely all have one big nasty taste of 'clean coal' in our mouths and are likely to spit it out. Not to mention KiOR yada yada.

Thanks Haley for completely screwing everyone on clean energy including the people who typically are for it as long as it's done right.
You are our own version of Humpty Dumpty. No one will be able to put you back together again. Sorry Bubba. Your very name is one big toxic asset. I would feel sorry for the kids and families of Ole Miss, but then again, learning nothing but how to lick your own ice cream cone isn't a very marketable skill after you're found out, now is it?

Oh well. You've managed to fool most in Mississippi banking on the fact that we're all ignorant, obedient to lobbying, and don't have contacts who KNOW what the heck they're talking about outside of the landmass between Louisiana and Alabama that is known as Mississippi or as said contacts like to call it, " Missippissi".

Anonymous said...

11:22 - obviously you know $hit about stuff you spew off about. This is nothing like the beef plant. Beef plant was legislated by Billy McCoy and Steve Holland, used 100% state tax dollars to finance, and the Gov (Musgrove) office at MDA structured the deal so that after it failed, the state had zero collateral and lost it all after its three month's operation. Kemper has zero state dollars involved in financing. And while Councilman Foote makes the statement that it will not work, he does not know that for fact, its nothing but his opinion at this point. Beef plant had feasibility studies done showing that the concept would not work. Kemper has had test operations of the technology that shows it will work.Next spring, we will find out who is correct, and frankly, I'm betting on MS Power if for no reason than that they will keep working on it until it does work.

12:11 - correct. But neither you nor Ashby know that it won't work. Just because Kelly Williams writes a column a week in the NS Sun saying it won't work is less than convincing. We should know next spring who is correct.

The CO2 contract looks to me like a red herring. The contract expired, but the oil producers are going to want the CO2 as soon as oil prices go back up (which they certainly will). Last time I looked, Denberry is still producing C02 from their wells and piping it to Texas all day every day.

While Ashby, Kelly and his Bigger Pie Forum buddies continue to tout their investment in natural gas and the advantages thereof, we'll see how the Kemper plant actually turns out. In the 70's, MP&L's investment in Grand Gulf was said to be a terrible investment - it ran double its original estimated price. But after the first decade it was proven to be a great deal for the ratepayers of MS.

Anonymous said...

Please tell us that YOU are the best apologist 7:52 that Southern has in their stable of blabbering tiny boobs?

Anonymous said...

7:52: oil prices will not recover in 2016 or anytime soon bc of the Iranian oil hanging over the market.

Anonymous said...

7:52: The knowledge of fracking which has now driven down both the NG and oil prices is not going away. It is a paradigm shift as MPC should have recognized in 2010. Add to that the addition of oil from Iran. They all may kick the can down the road on the CO2 issue until the plant is ready to open, but what will happen on that issue then if oil drilling continues to be down then as it is now? MPC will have to give the CO2 away just to operate, provided someone can take it even free.

Anonymous said...

https://www.youtube.com/watch?v=GQa657vtDoo&feature=share The contents of the attached Youtube video is the very best weapon against the Southern Company and Ms.Power. All 186,000 rate payers should watch this interview of Tom Blanton on July 1,WKFK TV to get the facts. The Senate and House bills passed, that allowed for this fleecing to take place, are discussed. Every state Senator and/or Representative that voted yes for Senate Bill 2093 and House bill 1134 should be removed from office for malfeasance in this matter. The PSC races are the most important political campaigns in the state this year. Past time to elect people who are not being bribed by Ms. Power or the Barbour crime family. Tom Blanton and Brandon Presley are what these crooks fear the most.

Anonymous said...

Blanton exposes the co-opting by the Haley Barbour cabal of the Sierra Club.

Anonymous said...

"Wave of Greed". What an amazing phrase to describe the Barbour KKKlan, the Baseload Act, the Mississippi Republican Party and, to a certain extent, Phil Bryant's complicity in the Kemper fiasco.

Anonymous said...

Thomas Blanton's TV interview on WKFK can be found on a YouTube search. Well worth listening to. Tommy is a great American hero. He will make a valuable member of the MPSC for the Southern District.

Cbalducc said...

At least the short-lived Mississippi Beef processing plant is now a frozen-food processing factory. What can the Kemper power plant be repurposed for?

Anonymous said...

3:47: Kemper has run on natural gas since August 2014 producing 730 MW. Once MPC gets the $1.1 billion in "in-service" assets paid for, its next step will be to turn on its lignite gassifier and burn syn gas, but because of the parasitic load just to run the gassifier, the plant will then produce only 582 MW instead of 730 MW. Guess what then? MPC is asking once that happens the rates go up from an additional 18% to 41%. So MPC will be in the untenable position of requesting that the MPSC approve rates for a lignite plant at higher rates to the Mississippi consumer but producing a lot less electricity. Yep, higher rates for less electricity. Wonder how the SO/MPC spin machine can spin that? Better to leave the plant operating on Natural Gas. Either that, or SO better sell more stock to pay for its experiment.

Anonymous said...

Haley Barbour is an economic development expert!

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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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