Details of the Giant MS Power Scam at Kemper Now Underway

Posted on by doctom2010

Kemper County, MS, IGCC Lignite Plant: Wrong for Ratepayers, Wrong for the Energy Industry, Bad for the Environment

by Julia O’Neal, MBA, CPA and Will Watson, Ph.D

(This White Paper was submitted to the Department of Energy in 2010 to object to DOE funding and support.  There was no response. It is reprinted here by Dr. Tom Baldwin.)

The proposed Mississippi Power Kemper County[U1]  clean coal plant is a boondoggle, slated to have an 582 MW capacity, at a cost to the public of $2.4 billion of taxpayers money, and a 14,000-acre strip mine, while there are 7,666 MW of developed natural gas generating facilities available in Mississippi right now, from which Mississippi Power refuses to buy power. (This White Paper was submitted to the Department of Energy in 2010 to object to DOE funding and support.  There was no response.)

Four Charges 

Mississippi Power’s plan to build an IGCC-process “clean coal” power plant in East Central Mississippi is wrong for its ratepayers, bad for the environment, and will prove detrimental not only the utility itself but to the entire US energy industry. We ask the Secretary of Energy to look into four charges:  First, it is difficult to argue that the plant is actually needed to satisfy emerging power demands in Mississippi Power’s service area. Second, evidence suggests that the permitting and planning processes have been influenced by special interests to fatten utility industry profits on the backs of Federal loan guarantees and presumptive rate increases. Third, Mississippi Power’s plans to capture and sequester CO2 emissions are highly problematic, both technologically and fiscally. And fourth, the plan calls for a lignite strip mine—one of the most pollutive and destructive types of mining operation—to be constructed in the headwaters of the Pascagoula River system, the last large unregulated river system in the continental United States.  For these reasons, the U.S. Department of Energy (DOE) should refuse to guarantee the loan Mississippi Power needs to build the Kemper County IGCC project. 

Demonstrable Need?

During the ‘90s, a number of independent companies built natural gas electrical generating plants, anticipating deregulation. This story was told in detail by The Jackson Free Press in August of 2009.[i]   Those plants that still operate now lie idle 85% of the time—only used during periods of excess demand.  As clean energy advocates know, even without sequestration, natural gas emits a little more than half the CO2 of coal. There are 7,666 megawatts available in the state right now from these smaller, independent power set-ups, which, as the article points out, is already three times what the state uses, even at peak demand times. Yet Mississippi Power and Entergy do not buy from these independents.[ii]  The proposed Kemper plant, at a nominal 582 MW capacity, is dwarfed by existing gas-powered generating capacity.

While claiming that “volatility” in the natural gas market made gas unattractive as a power source, Mississippi Power has also insisted on keeping its natural gas price forecasts “confidential,” even though if it used natural gas as an alternative it would pay the market price.[iii] More recent forecasts for natural gas reflect new availability due to technological advances such as horizontal drilling into shale. Projected prices are considerably lower than even a few years ago. Natural gas is a relatively clean, tried-and-true power production technology, and newly available supplies and investments have stabilized the market and driven prices down.[iv] If the independent gas-fired plants are taken into account, there is no demonstrable need for the Kemper County project. In fact, if they are considered, Mississippi’s power industry appears to be overbuilt for the foreseeable future. This seems especially likely when one considers a recent Georgia Tech study that posits that cost-effective energy efficiencies alone could preclude the need for new energy generation in the Southeast for at least the next decade.[v]

Whatever need for the new plant Mississippi Power demonstrated has also been inflated by Mississippi’s steadfast refusal to enact any of the standards of the 2005 Energy Policy Act (EPA’05).  Lobbied hard by Entergy and Mississippi Power, the Public Service Commission (PSC) refused to mandate net metering, smart metering and standards for efficiency. Neither would the PSC mandate that utilities include a portion of renewables in their generating portfolios.  Despite the fact that the DOE will be guaranteeing Mississippi Power’s $2.4 billion loan for the Kemper plant under provisions of EPA’05, the state has simply rejected federal standards for renewable energy and efficiency. In fact, according to the DOE’s EERE website, Mississippi and Alabama are the only states without any energy efficiency rules or regulations.[vi]

The possibility that biomass and solar could provide a portion of state energy needs has been obscured by Mississippi Power’s repeated mantra that “Mississippihas fewer renewables than other states.” This claim does not hold up under scrutiny. For instance, the Mississippi Forestry Association is working toward biomass as a fuel and forestry has long been a major industry in the state.  And the NOAA says that Jackson, Mississippi, averages more sunny days than Austin, Texas, a city with a very active solar program.[vii] The practicality and economic potential of biomass and distributed solar generation inMississippi have been either ignored or dismissed by the PSC, the governor and the legislature.

