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$5.53 billion Kemper Project’s genesis a tangled path

By   /   July 28, 2014  /   News  /   No Comments

The Southern Company photo

POWERED UP: Mississippi Power’s Kemper Project is the state’s most expensive construction project.

 

By Steve Wilson | Mississippi Watchdog

It’s a $5.53 billion sentinel, rising above and overlooking the pine forests north of Meridian, Miss., in Kemper County.

How did it get here, this enormous steel structure, called at the same time the state’s biggest boondoogle and a great technological leap forward, a force capable of supplying the state’s energy needs for the next four decades?

Mississippi’s Kemper Project power plant has been billed as Mississippi Power’s solution to the growing need for electrical generation in the Magnolia State.

It was an ambitious gamble.

Brandon Presley, the Public Service Commission’s Northern District commissioner and the panel’s lone Democrat,  remains one of the facility’s most strident critics.

NORTHERN COMMAND: Democrat Brandon Presley is the Northern District commissioner for the Mississippi Public Service Commission.

NORTHERN COMMAND: Democrat Brandon Presley is the Northern District commissioner for the Mississippi Public Service Commission.

Already, construction delays cost the Southern Company some of $133 million in federal investment tax credits. The company will collect a $270 million “Clean Coal” grant from the Department of Energy after the plant opens. The plant is scheduled to open in May 2015, more than a year behind schedule. The price tag for the gasifier plant, turbines, mine and drag line have leaped from $2.2 billion, when the plant was first proposed in 2009, to $5.53 billion, making it one of the most expensive power plants per kilowatt in the country.

Ratepayers are paying 18 percent more on their utility bills to help Mississippi Power recover its costs.

“There’s not a plant like this, anywhere in the world,” Presley said. “By all accounts, it’s the first of its kind and I think that risk should be borne by Mississippi Power and not the customers. If it was a great idea they felt was wonderful and has the potential they say it has, they could’ve sold investors on Wall Street on it and not make the people of Mississippi be their bankers.

“This is the largest rate increase in the state of Mississippi history, and this is the largest transfer of wealth from the people to a corporation in the state of Mississippi’s history.”

The PSC will hold prudency hearings in September to determine whether the ratepayers — in the form of further rate increases — or the Southern Company, Mississippi Power’s parent company — will pick up the tab for most of the plant’s cost. If the PSC deems the spending prudent and justified, the utility can use rate increases to cover its costs.

Kemper uses a technology — unique to Mississippi Power’s parent firm, the Southern Company — called Transport Integrated Gasification, which converts lignite coal mined on the Kemper site into a natural gas-like fuel that can power the plant’s 582-megawatt turbines. Lignite is considered the second-lowest grade of coal.

The TRIG process, developed by the Southern Company in concert with Kellogg, Brown and Root, is designed to process the lignite not turned into synthesis gas on the first run through a second gasifier run, all in an effort to increase efficiency. The gasifiers are still not operational, but they passed a critical test phase this summer.

The company promised 65 percent of the plant’s carbon dioxide emissions would be recaptured and sold to Denbury Resources and Treetop Midstream Services for enhanced oil recovery. With new EPA regulations under consideration to govern carbon emissions from coal-fired electrical generation plants, integrated coal gasification might be the only way to keep coal as part of the nation’s energy portfolio.

“Two billion (plus) of cost overruns is obviously not what they planned,” said Daniel Simmons, the director of state and regulatory affairs for the Institute for Energy Research. “I would like to think that they had to do it all over again, they would’ve done something different, smaller or with some different technology. Obviously, this didn’t work out as they hoped.”

Three key events were needed to put wind under Kemper’s wings.

The administration of then-President George W. Bush in 2004 began the Clean Coal Power Initiative, giving grants for research into cleaner electrical generation using coal. The $2 billion, 10-year program was designed to demonstrate cleaner alternatives to traditional coal-fired power plants.

One of the recipients was to be a Southern Company integrated gasification plant near Orlando. The 285-megawatt plant was canceled in 2007; the project gained approval by the Department of Energy in May 2008 to move to Mississippi, no doubt helped by the relationship between then-Gov. Haley Barbour’s lobbying firm, Barbour, Griffith and Rogers, and the Southern Company.

The Southern Company is one of the Barbour firm’s biggest clients. During Barbour’s two-term tenure — 2004-12 — in the Mississippi governor’s mansion, shares in the firm, which he helped found in 1991 with Lanny Griffith and Ed Rogers, were held in a blind trust. He returned to the firm in 2012 after leaving office.

The Southern Company got another piece of good news in 2008. The state passed Senate Bill 2793 in the 2008 legislative session — commonly known as the Baseload Act — allowing utilities in the state to start charging customers for power plants before they generated a single kilowatt of electricity. Barbour signed the bill into law. The Baseload Act is the subject of a lawsuit by Thomas Blanton in front of the state Supreme Court.

“I’m for pay as you go, but I ain’t for paying before you go,” Presley said. “If I go buy a Chevrolet pickup at Larry Clark Chevrolet in Amory, I’m not going to say to Mr. Clark, ‘Here’s your $30,000 for this pickup and I’ll come back and get it  in five years,’ make the payments all of these months.

“I’m not getting to ride in the truck, play the radio or carry it mud-ridin.’ I’m going pay for it and when I come to pick that truck up in five years, you’re not going to give any warranty that it’ll work. If it doesn’t crank and the transmission don’t work, well, I’ll just pay for it. Who on God’s green Earth would make that kind of financial decision?”

The PSC determined unanimously in 2009 that Mississippi Power’s service area would need more power generation. PSC held hearings in early 2010 to decide on how Mississippi Power would satisfy the power needs of its 187,000 ratepayers, and the integrated gasification plant won out over a cheaper natural gas combined-cycle plant.

But a filing before the PSC by Entegra Power Group said the break-even point for ratepayers on Kemper would require natural gas prices at $11 to $12 per million British Thermal Units. According to the Wall Street Journal, prices are $3.849 per million British thermal units on the New York Mercantile Exchange.

In April 2010, the PSC offered to authorize construction of what would be the Kemper Project with a $2.4 billion cost cap and no CWIP (construction work in progress) rate increase. But in May, the PSC approved the plant with a $2.8 billion cost cap and a rate increase for Mississippi Power on its 187,000 customers for CWIP. Presley was the lone dissenter on the three-member board, and Kemper was a go.

“When this agency gave Kemper the green light, only 10 percent of the cost was known,” Presley said. “I have been proven right time and time again. Ninety percent of the cost was unknown. If you build a house, you’re going to nail down more than 10 percent of the cost before you talk to the bank.”

Mississippi Power, by virtue of an agreement reached last year with the PSC, can only recover $3.8 billion of its costs from its nearly 187,000 customers through rate increases and the sale of bonds. The Legislature passed a $1 billion bond issue for the company last year. Ratepayers have already been saddled with an 18-percent rate increase for the plant.

This story was changed to reflect Southern Company’s status on its grant from the Department of Energy

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Steve Wilson is the Mississippi reporter for Watchdog.org. Beginning his career as a sports writer, he has worked for the Mobile Press-Register (Ala.), the LaGrange Daily News (Ga.), Highlands Today (Fla.),McComb Enterprise-Journal (Miss.), the Biloxi Sun Herald(Miss.) and the Vicksburg Post (Miss.) Steve's work has appeared on Fox News, the Huffington Post and the Daily Signal. His bachelor's degree is in journalism with a minor in political science from the University of Alabama. Steve is also a member of the Mississippi Press Association and the Investigative Reporters & Editors network. He served four-plus years in the United States Coast Guard after his high school graduation and is a native of Mobile, Ala.