Monday, June 19, 2017

Bigger Pie Forum: Verse 37 of the Kemper Song

You may have heard Mississippi Power Company asked for another rate increase for its Kemper County Lignite Plant. The request was in a June 5 filing in response to an order by the Mississippi Public Service Commission to review an earlier temporary rate increase. That earlier 15% increase was for the cost of Kemper’s turbines generating electricity from natural gas plus some incidental costs related to Kemper’s inoperable gasifier. It was scheduled to decrease as some of the costs it covered were amortized.

Mississippi Power cleverly disguised its requested increase. It said it was just keeping the earlier increase in place — even though it’s supposed to fall. Because, don’t you know, a rate decrease would just confuse customers. That’s probably true since their rates have never decreased. And never will if any more of the cost of Kemper’s inoperable gasifier is ever approved.

And oh yes, Mississippi Power asked for more time to fix the gasifier. It said the gasifier would run next month — the 37th next month in a row it’s supposed to run. But it asked for another six months just in case. And then it wants another six years or so to fiddle with the fixes and come up with arguments to put some more of its cost into the rate base. Meantime, customers can continue to pay the 15% temporary rate increase.

Is that a good deal — or what?

In case this is confusing and you haven’t read all 35 of my earlier articles on Kemper to confuse you even more, let me simplify it. Mississippi Power Company, directed by its parent Southern Company, helped by some legendary Mississippi politicians decided back in 2006 to conduct a $1.8 billion experiment which has ballooned to $7.9 billion and is still ballooning.

The idea was to turn Mississippi lignite (low grade coal) that burns like wet dirt into a substitute for natural gas (syngas) and burn it in conventional (well, almost conventional) gas turbines to generate electricity. The experiment was the gasifier turning lignite into syngas. You could safely say the experiment has failed. But the Southern Company’s CEO won’t say it. Why?

Maybe because it would be the largest crow ever eaten by one of the smartest CEO’s in the utility universe. Maybe because the glib CEO thinks the new PSC commissioners are as gullible and pliable as the former commissioners. Maybe because the CEO’s board of directors are his pets. Maybe because he thinks the company’s monopoly service areas make it immune to market forces. (He could be right.) But it’s probably not because of concern for Mississippi Power’s customers.

How big is the crow? The total cost of the project to date is $7.9 billion. (Over 10 times the cost of an equivalent natural gas plant.) Government grants paid part of the cost. The company has paid about $7.3 billion and has eaten (written off) about $3 billion of this. The PSC has approved about $1 billion for customers to pay. The CEO hopes to stick customers with the other $3.3 billion plus billions more in operating and maintenance expenses.

The PSC approved the billion for the turbines (including $170 million for gasifier related costs) and put it in the earlier 15% temporary rate increase. Assuming the PSC sticks with this, that leaves $3.3 billion (ignoring ongoing costs) to be paid either by customers or by the company or both.

The CEO says he was just an innocent bystander when the PSC ordered him to build the plant. And it’s not his fault that the gasifier cost $7 billion and doesn’t work — because it will work next month. Or that natural gas prices are too low for syngas to be competitive even if the gasifier works. So the PSC should do the fair thing and make customers pay.

The PSC could do the sensible thing and make the company pay for the failed experiment. All of it. And reduce the temporary rate increase to reflect fully amortized costs included in it. The result would be a permanent increase in the range of 7-10% vs the present 15% temporary increase.

If it did, customers would not be threatened with the overhang of more future increases related to the gasifier. Even so, their rates will still be the highest in the state. But lower than they will be if the PSC doesn’t put a stake through the gasifier.

But the PSC is not known for sensible or quick decisions. One commissioner suggests that the PSC bears some responsibility for the company’s gasifier mistakes because it permitted or enabled the company to make them.

And oh yes, if the company has to pay for its mistakes here, it may not want to make mistakes here again. Other companies won’t either. So the state won’t get hustled by as many promoters and will lose all those great investment opportunities. What will happen to the Mississippi Development Authority then?

Also if the company has to pay for its gasifier mistakes, Mississippi Power will take bankruptcy. And the sky will fall. And lobbyists will spend like paupers. And Tico’s Steakhouse will close.

One commissioner says the commissioners are going to try to vote together. That makes sense for the commissioners. Every vote is equally valuable then. And there are future campaigns to think about.

The PSC has set another hearing later this month to decide how to proceed. That doesn’t suggest an imminent sensible decision.

Don’t be surprised if the three commissioners decide to give the company another billion or so for its mistakes. Call it a participation trophy. It’s not the commissioners’ money anyway.

Do you suppose there’s a better way to regulate utility monopolies? A better way to organize and run the PSC?

Kelley Williams is the Chairman of Bigger Pie Forum and former CEO of Mississippi Chemical..

This post is sponsored content provided by Bigger Pie Forum.


Anonymous said...

If the 3 PSC comms. don't deny all and soon, they are political toast.

Anonymous said...

why doesn't the gasifier work?

Anonymous said...

Where is the gain for the PSC to keep this boondoggle alive?

Anonymous said...

Why even have a PSC? True competition would have averted this whole disaster.

Anonymous said...

Haley and Phil's pet project. They profit, you pay. Former PSC Commissioner from the Southern District who voted for this was well taken care of, given a plum $100,000 plus job he was not qualified for.

Anonymous said...

For those of us who are actually from the area near the plant and have some familiarity with it on the basis of knowing people who work there, I don't know where this idea of the "gasifier not working" comes from. They've been running the plant and generating power from lignite for months. Selling the byproducts, too, as it's not uncommon to see the truck shipments now. I understand the plant has cost and some technical issues, but it seems suspiciously disingenuous, not to mention self serving for some, to infer the plant isn't running at all.

Anonymous said...