In summary,Mississippihas existing gas-fired power generation capacity far in excess of projected demands. And power shortage projections have been inflated by official skepticism toward renewables, distributed generation and efficiency measures. How was the official decision made to approve the new construction inKemperCounty? It is difficult to avoid the unfortunate impression that the Kemper Plan reflects an unhealthy degree of collusion between regulators, other branches of state government, and the utilities industry.

A Problematic Process

The August 2009 Jackson Free Press story referenced above provides considerable evidence substantiating this claim.[viii]  Mississippi’s governor Haley Barbour came to the office fresh from a successful career as a lobbyist for Southern Company, among other clients.  “While working as a lobbyist for electricity generators,” Mr. Barbour was also known for helping Dick Cheney renege on George W. Bush’s 2000 campaign promise to reduce U.S. emissions, thereby contributing to the resignation of Christine Whitman as Bush’s EPA Administrator.[ix]  In 2008, four years into Governor Barbour’s tenure, a mass of lobbyists representing Mississippi Power and Entergy converged on the state capitol and had their way with the legislature, which passed a bill (Senate Bill 2793) allowing utility companies to charge new plant facilities to ratepayers before the plants were built, regardless of whether the plants delivered the power promised.[x]  Citizen groups protested, but to no avail.  As a result of SB2793, residential and small business ratepayers will pay for Kemper County and similar facilities, whether they are completed or not; larger customers such as refineries and casinos are exempt under special contracts. Among the pre-construction costs that have already been filed with the Public Service Commission for ratepayers to reimburse is a trip by executives to a strip club in Houston and a $1000 seafood dinner.[xi] As with its gas price projections, Mississippi Power also claims these expenses are “confidential.”

In the summer of 2009, the PSC announced that it would hold hearings on the Kemper Plan. Before these hearings could begin, however, the Governor cut off the PSC’s funding, effectively preventing it from acquiring adequate research staff.[xii] After a week or so, the PSC’s budget was reinstated, and the first phase of the Kemper hearings took place in October 2009.  The first phase of hearings focused on whether there was a need for more electrical generating power. In November, the PSC ruled that a need existed, rejecting the potential of the independent natural gas generators out of hand.

The second set of PSC hearings was completed on February 5, 2010.  These hearings were to determine whether the Kemper IGCC plant and 14,000-acre strip mine were the best way to meet future state power need. [The Jackson Free Press story says Mississippi Power asked for 48,000 acres to be set aside, but the DOE’s Draft Environmental Impact Statement (DEIS) is for about 14,000, including the strip mine and the plant.[xiii]]  As of late February 2010 the decision is still pending.

Given pressure from the Governor and the non-stop lobbying by utilities, it is somewhat surprising that the hearings took place at all. One might expect that the PSC would rubber-stamp Mississippi Power’s “certificate of convenience” to build the Kemper County plant despite the fact that its proposed IGCC and CCS technology could reasonably be called “experimental.” The high cost and experimental technology of the proposed Kemper Plant, however, have not gone unnoticed on Wall Street. Analysts at Moody’s, the bond rating agency, lowered the credit rating on Mississippi Power based on the increasing likelihood that the IGCC plant would be built: Because of Mississippi Power’s small size relative to the expense of the project, Moody’s concluded that the “New IGCC plant will increase capital expenditures and overall business risk profile.”  In addition, Moody’s also noted the absence of compliance with EPA’05, citing “Exposure to environmental mandates, including carbon, and national renewable portfolio standards.” [xiv] 

In conclusion, there is considerable evidence that, as Louie Miller of the Sierra Club told the Jackson Free Press, “…the power companies are putting the heat on them [the PSC] through state government.” The review process has not been a disinterested examination of the cost/benefit of the plan or of alternatives for the rate-paying public.  Rather it reflects a certain degree of collusion between state government and the utilities industry. The response of Moody’s suggests that the benefits and liabilities of the Kemper plan, even in the most basic business sense, have not yet been considered or even fully understood by the state regulators.

Is Carbon Capture and Storage (CCS) Really Ready for Prime Time in Central Mississippi?

