{"id":3792,"date":"2013-06-03T09:00:34","date_gmt":"2013-06-03T13:00:34","guid":{"rendered":"http:\/\/www.l-a-k-e.org\/blog\/?p=3792"},"modified":"2013-06-03T06:19:59","modified_gmt":"2013-06-03T10:19:59","slug":"kemper-coal-cost-overruns-at-southern-company-stockholder-meeting-so-2013-05-22","status":"publish","type":"post","link":"http:\/\/www.l-a-k-e.org\/blog\/2013\/06\/kemper-coal-cost-overruns-at-southern-company-stockholder-meeting-so-2013-05-22.html","title":{"rendered":"Kemper Coal cost overruns at Southern Company Stockholder Meeting @ SO 2013-05-22"},"content":{"rendered":"

\r\nSO CEO Tom Fanning used Julia O’Neal’s question about cost overruns\r\nto tout the alleged benefits of Kemper Coal,\r\nwhich include selling CO2<\/sub><\/small> to oil companies to pump into the ground to\r\nproduce more oil.\r\nHe didn’t mention that oil is then burned to produce more CO2<\/sub><\/small>.\r\n\r\n\"Can<\/a>\r\nAnd that Mississippi lignite coal he said would otherwise stay in the ground?\r\nYes it and its CO2<\/sub><\/small> would stay there if SO would get on with solar instead of coal.\r\n<\/p>\r\n

\r\nBefore her question, he had not said much about that project, mostly this about Major Projects, at\r\n29 minutes and 28 seconds in\r\n\r\nSO’s own video<\/a>\r\nof \r\nthe 22 May 2013 Southern Company Stockholder meeting<\/a>.\r\nYou’ll have to skip there manually, because of the SO’s video format.\r\n\r\nSO prohibited “unauthorized” videoing<\/a>,\r\nso we don’t have the usual LAKE video on YouTube.\r\n<\/p>\r\n

\r\nI always call out Vogtle and Kemper County.\r\nBoth projects are going to serve our customers for decades to come.\r\nWe’ve had some challenges with Kemper.\r\nWe’ll probably talk about those later.\r\nBut when I think about the value that these projects will bring,\r\nI think our customers, and the economy of the southeast,\r\nwill be benefited for decades.\r\nAnd we’re very excited about the progress we’re making on both of those.\r\n<\/blockquote>\r\n

\r\n\r\n<\/a>\r\n\r\nIt’s curious he mentioned SO’s flagship coal and nuclear projects\r\nwithout saying coal or nuclear.\r\nAnd if by “progress” he means\r\n\r\n19 months late and about $1 billion over budget<\/a> at Plant Vogtle,\r\nI don’t think that word means what he thinks it means.\r\n<\/p>\r\n

\r\nHowever, I guess he got over\r\n\r\nBetty Liu of Bloomberg linking Kemper and Vogtle<\/a>,\r\nsince he did it himself.\r\nHe did it again later, too.\r\n<\/p>\r\n

Questions and Answers<\/H3>\r\n\r\nAt 49 minutes and 7 seconds, Fanning started Questions and Answers\r\nby asking questioners to stick to 3 minutes or less.\r\n\r\n\"Questions<\/a>\r\n
\r\nI understand we have a variety of questions here today.\r\nAnd we welcome everybody that wants to have something to say.\r\nBut let’s be respectful of each other’s time.\r\n<\/blockquote>\r\nHe made no such request of himself.\r\n

Julia O’Neal’s question about Kemper Coal cost overruns<\/H3>\r\n

\r\nAt 49 minutes and 43 seconds, the first question was from\r\nJulia O’Neal of Ocean Springs Mississippi with 1 share representing Danny Orrock.\r\n

\r\n

\r\n\r\n\"Julia<\/a>\r\nMr. Fanning, you have often said Southern Company \r\nuses four metrics to decide if a product is good for the company and\r\nthe customers:\r\nit must be clean, safe, reliable, and affordable.\r\nOne worker has died at the Kemper County Plant in Mississippi.\r\nAnd Mississippi Power just took a $333 million after-tax loss from cost overruns.\r\nVice President Tommy Anderson could not testify that the plant would work\r\nor operate from day one.\r\nAnd both he and CEO Ed Day have recently lost their jobs.\r\nThe Mississippi Business Journal recently analyzed rates\r\nbefore the cost overruns and found the plant would raise rates by nearly 50%.\r\nSo can you justify the Kemper Plant on your metrics?\r\n<\/p>\r\n<\/blockquote>\r\n

