Monday, February 6, 2017

Bigger Pie: Kemper doomed from the start.

The promised value of Kemper lignite gasification to customers was false in 2010, but the PSC chose to ignore the Emperor (Southern) wore no clothes. It is time for the PSC to acknowledge the naked facts and Rule the lignite portions of Kemper Not Useful. Based on MPC’s own cost data from 2010, Kemper burning lignite is shown below to be economically worse over 40 years than Kemper turbines on natural gas, even if natural gas prices escalated to over $70/MMBTU during the last 30 years of plant operations.

In an earlier article, “Kemper Gasifier: Slow Agony, Sure Death”, the gasifier plant is described as a cancer deadly to Mississippi economic growth for decades. In 2010, the Public Service Commission (PSC) and the Mississippi Public Utilities Staff (MPUS) diagnosed Kemper as benign, even helpful. There was no close examination of the technology, of how much engineering was completed, of the risks and of the outrageously high natural gas price projections Southern used to justify lignite gasification. Were they oncologists, the PSC and the MPUS would now be in court for wrongful death.

In 2010, Mississippi Power Company (MPC) filed Chart 1 as they sought PSC approval to construct the Kemper clean lignite plant. The chart shows future natural gas prices that would result in the Kemper project being breakeven for customers versus building a new natural gas fired combined cycle plant (NGCC). Southern assumed and the PSC accepted the NGCC natural gas fuel would cost $10-20/MMBTU. The red line added to Chart 1 shows Southern’s natural gas price projections used to justify the lignite project. Their natural gas price projections appear fudged to make the cost of power from a stand-alone NGCC appear more expensive than from Kemper burning lignite. It was both illusion and delusion.

Chart 1 is based on the construction, operating and maintenance (O&M) and other cost estimates at the end of 2009. Financing costs, a major item, was excluded. In short, projected costs for Kemper burning lignite were a fraction of current reality. But the sleight-of-hand gets even worse. Costs for the NGCC used for the comparison in Chart 1 were increased by monies already spent for Kemper at that time. It was an extremely biased comparison even in 2010 and given current reality, laughable. The PSC saw nothing unusual and did not even take the cancer patient’s temperature.

I ask the PSC to make public an updated version of Chart 1 based on current MPC estimated costs operating Kemper on syngas compared to the Kemper NGCC as a stand-alone plant burning natural gas. I ask they use the latest U.S. Energy Information Agency (EIA) projected natural gas prices through 2035. From 2036 through end of the plant life, calculate the cost curve for natural gas required to make Kemper on syngas breakeven on a net present value basis with the stand-alone Kemper NGCC.

For Chart 1, MPC calculated the cost of natural gas each year to equate total costs for power from Kemper burning lignite (IGCC), versus a new natural gas plant (NGCC) burdened with unusual extra costs.  We can calculate the effect of changes in natural gas pricing on the economics (NPV) of Kemper at 2010 costs vs an NGCC.   Simply multiply the difference in current natural gas price projections above or below MPC’s breakeven prices by the volume of gas consumed each year and the net present value (NPV) discount factor for the year. 

Using MPC’s 2010 natural gas breakeven cost curve for $0/ton CO2 penalty and current EIA projected prices for natural gas delivered to electric power plants, we can calculate how truly terrible the 2010 economics of Kemper on lignite compared to the NGCC.  This is not a trivial exercise as the options for MPC customers remain electric power costs based on either Kemper burning natural gas (stand-alone NGCC) or as the proposed lignite gasification plant (IGCC).  The results are terrible for lignite, but keep in mind costs to construct, operate and maintain the Kemper burning lignite are from 2009-2010.

Chart 2:  Even with natural gas prices increasing to $70/MMBTU as shown in Chart 3, Kemper burning lignite has a lifetime ($200) million negative net present value (NPV) cost compared to Kemper turbines burning natural gas.  Costs for Kemper burning lignite are per MPC’s 03/12/2010 filing 2009-UA-14 (Chart 1).  That means the power costs from gasification in Chart 2 do not reflect the additional billions of dollars of construction, operation and maintenance, and construction finance costs since early 2010.  Costs for the current version of Kemper burning lignite would require much, much higher natural gas prices for NPV breakeven than are shown in Chart 3.   A chart showing current cost comparisons of power from Kemper on lignite vs the Kemper turbines as a stand-alone burning natural gas is what we request the PSC to publish. 

Chart 3:  The first 10-year natural gas prices in Chart 3 (black bar) are the Energy Information Agency’s (EIA) 2016 projections for costs delivered to electric utilities.   Gas prices for years 11-20 (red bar) reflect Southern’s natural gas price projections given to the PSC in 2010.  Years 21-40 (green bar) gas prices are increased to bring the Kemper lignite NPV to about negative ($200) million by year 40.  Prices in the chart illustrate how unrealistic Southern’s promise of Kemper lignite ever being economical compared to Kemper turbines burning natural gas.  We used only 10 years of EIA’s projected natural gas prices.  Using EIA’s 25 year projected natural gas prices would create NPV values for Kemper on lignite of negative billions of dollars even at $70/MMBTU gas.  The Kemper plant on lignite cannot generate enough discounted savings for customers in the latter years of operation to offset early year savings.  The risk of natural gas price volatility or the value of the dual fuel option frequently raised by Southern Co. are red herrings.
Based on MPC’s own cost data from 2010, Kemper burning lignite would be economically worse over 40 years even if natural gas prices escalated to over $70/MMBTU during the last 30 years as in Chart 3.  These results are a consequence of the very large savings by burning natural gas for the next 10-20 years or longer.

