The Great Kemper County Caper (Southern Company rides again)

Ed. note: Jim Clarkson, a longtime critic of public utility regulation, as well as the capture of regulators by the regulated in the Southeast power market, penned this mock interview about the Kemper County coal-gasification-and-capture boondoggle. The original $2.4 billion project reached $7.5 billion before abandonment. The plant now runs as combined-cycle natural-gas plant. Other problems and issues with Kemper are described here (2016) and here (2019) and here (2020).

Joe Anchorman: Good evening.  The top story we are following tonight concerns a power plant being built in Mississippi, where a carbon capture technology is being attempted to meet political goals.

Southern Company, a large utility holding company, had cut a deal with the Environmental Protection Agency to demonstrate an expensive, but impractical, technology so the EPA can claim it is feasible enough to require its use for all new coal generators.

This project, called “a centerpiece of President Obama’s climate plan” by the New York Times, provides strategic cover to the U.S. Environmental Protection Agency (EPA) to shut down coal generating plants all over the country. 

As a major lobbyist and political contributor, Southern Company is a past master deal-cutter with the Washington and state-level establishments. Already the Federal government has showered other Southern Company projects with huge loan guarantees and tax breaks.

The now-defunct Kemper County clean coal project started off as Southern’s way to pay the EPA back for the political favors received. This aspect of the deal has failed, and EPA now admits carbon capture is not feasible; leaving Mississippi ratepayers holding the bag. Southern fudged the initial cost numbers, and now the project is expected to cost nearly two and a half times its initial official estimate. No one really knows what the final cost will be; but one thing’s for sure – this is one politically-based investment that’s turned out badly.
 
We go now to Earnest Bailey reporting live in front of the EPA office building where the secret deal was cut.
 
Earnest Bailey: This is Earnest Bailey reporting live in front of the EPA office building where the secret deal was cut. 
 
Joe Anchorman: Thanks, Earnest.  Another aspect of this growing scandal is the firing of Mississippi Power’s CEO for lying to the Mississippi Public Service Commission.  Mississippi Power is the subsidiary of Southern Company that has actual managerial responsibility for the construction of the Kemper facility and its string of cost overruns. Whatever the final outcome, it is clear Southern has real problems with the Mississippi regulators.
 
We go now to Julie Harrison at the Mississippi Capital in Jackson for her take on the scandal.  Julie, does Southern Company often fire its executives for lying to state utility regulators?
 
Julie Harrison: Only if they get caught, Joe, only if they get caught.  Southern operates regulated utilities in several states, where political connections and corruption count far more than truthfulness.

Mississippi Power’s new CEO discusses multi-billions of the cost as a “ratepayers’ obligation.” This is a regulatory term meaning the utility gets to recover its invested cost no matter what, of course, along with a profit based on that cost. 

Mississippi Power has proposed absolutely outrageous rate plans dooming the 186,000 customers of the East Mississippi utility to burdensome cost recovery for the great mistake.  Then, giving new meaning to the word outrageous, the company has also proposed two other even more unrealistic rate alternatives they say the law allows them which would be crushing to the local economy. 

This allows the company to say they want their favored plan for their customers because it will be the lower cost compared to the manufactured alternatives.
 
However, soon after these bogus proposals were made came news that a large intended buyer of the plant’s output is pulling out of the deal. This led to a downgrade of the utility’s debt and increased the need for more revenue.
 
To further divert attention, the utility is announcing solar projects and programs that will drive rates further upward.  One wonders if there is any mistake a regulated utility management can make that ratepayers are not obligated to pay for.
 
Overall, Southern-owned utilities have done pretty well in wiggling their way out of scandals and expensive mistakes by letting the costs fall on their customers.  You can bet other regulated electric utilities around the country are watching closely to see if Southern gets away with the shenanigans associated with this project.
 
Joe Anchorman: As are we all, Julie. We go now to Harold Meers with our local affiliate in Atlanta where the Southern Company annual stockholders’ meeting is about to start..
 
Harold Meers: Joe, standing beside me are some of those people attending the annual meeting. Sir, do you approve of Southern Company’s practice of making huge investments based on gaining political favor instead of sound economics?

Well, I’m a stock analyst for a large pension fund, and generally utilities that play politics are good investments.  Regulation rewards those with political connections.  However, when the utility develops too much arrogance and hubris, huge blunders can be made as happened with Southern Company’s nuclear and clean coal projects. Frankly, some investors are tired of Southern playing paddy-cake with the EPA.

And you, ma’am are you a Southern Company stockholder?

Yes, I certainly am. And I think it is just awful what is being done to the poorest part of the country.  Southern claims this experiment will benefit future projects. Well, I want to know how future clean coal plants, if they are any, will be paying back the Mississippi ratepayer victims suffering from this politically-driven debacle.

From Atlanta, this is Harold Meers. Back to you Joe.
 
Joe Anchorman: So, there you have it. Southern Company, in an effort to win brownie points with federal regulators, has used other people’s money to make an enormously bad investment.  This would never have happened in a competitive environment where stockholders and executives are punished when they make poor decisions. The question now is, how bad will it get for Mississippi electricity consumers?