Despite optimistic predictions of the potential market for CO2 in Enhanced Oil Recovery (EOR), the DOE must know that CCS for EOR is problematic both technologically and fiscally.[xv]  Potential aside, the actual market is in an embryonic state. A recent article from The Wall Street Journal essentially suggests that a market for power plant CO2 emissions does not yet exist and details how most EOR needs for CO2 are filled with naturally occurring CO2.[xvi] A 2007 DOE/NETL paper tends to bear this out; only about 40 million tons a year (MTY) of CO2 is used for EOR in the USA with only 10MTY from anthropogenic sources.[xvii]

What does this nominal market mean for Mississippi Power’s Kemper plan? The DOE’s DEIS on the Kemper County plant stipulates that the amount of CO2 to be captured will be 2.5-3.5 million tons a year.[xviii] There is no mention made of any provision to sequester this CO2 in any way other than through sale for EOR. Thus, the Kemper Plant would produce roughly a third of all the manmade CO2 currently used for EOR nationwide. The economic feasibility of Mississippi Power’s plan to sell anthropogenic CO2 should also be questioned because the largest deposit of naturally occurring CO2 in the eastern US is the Jackson Dome in central Mississippi!  According to a 2001 NETL whitepaper, there is “an estimated 530 million tons (10 trillion cubic feet) of CO2 . . .  in fields” there.[xix]  The Jackson Dome fields already supply CO2 to a local EOR project and other industrial buyers.[xx] According to the WSJ, oil producers generally pay “$10 to $20 a ton to harvest naturally-occurring, pure carbon dioxide.”  Yet “treatment costs alone, not including transport, average roughly $50 to $80 a ton for refinery and coal-plant (CO2) emissions.”[xxi]  Mississippi Power apparently plans for oil field producers to buy their expensive anthropogenic CO2 despite the fact that over a half billion tons of pure, naturally occurring CO2 can be had much more cheaply from Jackson Dome fields. At no time in the permitting process does the fiscal shakiness of this plan for marketing the Kemper CO2 appear to have been questioned. It needs to be. 

Are there genuine market incentives for Mississippi Power to sequester CO2 by selling it to area oil fields? If anything, the opposite appears to be the case: CO2 captured from the Kemper plant will be priced out of the EOR market by the much cheaper CO2 that is readily harvested from the Jackson Dome. Thus, there is ample reason to question whether the costs of CCS at the Kemper County plant will be offset by local sales of captured CO2. If these projected markets are lost, it seems likely that one of three things must happen: one, new markets for the captured CO2 must be found—markets not already served by the Jackson Dome CO2 field; two, the captured CO2 will have to be sequestered in some other unspecified way, without the cost offsets of EOR sales; or, three, the CO2 produced by the Kemper plant will not be captured, and instead will simply be emitted into the atmosphere at a rate of about 4 million tons/year, thereby negating any claims that the Kemper County plant is “clean coal” or that it will in any way contribute to the overall greenhouse gas abatement goal of EPA’05.  Fiscally, CCS is simply not ready for deployment in central Mississippi. 

There are engineering reasons to conclude this as well. The volume of C02 sequestration proposed for Kemper County has slender precedents, at best, in engineering practice. Since 1996, the largest project for CO2 sequestration in the world has been the massive Sleipner Platform in Norway. It sequesters about 1 MTY that is produced on-site at a natural gas well. CO2 that is released when natural gas deposits are tapped is separated and simply pumped back into stable strata adjacent to the gas deposits. [xxii] The Weyburn-Midale CO2 project, which spans the North Dakota-Saskatchewan border, is currently the world’s largest CO2 sequestration operation. There, according to Canadian Geographic in 2008, the Dakota Gasification company produces methane from coal, capturing about 1.5 MTY CO2 and pumping it to Canadian oil fields for EOR.[xxiii] Neither of these cases features carbon capture from power plant emissions. 

To bring these figures home to Mississippi, the Kemper County IGCC plant would require the largest CO2 sequestration operation in the world. It would be roughly twice the size of the Weyburn-Midale project and 2.5-3.5 times as large the Sleipner project. The Kemper plant also appears to be the first coal power plant in the world to capture CO2 and sell it for EOR in any quantity. This is new territory in terms of engineering too. Yet the Mississippi Power plan is for not for an experimental demonstration plant—where new technology can be tweaked and tuned at private investors’ expense. Rather, Mississippi Power plans for the Kemper IGCC Plant—with its experimental CCS technology—to be paid for by a proactive rate increase on residential customers and by loans guaranteed by public tax monies. Further, Mississippi Power wants this essentially experimental plant to be on line, producing power for ratepayers, in late 2013.  [U2] Private capital apparently is not interested in the engineering and potential for return on investment posed by the Kemper plan. The public is thus entitled to ask, if this project is to be publically funded, why is it being overseen by a private utility and not principally by the DOE?

Even a cursory survey of similar CCS power plant projects reveals that there is ample reason for private capital to be suspicious.[xxiv] Further, public authorities have been suspicious that the costs tend to outweigh the public benefits. As many as 14 IGCC projects have been cancelled or postponed in recent years.[xxv] The impracticality and cost of large scale CCS has played a role in those determinations.