The lignite processing investments should be declared Not Useful.  MPC customers should pay only for the Kemper NGCC portion.  We acknowledge PSC legal constraints within the normal rate-making process.  We have noted in an earlier article that the PSC has the authority to adopt a tough stance on Used and Useful and on rate-making during the several years before Kemper burning lignite can demonstrate Useful.  If all Kemper rate increases related to lignite processing during that long period are refundable, unless Kemper is Useful at the end, odds are high MPC will wish to negotiate a final settlement earlier, outside the normal rate making process.  The normal regulatory process leads to Slow Agony for everyone involved and sure Death for southeastern Mississippi’s economic development.

This post was written by Charles Grayson of Bigger Pie Forum.  

This post is sponsored content provided by Bigger Pie Forum. 


Anonymous said...

Much thanks to the Bigger Pie for all outstanding work about this incredible waste of Mississippians' hard earned (and few) dollars).

Anonymous said...

So it's the price of natural gas that killing coal. How we suppose to get our mining jobs back?

Anonymous said...

Y'all can thank the big elephants in the room. On the other hand it really matters little in the long run. We will have Feel and Tater around for a while. They can illustrate what they have learned while sitting at the feet of the great H.B.

Anonymous said...

Trump is going to drop the price of coal. We have been sending out natural gas to other countries.

Anonymous said...

At 5:21 PM
Ask the Pesident. He is a very, very smart man.

Anonymous said...

Bigger Pie is right.....but they are also totally obsessed with something they have no say so over. They sound much like a woman scorned that nobody will listen to....but but but....

Anonymous said...

Breaking News!!! The Mississippi House voted to raise taxes on you and me! what happened to those conservative values that they touted over the last few years? What happened to No New Taxes? can't wait for the next election to vote these tax mongers out of office!

Anonymous said...

I'm with you 8:47, these are the same politicians who have proudly stated, "A tax is a tax, and I am against any tax.". Apparently, they were talking out of the other side of their mouth. "Well, this is not really a new tax." I'm calling BS on these liars and I hope others do too. You can change your mind, but you cannot change the facts.

Anonymous said...

What new tax? You mean the one that has been on the books for decades but republicans encourage people not to pay? Look away look away GOP.

Anonymous said...

I'm all for fair and low taxes. But I am not for tax evasion which is what these populist wanna be Trumps in the Mississippi legislature are pushing. Think about all of the law firms represented in the think they evade paying "use tax" every year? Naw. But they'll stand up and tell you to do it like its not really the law.

Anonymous said...

Do the companies owned by Kelly Williams and Ashyby Foote pay use taxes on out of state internet purchases every year? Does Jim Barksdale's companies pay use taxes? What about Chris McDaniel's law firm? Do they pay their fair share of use taxes based on current law?

Anonymous said...

You guys need to get off your ass and write your psc commissioner.

Anonymous said...

Kemper has the governmental reek of a culled cow beef plant and it is not from hydrogen sulfide emissions. There is a legitimate reason why no one else has built a lignite coal facility. But, of course, this is Mississippi where science and engineering matter naught.

Anonymous said...

Those who want your tax dollars tell the members of any board or commission or elected to office how wonderful they are. They tell them they have yearned for someone so smart who will understand the " real" issues.
These newly appointed and elected folks are given a far more exciting social life than they've ever had. They get to meet the wealthy and are made to feel they are accepted into the higher echelons of society. They get to go to condos and lodges and have good seats at ball games.
Instead of suspecting they are being " played", they want to believe someone has finally understood how smart and witty and wonderful they are. They believe what they want to believe. It is made easier in that they are given all the rationalizations and false information they need.
It is made easier still if their party is in power and the risks of not being re-elected are small because the true believer won't vote for the other party.
You elected these people. You keep electing them. You expect human nature to change.
You have to make systemic changes that hold those we elected and those who entice them to a higher standard of accountability . That won't happen because you don't like rules and regulations.
You should have regarded Kemper with suspicion and make the hurdle high for them, but it's business and all business people and all rich people are smart and honest...or so you thought.

Anonymous said...

can't wait for the next election to vote these tax mongers out of office!

But you won't. Redistricting. Ball game.

Anonymous said...

What about the KIOR plant in Columbus - Phil touted it a a new source of fuel. Guess what folks - the KIOR plant went belly up and the TAXPAYERS in Mississippi are about to lose $70,000,000.00. Where's the news media and why haven't they reported the facts - MDA and Phil are trying to hide something!
$70,000,000.00 - that's more than McCoy's beef plant - at least something is in that building. They have dismantled the KIOR plant bit by bit as scrape! The FEDS need to come in and clean up this mess. Phil's not going to do it, and God knows, Stacey's not - he been on the coast holding secret meetings!

Anonymous said...

You're trying to tie KiOR to Bryant? ROFLMAO Are you getting paid to be ignorant?

Anonymous said...

Haley Barbour, Fell and their cronies have made this possible. The former Southern District Public Service Commissioner who gave his deciding vote resigned because he knew he could never be elected. He got a $120,000 job thanks to Phil Bryant. He has a HS education and was made Director of a Planning and Development District.

Anonymous said...

8:47, 9:00, 9:16, 9:19 = same person

Anonymous said...

Tax and Spend!!!!

Anonymous said...

8:27 The name is Leonard Bentz

Anonymous said...

10:24 - That's right. Leonard Bentz raised some cash for HB and was able to squeeze the PSC job out of it. Bentz knew the writing was on the wall so he and Eure jumped ship and found other ways to make a living off the taxpayer. Typical MS Republican. This arrogant guy walks around patting himself on the back like he actually earned his living.

Anonymous said...

That is Leonard "I own Kemper" Bentz. And Hailey owned Leonard. And we all own the result: A $6 Bil lignite paper weight holding down the woods of Kemper County too expensive to operate as represented.

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