Tom Fanning’s Answer<\/H3>\r\n

\r\nFanning’s answer started at 50 minutes and 56 seconds.\r\n

\r\n

\r\nYes m’am I sure can, and thank you for travelling from Ocean\r\nSprings.\r\n<\/p>\r\n

\r\n\r\n\"A<\/a>\r\nSo let’s describe the plant a little more fully. This is a very\r\nexciting development; we’re very proud that this is a technology\r\nthat we developed at the Wilsonville facility, and it’s been around\r\nten years or so. It’s an integrated coal gasification technology.\r\nAnd it uses lignite, a native Mississippi fuel that otherwise would\r\ngo unused.\r\n<\/p>\r\n

\r\nAnd what we do is we take the lignite; we move it into this\r\ngasification technology. In a reduced oxygen environment we reduce\r\nthe coal to a synthesis gas. The synthesis gas then goes through a\r\nseries of filters. With the filters we will remove CO2<\/sub><\/small>, carbon\r\ndioxide. In this case, we will remove enough CO2<\/sub><\/small> to where the carbon\r\nfootprint from this coal-based generation resource is less than\r\nnatural gas. With the remaining synthesis gas, we produce\r\nelectricity.\r\n<\/p>\r\n

\r\nWith the carbon dioxide that some people think of as a waste stream;\r\nit actually has tremendous value, because what we’ve done now is\r\nwe’ve struck two long-term contracts to take the carbon dioxide and\r\nproduce more domestically-produced oil. That’s called enhanced oil\r\nrecovery processes.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\n\r\n<\/a>\r\nHe didn’t say with whom SO had contracted.\r\nBP, maybe, of\r\n\r\nGulf of Mexico and Caspian Sea<\/a> pollution fame?\r\nOr maybe Exxon, of the Exxon Valdez disaster and\r\n\r\nthe Arkansas tar sands spill<\/a>?\r\nOr\r\n\r\nsome other leaky oil company<\/a>?\r\nIn any case, how is it clean if the CO2<\/sub><\/small> scrubbed ends up\r\nfracking for more oil to burn to produce more CO2<\/sub><\/small>?\r\n<\/p>\r\n

\r\n

\r\n\r\n\"Price<\/a>\r\nWhat’s interesting about the project is that; you quoted a 50% price\r\nincrease. I know some people have been running around saying it\r\ncould be as high as 60%. Well that in fact is not what’s gonna\r\nhappen. The net price increase will be about 19%. And that price\r\nincrease will last for seven years, or at least that’s the intent of\r\nthe deal. So if you look at it over seven years, it represents about\r\n2.75% annual price increases to get this plant.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nThis is called\r\n\r\nsuper-CWIP, automatic Construction Work in Progress (CWIP) increases<\/a>.\r\nOnly a few states allow any kind of CWIP.\r\nGeorgia has it for the new nukes at Plant Vogtle, since\r\nSB 51 of 2009<\/a>,\r\nand\r\nGeorgia Power also\r\n\r\nraises rates to pay for natural gas plants<\/a>.\r\nWhy do we put up with that?\r\n<\/p>\r\n

\r\n\r\n<\/a>\r\nI get price decreases<\/em> in my electric bill because of my solar panels, and in less than\r\nten more years they’ll be completely paid off.\r\nPlus, they require no fuel to run and produce no CO2<\/sub><\/small>.\r\nAnd there’s\r\n\r\nplenty of private financing wanting to get into solar<\/a>.\r\nBut not so much in Georgia, because of\r\n\r\nthat antique 1973 Georgia Territorial Electric Service Act<\/a>\r\nthat SO and Georgia Power don’t want to change.\r\nIf they got out of the way on changing that law,\r\nyou’d be more likely to be able to afford solar power.\r\n<\/p>\r\n

\r\n

\r\nAnd that ignores the economic value of the energy. This is\r\nfascinating! When you look at the capital cost of the plant it looks\r\nlike a nuclear plant, and when you look at the energy cost of the\r\nplant, it also looks like a nuclear plant. Because the CO2<\/sub><\/small> has value\r\nwe get paid to deliver it and it serves to offset the cost of the\r\nfuel. When you look at a nuclear plant as a capital cost, $4500\r\nbucks per megawatt or something like that, and produces energy at\r\nabout a buck per million BTU. I always like to compare it to natural\r\ngas. So a nuke would be about a buck per million BTU. We believe\r\nKemper County would be somewhere between a dollar and a dollar and a\r\nquarter per million BTU.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nAnd what’s SO’s current nuclear project?\r\nThe concrete-cracked<\/a> new nukes at Plant Vogtle,\r\nso once again Fanning tied together Kemper and Vogtle.\r\nAlso notice he shifts from megawatts to BTUs; that makes it\r\nharder to compare to solar.\r\n<\/p>\r\n

