By Wyatt Emmerich (Published about October 3, 2013
The Kemper power plant is 20 times more expensive per kilowatt than five natural gas plants recently acquired by Entergy and the Tennessee Valley Authority (TVA).
Imagine being forced to pay $70 for a gallon of gas from a government-sanctioned monopoly. That’s Kemper, the most expensive construction project in the history of Mississippi.
Last month, TVA spent $400 million to purchase a 774-megawatt natural gas plant in Southhaven.
Compare this to Kemper, which has cost $5 billion for a 500-megawatt lignite plant.
Kemper is 50 percent less power for 10 times the money. No amount of spin can hide that.
TVA’s price per kilowatt was similar to Entergy’s 2012 purchase of two natural gas plants: a 450-megawatt plant here in Jackson for $246 million and a 620-megawatt plant in Hot Springs for $277 million.
In 2010, Entergy paid $300 million for a 580-megawatt natural gas power plant in Eunice, La. Last year, TVA paid $436 million for the 968-megawatt Magnolia gas plant in Benton County, Mississippi.
Kilowatts per dollar, the Kemper power plant is about 20 times more expensive than the five natural gas plants recently purchased by Entergy and TVA.
Paying 20 times more per kilowatt is bound to raise rates for the one-third of Mississippians who must buy electricity from Mississippi Power Company (MPC).
Already a 22-percent rate increase is being implemented. Many Kemper critics believe rates will eventually go up 60 percent.
Even before Kemper rate hikes are implemented, MPC rates are 40 percent higher than either TVA or Entergy. According to the federal government’s Energy Information Agency, Entergy charges $8.38 per kilowatt hour. TVA charges $7.90 and Mississippi Power charges $11.40.
If Southern Company succeeds in getting Mississippi ratepayers to pay for Kemper, MPC rates could end up twice as high as Entergy or TVA rates. That’s an extra $500 million annual electricity tax on the residents of southeast Mississippi.
Kemper is being built by MPC, which is a wholly owned subsidiary of Atlanta-based Southern Company. Southern does $17 billion a year in sales, which makes it one of the biggest utility companies in the world.
MPC, Entergy and TVA all sell about a billion dollars a year of electricity in Mississippi. They do not compete against each other. Each has a monopoly on electricity in their section of the state.
The Republicans who have supported Kemper lockstep wouldn’t be caught dead raising taxes that much. Yet a mandatory rate increase imposed by a monopoly works just like a tax. Kemper is basically a huge tax increase imposed by the Republican Party on one-third of the households of Mississippi.
State law 77-3-33 states: “No rate made, deposit or service charge demanded or received by any public utility shall exceed that which is just and reasonable.”
Unless MPC’s electricity has some special quality that makes it superior to TVA’s or Entergy’s electricity, then the numbers speak for themselves. MPC’s rates are not “just and reasonable” and should not be allowed.
The Public Service Commission (PSC) is supposed to be a watchdog agency to protect consumers and keep rates low. Instead, the PSC has become a governmental central planning commission and it’s doing about as well as all central planning commissions do.
Clarke Reed, one of the deans of the Mississippi Republican Party, is in a state of shock. He is working furiously to get the Republican leadership to stop this disaster. Reed worked for decades to bring Republicans to power in Mississippi. He sees Kemper wiping out his life’s work in one fell swoop.
It gets even worse: Natural gas is a proven technology. The Kemper plant is experimental. Lignite gasification has never been done in the history of the world. The Wall Street Journal recently did a feature story on the failure of gasification technology as an alternative energy.
Coal gasification has been around for decades. When Hitler ran out of gas at the end of World War II, he gasified coal.
Since then, coal gasification has never gotten off the runway. There are only two gasification plants in the world, both are much smaller than Kemper and use coal.
Lignite has one-fifth the carbon content of coal, so gasifying lignite is even more of a challenge. It is, in essence, heavy wet dirt. Something in between coal and peat.
