Kemper and fairness
Southern Company chief executive officer Tom Fanning now says it may be less expensive to run the Kemper power plant on natural gas than gasified lignite (low grade coal). That means the $6.2 billion dollar cost of the gasifier is down the drain. This is what happens when you bet billions on experimental technology. The magnitude of the waste boggles imagination.
For $250 million, Southern could have purchased a used natural gas plant capable of producing as much power as Kemper. While Kemper was under construction, Entergy bought three of them for that price.
But a gasifier would be cheaper to operate, Southern officials claimed. It could use inexpensive local lignite. It could sell the syngas byproducts for millions. Turns out, it was all a pipe dream. Not only has Kemper’s gasifier been 25 times more expensive to build, it will cost three times as much to operate compared to natural gas. It is utterly useless. The gasifier’s massive steel and concrete structure will sit idle and abandoned for decades to come, a monument to corporate hubris.
Incredibly, Fanning still wants Mississippi ratepayers to pay for his company’s mistake. If you divide the gasifier’s $6.2 billion cost by its 188,000 ratepayers, the cost is $33,000 per ratepayer. Bear in mind, Southern’s Mississippi Power electricity rates are already 37 percent higher than its state rival Entergy.
Fanning claims the Mississippi Public Service Commission (PSC) “ordered” Southern to build the gasifier. That is a distortion of the power plant approval process. The PSC cannot and never could force a private company to build a particular type of power plant. Although the PSC allowed Southern to make the investment, it has always been Southern’s responsibility to ensure the plant was capable of producing electricity at “fair, just and reasonable rates,” as Mississippi state law requires. There is no “too big to fail” law for power companies in Mississippi. It was Southern’s choice, Southern’s investment and Southern’s bet. It is Southern’s loss and no one else’s.
In a recent speech to shareholders, Fanning said “As a matter of fairness, I cannot imagine that the company is going to be held responsible for changing gas price forecasts.”
Let’s address those natural gas forecasts: Fanning and his company predicted natural gas prices would skyrocket to $15. Today natural gas is $2.50. The Southern forecasts were two to three times higher than other forecasts, including the U.S. Energy Information Agency. Not only has Southern failed to explain how its forecasts were so dramatically wrong, but it fought in court to keep all records relating to its forecasts secret. The reality is this: Southern had to juice the forecasts to get Kemper approved. The forecasts were manipulated from the get go.
Here’s what happened: Southern’s longtime lobbyist, Haley Barbour, was elected governor and used his power to push Kemper through. Barbour’s lobbying firm had received millions from Southern. Kemper was payback. There was a rush to get the deal done before Barbour left office. Construction began before the engineering was even completed. The PSC, stacked with Barbour cronies, operated in a secretive, arbitrary, capricious and illegal manner, according to the Mississippi Supreme Court. Southern deceived regulators on numerous occasions during the construction process. To grease the skids, Southern paid thousands of dollars to dozens of Mississippi legislators. Our current governor and lieutenant governor received multiple $50,000 donations from Southern through its wholly owned subsidiary, Mississippi Power.
Southern CEO Fanning figured there was no way to lose. The more Southern spent on Kemper, the higher the return, since state law allows utility companies a guaranteed return on their investments. But state law also requires a power plant to be “prudent” and “used and useful” before rates can be raised. The Mississippi PSC has already approved $840 million for Kemper to run as a natural gas plant, but it has yet to approve the $6.2 billion for the lignite gasification portion of the plant. Nor should it ever.
With declining electricity usage, numerous idle natural gas plants and the ability to link into low-cost national power grids, Mississippi Power did not need to build any type of new power plant. At best, running Kemper with natural gas may be useful, but the experimental lignite gasification operation will never be “used and useful” or “prudent.” Mississippi Power electricity rates are already too high, the PSC should not punish ratepayers further for Southern Company's business malpractice.
As for Fanning’s complaint about fairness, consider this: Fanning made $11 million last year as CEO of Southern. We don’t begrudge him his pay. Star NFL quarterbacks make as much. But when a quarterback throws an interception on the one-yard line in the Super Bowl, he doesn’t complain about being treated unfairly. He takes his licks and heads to the locker room. Forcing the poorest state in the nation to pay $33,000 per household in higher utility rates because an $11-million-dollar CEO misjudged every possible aspect of this hugely-expensive boondoggle - now that would indeed be unfair.