Ten Reasons Kemper Is Bad for Consumers (Haley Barbour, Mississippi Power boondoggle)

By Steve Wilson -- June 16, 2015

Mississippi Power ‘s Kemper Project integrated gasification power plant is likely the most controversial energy project in state history. The $6.219 billion plant is two years behind schedule and billions over budget and is designed to convert the state’s abundant lignite coal reserves into a natural gas-like substance called synthesis gas, or syngas, to burn in its 582-megawatt electricity-generating turbines. Its construction has been plagued with construction delays, additional costs and a lawsuit that went to the Mississippi Supreme Court.

Here are 10 reasons why Kemper is a bad deal for Mississippi Power customers and the state in general.

1. Kemper has already resulted in an 18-percent rate increase and more could follow

The utility has already increased rates on its nearly 187,000 customers in south Mississippi 18 percent. The higher rates will pay for Kemper’s construction costs.

The Mississippi Supreme Court ruled in February that Mississippi Power must issue refunds on a 18 percent rate increase to fund Kemper’s construction because the Mississippi Public Service Commission hasn’t ruled yet on whether costs incurred for construction are justified. The company has asked the Court for a rehearing, along with the PSC.

2. Kemper is billions over budget and customers could pay for it

UP, UP AND AWAY: The Kemper Project’s costs have ballooned to $6.2 billion.

According to the cost cap, Mississippi Power can only have its customers pay for $2.88 billion of its cost. The rest of it depends on PSC approval, but those hearings haven’t occurred yet.

If the PSC rules that the utility’s spending was warranted, the customers would eat the extra costs in the form of rate increases. If the three-member commission rules that Mississippi Power’s extra costs were not justified, the company will have to pay.

3. Natural gas would’ve been cheaper

When Mississippi Power pitched the idea for Kemper to the Mississippi Public Service Commission, it used projections for future natural gas prices that showed that gasifying lignite would be the cheapest solution and offer “fuel diversity.”

Those projections, thanks to the shale gas revolution, turned out to be way off base. According to the PSC order that allowed Kemper to be built, the company said “even assuming a 20 percent Kemper cost overrun, Kemper wins in 13 of 20 scenarios.”

At $6.219 billion, Kemper has well exceeded the 20 percent cost overrun mark after it was supposed to cost $2.4 billion.

In comparison, Entergy bought an 450 megawatt natural gas plant for $206 million. Power cooperative South Mississippi Electric Power Association upgraded its existing plants and finalized the purchase of an 837-megawatt natural gas plant near Batesville for $675 million in 2012.

4. Kemper is two years behind schedule

Mississippi Power has pushed back the opening date now three times. First it was scheduled to open in 2013, then it got rescheduled to 2014 and now, the opening date is the first quarter of 2016.

If the utility would’ve settled for a combined-cycle natural gas plant, there wouldn’t have been any controversy and the plant would be online now. Ironically, Kemper’s turbines have been doing exactly that since August as the plant has been generating power on natural gas.

5. Political maneuvers were required

Mississippi Power had to flex its considerable political muscle to get Kemper approved and provide funding.

The Mississippi Legislature passed the Baseload Act and it was signed in 2008 by then-Gov. Haley Barbour, who was (and still is) the biggest advocate of the project. The Mississippi Legislature also passed a law in 2013 which allowed Mississippi Power to sell bonds up to $1 billion to help fund Kemper.

Those bonds would be repaid by Mississippi Power’s customers.

6. The technology is experimental at best

When Mississippi Power representatives pitch the plant, they love to talk about its groundbreaking TRIG (Transport Reactor Integrated Gasifier) process that turns lignite coal — the second lowest grade of coal — into synthesis gas. But as a first-of-its-kind plant, the utility was guaranteeing a more expensive plant fraught with difficulties.

As a rule, integrated coal gasification hasn’t caught on like its advocates would’ve hoped.

There are only four integrated coal gasification power plants in the United States — Duke Energy’s Edwardsport and Wabash River plants in Indiana and one unit at Tampa Electric’s Polk Power Station. Plans for similar plants have fallen by the wayside due to the expense involved.

7. Higher power bills could stifle the Mississippi Coast’s economy

One indication of Kemper’s effect on the Coast’s economy could be measured in the number of “friend of the court briefs” filed in favor of Mississippi Power’s request for a new hearing in the lawsuit brought by Hattiesburg businessman and Southern District Public Service Commissioner candidate Thomas Blanton. The company told its customers in 23 counties they can expect a 35 to 40 percent rate increase if the decision stands.

The threat of even higher rate increases from Mississippi Power has propelled the coast’s casino industry and other businesses to file briefs with the Mississippi Supreme Court in support of Mississippi Power’s bid to get a rehearing.

8. If Kemper’s carbon capture system doesn’t work as advertised, many of the plant’s environmental and cost benefits will not come to pass.

Kemper’s carbon capture system is designed to take about 65 percent of carbon dioxide out of the gas stream headed from the gasifier to the turbines. Mississippi Power said it intends to sell this byproduct to a pair of oil exploration firms, which will use it to obtain previously unattainable oil, up to 12 million barrels.

If this first of its kind system doesn’t work as advertised, the plant likely won’t have the “carbon emissions of an similarly sized natural gas plant” and the company could also wave good-bye to its contracts to sell the byproducts.

9. Kemper hasn’t created that many permanent jobs

Mississippi Power said that Kemper’s construction, now largely complete, would provide employment for 12,000 during construction and about 1,000 direct and indirect jobs once the plant is complete. On the coast, however, there’s little evidence that Kemper’s construction has even caused a ripple in the economy.

Jobless numbers reached a low of 5.3 percent in 2007 and still haven’t come close to matching that, according to the federal Bureau of Labor Statistics. Last year, when the smaller of two rate increases went into effect (15 percent in 2013 and 3 percent in 2014), the non-seasonally adjusted unemployment rate was 7.7 percent, down from 8.3 percent in 2013 and 8.8 in 2012. That’s an improvement from 9.6 percent in 2011 and 9.1 in 2010, but it’s a dubious claim that those slight gains can be credited to the Kemper Project’s construction, which is nearly complete.

10. The Kemper Project has given rise to bad radio ads.

In addition to full-page ads in the Biloxi Sun-Herald and Jackson Clarion-Ledger newspapers, Mississippi Power has a radio spot running on radio stations in south Mississippi talking about “the facts” when it comes to Kemper. According to the ad, Kemper is bringing “jobs, growth and progress” to south Mississippi.

The question begs to be asked: If the plant was such a good deal for Mississippi Power’s consumers, why does the utility need radio and newspaper advertisements to convince the public?

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Steve Wilson blogs for Mississippi Watchdog, where this post originally appeared.