To gasify lignite, Southern has a new patented technology called TRIG, which has never been proven on an industrial scale. It has only worked in small-scale experiments, 100 times smaller than the Kemper plant. As an industrial rule of thumb, the maximum you can scale up experimental results to a manufacturing process is seven times. Past that, the unexpected results — like huge unanticipated cost overruns.
It gets even worse. Gasification is a chemical process. Southern has never built a chemical plant.
There’s an old saying: Pioneers get arrows in their backs. So far, that’s turning out to be true. The first cost estimate for Kemper was $1.2 billion. Now the cost is $5 billion and climbing. Southern just announced $500 million in cost overruns because they put in the wrong size pipe.
Given the incredible cost overruns, why anybody thinks this plant will meet its ambitious operation projections is a complete mystery to me. Not only has it cost 20 times more than a natural gas plant, I predict it will cost far more to operate year in and year out.
No bank would ever finance Kemper. So the Mississippi state Legislature, in its wisdom, passed “the baseload act” which allows Southern to raise residential electricity bills before the plant produces a single kilowatt.
Under the baseload act, Mississippi homeowners could be charged for Kemper even if it totally fails. That would be $25,000 per customer.
At the $25,000 per customer cost of Kemper, every one of Southern’s 186,000 customers could have installed rooftop solar panels and cut their electric bill in half. Instead, we have a 22-percent rate increase before the plant is even producing electricity.
This January the state Legislature allowed Southern to issue a billion dollars in bonds to pay for Kemper cost overruns. Securing those bonds are the homes of the ratepayers.
Tom Blanton, a Hattiesburg oil man, is outraged by this. He has spent thousands of his own money filing suit against Southern. His lawsuit argues the baseload act is a violation of the “takings clause” of the federal and state constitutions.
Blanton’s lawsuit asserts that the PSC only has the power to set the price of electricity. In Kemper’s case, ratepayers are being charged for electricity they have yet to receive. You can’t just take somebody’s money without due process. The Mississippi Supreme Court will hear oral arguments this fall.
Two years ago, the Mississippi Supreme Court rescinded the Kemper construction permit stating there was not “substantial evidence” justifying its construction. A few billion dollars more makes its justification presumably even more difficult.
Meanwhile, the pro-Kemper faction has mounted a PR blitz with radio ads blasting Kemper dissidents Kelley Williams and Ashby Foote.
The attack group is called JobKeeper Alliance. There is no way to trace the money behind it, but you can make a pretty good guess. We know JobKeeper is allied with the Alabama unions who want to protect their Kemper construction jobs.
Once Kemper is built those Alabama union members will be long gone while the bill will be with Mississippi ratepayers for the next 40 years.
It’s interesting to note the pro Kemper folks aren’t disputing the facts. Instead, they are attacking the messenger, Bigger Pie, saying it received state money over a decade ago.
So what? Lots of nonprofits get government grants. Nothing new or shocking there.
Bigger Pie is an offshoot of the Institute for Technology Development (ITD), which Williams heads. ITD is an independent non-profit with its own board. It can do what it wants. ITD is audited annually.
Fighting crony capitalism is a great cause and certainly one which will help Mississippi’s economic development. Excessive energy costs will stifle industrial development for years to come.
It is unprecedented for a $17-billion utility monopoly to mount a media attack against two private individuals. To claim Foote is in cahoots with the natural gas business because he’s a stockbroker is laughable, to say the least.
The professionals behind this media barrage are well known in Alabama circles for being “black ops” pros who employ vicious tactics. It’s a smokescreen. When you have no defense, try offense.
By exposing the Kemper boondoggle, Bigger Pie has already saved Mississippians a billion dollars. That’s how much of Kemper Southern has written off as a loss rather than pass along to the ratepayers.
Kemper will be built. Whether it can operate as designed is doubtful. Regardless, the full $5,000,000,000 cost of Kemper should be paid by Southern’s 500,000 shareholders, not Mississippi’s 186,000 ratepayers. There’s plenty of time and opportunity to do that if Mississippi’s Republican leaders have the best interest of our state at heart.
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