The Public Service Commissioners must not reward poor behavior and performance by MPCo. Roll the rates back until the company has the plant - as it was proposed and authorized - operational. Until then, take them off the tit.

Anonymous said...

only producing on natural gas. @1:49 - you hit the nail on the head. Shame on all the players in this boondoogle - SHAME

Anonymous said...

More than likely, it will take the Feds to put an end to this Ponzi scheme. This Bannana Republic ideology can only go on for so long.

Anonymous said...

The commission voted unanimously for the current rate because it only pertained to the part of kemper that's been generating power for years. Do we really expect that the commission would now remove that as the plant continues to produce power?

Anonymous said...

Haley and Phil's pet project.


Bryant didn't put his body in front of SB2793, and he should have, but Kemper is 100% Haley's screwing of Mississippians on behalf of one of his clients.

Another Haley Barbour project that has turned to complete shit.

Anonymous said...

... when the PSC ordered [Mississippi Power] to build the plant.

Kemper's water carrier Bill Crawford spreads this same manure on fields throughout Mississippi.

Anonymous said...

The cost overruns should go back against shareholder value, not put on the ratepayers.
2:59 Phil let it through the Senate. Also, the Phil Bryant Radio Network supported it and still supports it. You know, Supercrap.

Anonymous said...

Name that corrupt politician......
Raises lots of money for Gov. Barbour, gets rewarded with a job at the PSC to help push through Kemper Project, hires friends who do nothing to earn their salary, abandons PSC when he sees writing on the wall. Gets a new "government" job that he is unqualified for. Arrogantly walks around talking about fiscal responsibility and being a self made guy.

Anonymous said...

For those of us that work for a living and don't walk in those circles, could you please drop a name? Could be any of 20 republican parasites I know.

Anonymous said...

Such a shame that someone (Electric Co CEO and a few politicians) doesn't go to jail for this 6 Billion Dollar screw up.

Anonymous said...

The name is Lynn Posey. I remember talking to him about it, he said he wasn't concerned with the rate increases because it wouldn't effect his district. He belongs in jail, he better hope he is never audited.

Anonymous said...

Actually Lynn Posey is a democrat.

Trust me, I work for the government said...

Leonard Bentz. Come on guys. That was an easy one.

Anonymous said...

2:59 Phil let it through the Senate

Let what through the Senate? Be specific.

Anonymous said...

Southern Company financed Lynn Poseys campaign indirectly through contractors. Lynn investigated himself and determined he had done no wrong doing. This whole fiasco proves Mississippi is still as corrupt as it ever was.

Anonymous said...

Nope, 7:21. He switched parties and is a registered Republican.

He's also a scumbag for taking those campaign contributions and then voting for the "emergency" Kemper rate increase.

Anonymous said...

Shame on Southern Company for investing in Mississippi and creating some private sector jobs (we prefer the prestige of the public sector here)and on their greedy capitalist shareholders for bearing the brunt of the cost! What was anybody thinking? We could have had the government do this much more transparently and efficiently. Geez! I hope we can move to a more publicly financed model soon and avoid all the blackouts we've been having. That'll also help us keep kicking Alabama and Georgia's proverbial keister in winning economic development projects. That power company they have over there (I forget their name) is just killing them.

Anonymous said...

1:27 pm If availability to utilities and highways were based on profit, Pelahatchie wouldn't have running water, electricity, heat other than wood stoves or fireplaces, and the roads would be dirt. Pelahatchie is too small to make delivery of those utilities profitable.
Natural resources are not unlimited and some states and areas of the country don't have sufficient oil or even water. There has to be some central management.
A military needs, especially in time of war, access to all utilities in every part of the country.
If I didn't know that civics requirements we were eliminated in our schools, I'd be more horrified than I am by your question.
And, times have changed. We live in a complex world where goods and services are global, not local. We can't " go it alone" anymore. We are dependent on others to survive. We need to cooperate and have alliances. Even those who " live off the land" in total independence or imagine they are, have to buy some things. They aren't weaving and hand sewing their clothes or making their guns. And, all you " I did it myself, it's mine people", need to look around your own dwelling and figure out how much of what's in it were made by your labor only!

Anonymous said...

1:11, did you forget about the taxpayer supported bonds? Personally, I've lost count how many times MS Power has asked for a rate increase. I do know they are about $5 billion over budget. Stockholders should be paying for management's bad decisions and no other party.

Meanwhile other power companies around the state have invested in new facilities or upgrades to existing structures for less than $1 billion, combined.

If MS Power continues to get its rate increases, how is south MS supposed to have much (if any) economic development when electricity rates are too high to justify companies investing in the area? Your sarcastic arguments are weak. .

Here's what the public wants to know: What makes MS Power (and by extension Southern Company) so special that they need more taxpayer money?

Anonymous said...

@12:18 he is a registered republican now, but he shares more in common with democrats than republicans.

Political Party Nazi said...

NOBODY in Mississippi is a "registered Republican".

Anonymous said...

If MS Power continues to get its rate increases, how is south MS supposed to have much (if any) economic development when electricity rates are too high to justify companies investing in the area?

You know the answer to your own question, right?

The MDA will push MS Power to cut the interested company a sweetheart deal on rates then the common folk and small businesses will be bent over to cover the deal through their rates. Isn't that the Haley Barbour way?

Anonymous said...

@ 1:11 - Oh, I see your point. Southern Co. is doing us a favor by building a power plant that is over budget (by billions), way over schedule and economically unfeasible. Southern Co will be hurt by this disaster as they should be. The question is whether or not the three member PSC should allow MS Power to put the burden on rate payers. The answer is no! BTW, it is not a private sector job as you say when the state and rate payers are on the hook. I guarantee that if you were a MS Power Co subscriber you would realize how bad a deal this really is.

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