\r\n

\r\nNot doing Kemper County in Mississippi would expose Mississippi to\r\n70% of its energy being derived from natural gas. We don’t think\r\nthat’s an attractive solution long-term for Mississippi. And when we\r\nconsider the energy savings that Kemper will give us, that 2.75%\r\nwill be reduced about a percent annually. So the facts are that\r\nKemper County will serve Mississippi’s customers well for decades to\r\ncome.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nActually, not doing Kemper Coal would expose SO to getting on with solar.\r\n<\/p>\r\n

\r\nHe talked for almost four minutes before he finally got to the main point of Julia O’Neal’s question.\r\n<\/p>\r\n

\r\n

\r\nNow, we do have a cost overrun. Nobody is happy about that.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\n\r\n<\/a>\r\nStandard & Poor’s wasn’t happy about that.\r\nTwo days after the stockholder meeting, S&P\r\nlowered its outlook from stable to negative<\/a>.\r\nSO’s stock already started dropping during<\/em> the meeting,\r\nand its continued decline may have been related to\r\n\r\nRay Henry’s AP story about another Fanning answer about Kemper Coal<\/a>.\r\n<\/p>\r\n

\r\n

\r\nWe are taking that for our account. The settlement agreement that we\r\nhave entered into with the Mississippi Public Service Commission,\r\nafforded by legislation that was passed out of the House and the\r\nSenate in Mississippi, provides for recovery of up to $2.4 billion,\r\nand recovery of the mine, and recovery of the\r\nCO2<\/sub><\/small> pipeline, all of that is included in rates.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nWhat a sweet deal! For SO, not for you.\r\nIf you build an office building or a factory, can you charge your customers for\r\ncost overruns and get the state to say they have to pay\r\nand they can’t go anywhere else to buy what you’re selling?\r\nNope, but Mississippi Power and Southern Company can.\r\n<\/p>\r\n

\r\n\r\nWhat they were settling<\/a> was\r\n\r\nMississippi Power sued the state because the state PSC previously\r\ndidn’t approve super-CWIP<\/a>.\r\n\r\n<\/a>\r\nThe MS PSC didn’t do that because\r\nMississippi Sierra Club, AARP, and other concerned organizations\r\nobjected<\/a>.\r\nMississippi Power took it all the way to the MS Supreme Court, with\r\nMS Sierra Club opposing it all the way.\r\n\r\nJulia O’Neal is with the MS Sierra Club<\/a>; no doubt Fanning knew that.\r\n<\/p>\r\n

\r\n

\r\nAdditionally, costs above $2.4 billion to $2.88 billion will be\r\nsecuritized by bonds issued by the state, so in essence we won’t\r\nearn any return on those, but we won’t lose any investment between\r\n$2.4 and $2.88.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\n“We” as in Southern Company and its stockholders,\r\nbut if you happen to live in Mississippi your taxes probably pay\r\nfor those bonds.\r\n<\/p>\r\n

\r\n

\r\n\r\n\"Thomas<\/a>\r\nThe amount of overrun that you’ve just quoted, correctly, is the\r\namount of the estimate right now above $2.88. Mississippi customers\r\nwill not see a penny of price increase as a result of our own\r\noverrun. We are being accountable and honoring the commitment that\r\nwe made to the Mississippi Public Service Commission earlier this\r\nyear.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nSO is being accountable because it couldn’t squeeze any more CWIP out of\r\nthe state of Mississippi, and it wasn’t for lack of trying.\r\n<\/p>\r\n

\r\n

\r\nThank you very much. Next question.\r\n<\/p>\r\n<\/blockquote>\r\n

\r\nHe ended at 55 minutes and 12 seconds, for four minutes and 8 seconds.\r\nGood thing he didn’t hold himself to the same standards as his questioners.\r\nThat worker who died? He never mentioned that.\r\nClean? Nope. Safe? Only if you don’t mention worker deaths or the effects of that\r\nreused CO2<\/sub><\/small>. Affordable? S&P doesn’t think so. Reliable? Compared to low-maintenance solar power?\r\n<\/p>\r\n

\r\nMaybe Georgia’s legislature will wise up and at least do what MS PSC did about Kemper Coal:\r\ncap cost overruns at Plant Vogtle,\r\nas HB 267 would have done<\/a>.\r\nAs S&P said<\/a>:\r\n

\r\n…if similar issues arise at Georgia Power, the company\u2019s rating could be downgraded.\r\n<\/blockquote>\r\nHm, maybe then SO would have to think again about solar power.\r\n<\/p>\r\n

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