For instance, a December 2006 DOE Environmental Impact Statement concludes that geologic sequestration of CO2 “is not a reasonable option because technology is not sufficiently mature to be implemented at production scale during the demonstration period for the proposed facility.” The whitepaper concludes that CCS isn’t expected to be “technically practicable” for large scale commercial development within the next 15 years.[xxvi]  Similarly, the Chinese, who have built 2 CCS coal plants, predictably, have recently grown skeptical of the costs involved.[xxvii] According to a Reuters piece in February 2010:

            Gao Guangsheng, director of the National Development and Reform Commission’s department of climate change, said ahead of the Copenhagen talks             in December last year that CCS’s expensive installation and running costs  represented a “fatal weakness.”

            He said the “energy penalty” required to run the technology would amount to around 20-30 percent of the capacity of an individual power plant, and that overall   CO2 storage costs would amount to around $70 per tonne.

To conclude here, the Kemper plan for mass volume CCS through EOR would be technically challenging and, given the Chinese experience, prohibitively expensive anywhere. But with the proposed plant situated almost on top of the Jackson Dome, one of the largest geologic deposits of CO2 in the U.S., Mississippi Power’s plan is also problematic economically. If the DOE is interested in supporting “clean coal” as a way to reduce America’s carbon footprint, a loan guarantee for the Kemper IGCC plant will be a step in the wrong direction.

Strip Mining is Never “Clean” 

To even a casual conservationist, the DOE’s DEIS is a heartbreaking document. The DOE describes the 4000+ acres of bottomland forest wetlands in the impact area thus: “In the study area, bottomland forest wetlands most commonly occurred in the floodplains of major creeks and along their associated tributaries. These wetlands were often high quality due to a lack of frequent or significant human disturbance.”[xxviii] These “high quality” acres are in the Pascagoula River watershed, an area crucial to migrating neotropical birds. The Pascagoula itself is the largest of the remaining unregulated river systems in the lower 48, and its estuary and wetlands are vital to the life cycles of dozens of species of marine life, birds and mammals, some of them of considerable commercial value. Toxic run off from the lignite strip mine proposed in the watershed will certainly play havoc not only with the 4000 acres of upstream wetlands and area ground water, but also with the entire downstream ecology of the Pascagoula River system. Few people in Mississippi, particularly in those areas that will be most affected, understand what lignite strip mining does to the land, the air and the water supply.[xxix]  The New York Times Magazine’s series “Toxic Waters,” delivers a frightening message about water pollutants from coal mining.[xxx] 

Conclusion

$2.4 (now 2.88) billion is too much to pay for 582 megawatts when there are existing natural gas plants with over 7000 MW capacity going unused in the Mississippi Power service area. We also believe that MS Power is technologically unprepared for this responsibility, and that its plan for CCS is fiscally imprudent. In the end, it won’t be just the MS ratepayers who are on the hook for a failed plant, but alsoU.S.taxpayers, who are behind the DOE’s loan guarantee.  The DOE’s DEIS makes it clear that if Mississippi Power does not get the loan guarantee, the project will not go forward. Mississippi Power’s Kemper County plant and strip mine will be bad for ratepayers, bad for the energy industry, and bad for the environment. We hope the DOE will reconsider and deny the guarantee.

[ii]  Jackson Free Press, cited.

[viii] Jackson Free Press, cited 

[x]  Jackson Free Press, cited.

[xv] “Storing CO2 with EOR.” DOE/NETL-402/1312/02-07-08

[xvi]  “Using Smokestack Gases to Pump Oil,” The Wall Street Journal, February 8, 2010.

(http://online.wsj.com/article/SB10001424052748704343104575033750328618136.html?KEYWORDS=Using+Smokestack+Gases+to+Pump+Oil for subscribers only)

[xviii]  DOE/DEIS Vol. I, table S-3

[xxi]  Wall Street Journal, cited

[xxvi] U.S. Department of Energy, Supplement to the Draft Environmental Impact Statement for the Gilberton Coal-To-Clean-Fuels And Power Project, Gilberton, PA, December 2006, p.3-4; citing CO2 Capture and Storage Working Group 2002, CO2 Capture and Storage in Geologic Formations, NCCTI Energy Technologies Group, Office of Fossil Energy, U.S. Department of Energy, January 8, 2002.

[xxviii]  DOE/DEIS Vol. I, p. 3-150 

[xxix] http://www.justsaynotolignite.co.uk/aachentrip.html

 The citizens ofBallymoney,Ireland, organized against a proposed lignite mine there. The url here leads to a page that details their visit to the lignite mining district of Germany, a scene of shocking environmental devastation, air and water pollution.

 [U1]Just to be clear

 [U2]New