Tuesday, May 6, 2014

Bigger Pie Forum: Waist deep in the Big Muddy

And the big fool said to push on. Pete Seeger's 1967 song was a metaphor for Lyndon Johnson and the Viet Nam War. It is now shorthand for a blind escalating commitment to a lost cause.

A good example of a blind escalating commitment to a lost cause: the Kemper County Lignite Plant under construction by Mississippi Power. On April 2 its Southern Company parent announced another construction (and startup) write off of $177 million in its 8K SEC filing. This brings the total cost for the experimental plant to $5.5 billion and counting.

The announcement includes a very long list of don't-blame-me-if-it-doesn't-work disclaimers and warnings about risks and possible quicksands and gar holes ahead. The reason for these disclaimers is it's OK to snow the locals. But it's dangerous to snow the SEC if things don't work as advertised and there are casualties.

Kemper's casualties

Kemper's Mississippi casualties are likely to include investments, jobs, the economy and the poor - if customers under Mississippi Power's monopoly are forced to pay for it. Electricity from Kemper's syn gas from lignite will cost over twice as mush as electricity from natural gas from a plant that costs one tenth as much. And this is the best case if things work as advertised.

The extra cost of Kemper's electricity will suck over $16 billion out of the economy during the 40 year plant life. It will mean fewer investments and at least 100,000 fewer jobs.

It will mean hardship for 155,000 residential customers in Mississippi Power's monopoly service area. These families have a median income under $40,000 per year. Their electric bills have already gone up 18% to prepay for Kemper. They may go up three times as much if Kemper is placed into service.

The cost of a blind commitment to a lost cause

Viet Nam cost the lives of 58,000 American military. It cost the country its trust in its political leaders. It cost Lyndon Johnson the presidency.

Defense Secretary Robert McNamara ran the war. He was a former Ford Motor whiz kid and certifiably always the smartest guy in the room. But he got it wrong and couldn't admit it - until years later. He spent the rest of his life trying to atone for his decisions.

There was no obvious or easy way out of the Viet Nam quagmire. It just kept escalating. It got harder and harder to justify the cost. (Like Kemper's write offs.)

An obvious way out

There are many parallels with Kemper. But there is one big difference. There is an obvious way out of the Kemper quagmire: pull the plug on the experimental plant. And run its turbines on natural gas.

It will be hard for Mississippi Power and its Southern Company parent to pull the plug. It will mean a write off of $5+ billion total now or more later. It may mean a new CEO for the Southern Company which calls the shots. It will mean embarrassment for some and disappointment for other disillusioned supporters who were misled by blind faith in Mississippi's trusted political leaders.... Rest of the article

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Pugnacious said...

Former Mississippi PS Commissioner Lennie Benz is a man that knows too much. The last person to know too muchof the the criminal machinations of the Southern Company was Jake Horton.

Ride AMTRAK's rails, Lennie.

Anonymous said...

Interesting article. Personally, would have left the Viet Nam section out. Wasn't needed and shifts focus from Kemper.

Johnny Weir said...

With global warming converting coal into gas is the only hope for the coal industry. Hope it is successful.

clintonrebel said...

"Lost Cause" is an interesting description used by some old guys in Jackson that can't let go of a lost political argument. That ship sailed, and to keep pestering Southern Company to change course should be up to Southern company shareholders.....or somebody that has some political or financial gain to be had if they win the argument. What's in it for BFP?

Anonymous said...

I agree with the point of Williams’ article. Southern Company should absorb the cost of the Kemper boondoggle - not Mississippi rate payers. However, besides the confusing Vietnam analogy, the article is deficient for leaving out a very important point. Utility companies are paid based on a “reasonable” rate of return for their investment. Thus, there is a perverse incentive for them to spend more on construction projects, not less. The more a utility spends, the higher its “reasonable” rate of return will be.

Southern Company did not care how much this project would cost because, once the project along with its projected costs were approved by the Public Service Commission, Southern contends it had a right to expect a reasonable rate of return on that investment even if a traditional electrical generating plant would cost a lot less. Thus, Southern is now claiming the PSC should set rates based on that projected costs plus a significant portion of the cost overruns. Meanwhile, Mr. Williams thinks that at most, rates should be set based on the original projected costs and probably even less since it is so clear that a traditional natural gas plant would have cost a fraction of even the projected cost of this one.

Mr. Williams spoke to about 200 people at the Jackson Rotary Club Monday, May 5 on this very subject. He was once a remarkable business leader but his years are beginning to affect his delivery. He was hard to hear, rambling, often off topic, and he missed the essential point. That essential point is: how much of the cost of the Kemper plant will the PSC consider when it sets electrical rates for Southern Company’s Mississippi service area? The more of those costs it allows, the higher the rates for Southern Company’s Mississippi customers. The less it allows, the more Southern Company must itself absorb Kemper’s astronomical cost.

Anonymous said...

What if the technology works? Is the investment worth it then?

Anonymous said...

"What if the technology works? Is the investment worth it then?"

That is always a fantastic question. It is the key question investors, stockholders, or venture capitalists must ponder before VOLUNTARILY investing THEIR OWN MONEY.

Forcing electricity customers to gamble on this, or go without electricity, is just plain extortion.

Anonymous said...

Dear dumbass at 2:08,

The taxpayers do not (read that slowly if you need to) have any interest in subsidizing a high risk venture. None. Southern Company should assume the risk.

Here's a better question: What if the technology DOES NOT work?

Guess we'll just add the PSC commissioners to the watch list come election time. No biggie.

Anonymous said...

to answer 2:08pm, no, its not worth it to the ratepayers. They didn't choose to invest - they're just stuck paying astronomical rates for electricity because they had the bad luck to live where they live.

Anonymous said...

The technology already works just on a much smaller scale than what is being built by MS Power. I can't fault them for considering coal degasification with CO2 capture as feedstock for the power plant I just believe they made the same mistake as others before them in attempting to forecast long term commodity pricing as they felt the nat gas price deck would make the coal degasification project more viable while in actuality current gas pricing would make that the economical fuel for the foreseeable future. Probably the smart thing to do would have been design the plant to run on multiple fuel sources.

Anonymous said...

I agree 3:54. Southern Co. made a decision within their service area as to "what would be the friendliest jurisdiction legislatively to build a plant with questionable lignite technology"? That would be Mississippi. MS Power has plenty of in house lobbyists, You see their own army of in house lobbyists plus over 30+ for-hire lobbyists working the legislators at Tico's , Shapleys, Parlor Mkt, and the hunting and fishing hot spots. The real culprit is not MS Power. It is SOUTHERN CO SERVICES of Birmingham. They run the capital construction projects for all of Southern Co. This is way above MS Power's control. The legislative relationships were used for a bigger picture here and KBR is laughing all the way to China or India. Who's gonna hit the choke when you pull the cord to start the mower on Kemper?. Will be interesting MS Power. Wall St is already noticing.

Anonymous said...

It is not capitalism or free enterprise when any business of any kind and it's shareholders are guaranteed a profit for failed business plans.

All of you who claim to fans of capitalism ought to be incensed.

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Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

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There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

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!!!

This is definitely a Beaver production.

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