In an apparent first salvo in a public relations campaign to shift blame for the Kemper power plant boondoggle away from himself and corporate management, Southern Company chief executive officer Tom Fanning admitted this week that Kemper plant is not economically viable as a coal-burning power plant.
The startling reversal came during an earnings call Thursday at a time when Southern faces intense scrutiny from federal and state regulators and the Securities and Exchange Commission - - and as its Mississippi Power Company subsidiary, the plant's owner, faces a Moody's downgrade over Kemper's skyrocketing costs and failure to operate despite being three years past its promised operating date. Southern took a 27 percent hit to its fourth quarter net income thanks to Kemper schedule delays.
During the call, Fanning acknowledged that Kemper can only be feasible if it runs on natural gas as financial analysts questioned him about a just-released "economic viability" study by Southern that found that low gas prices for the long-term mean the plant can't profitably gasify lignite in the gasifiers Southern spent most of $7.1 billion to build.
Fanning called a "reduction in the longterm gas price forecast" an "overwhelming change, the big change. Obviously, there are others. It is a point in time. When we had this plant certificated, we all thought that gas prices were going to be double digits and there was some spread that were way higher than where we are now."
Fanning's comments came as the company announced it will soon file a rate case with the Mississippi Public Service Commission seeking to recover its costs for the plant.
Although Fanning has often reassured Mississippians that they are protected by a $2.88 billion cost cap agreement limiting their liability for the plant's runaway budget, he has failed to mention that once the plant is declared operational, the cap won't protect them from additional costs of some $4 billion. That includes $200 million a year in operation and maintenance costs, a disturbingly high figure that keeps going up for the novel "clean coal" plant.
To investors, Southern often touts its friendly relationships with state regulators in the four states in which its regulated utilities operate, but the fall 2015 Mississippi PSC election quickly became a referendum on Kemper, replacing two commissioners who reliably rubberstamped MPC's agenda with two new faces, Sam Britton and Cecil Brown, both of whom have pledged not to leave ratepayers holding the bag.
A source close to the Public Service Commission told CIC recently that the PSC staff has run the numbers and that even under the cap, electrical rates could increase by 40 percent or more - a catastrophic burden for MPC's 186,000 disproportionately lower-income customers in 23 counties in southern Mississippi.
A conciliatory Rick Perry cruised through a half-day Senate confirmation hearing today for secretary of the Department of Energy before a Senate committee in a performance that was long on warm words and vague promises and short on tough questions from a low-energy Democratic contingent.
Even before the hearing before the Energy and Natural Resources Committee ended in the early afternoon, Democrats rushed out a press release claiming the former Texas governor had promised to protect jobs tied to science and innovation - including climate science - at the department.
While Perry said he has "extraordinary respect" for DOE scientific staff, he repeatedly hedged on the specifics of what exactly would be protected under questioning about a leaked Trump plan to eliminate several units at the agency considered technology incubators, such as the Office of Fossil Energy, which funds so-called "clean coal" projects, as well as the depatment's Energy Efficiency and Renewable Energy unit.
The list of things Perry couldn't promise to do or continue when he takes over at DOE was a long one. He wriggled out of repeated attempts to coax him into promising not to open the Yucca Mountain Nuclear Waste site in Nevada, a deep storage facility for high level radioactive waste.
"Can you say that testing of nuclear weapons is a dangerous idea?" asked Senator Bernie Sanders, referring to president-elect Trump's seemingly offhand comment that he might resume nuclear testing and the arms race ("Let it be an arms race," Trump said.)
No, he couldn't say it was a dangerous idea, was the thrust of a long wandering reply by Perry, who did however promise to protect the electrical grid and infrastructure from cyberterrorism.
Pushing back against the fossil energy industry's claim that reducing fossil fuel use is a "job killer," Washington Democratic Senator Maria Cantwell, the ranking minority member of the committee, rattled off a list of job-killing harm caused by greenhouse gases in her state, including the depletion of fisheries and extreme weather. She said a forthcoming Government Accountability Office report would put the damages from climate change-related damage in the trillions of dollars.
A maverick climate lawsuit few legal authorities thought would survive more than a few months came within two days of questioning the world's most powerful oil executive under oath.
But that prize remains tantalizingly out of reach after a federal magistrate judge in Oregon yesterday put an 11th-hour hold on the deposition of Rex Tillerson, who was CEO of ExxonMobil until December 31 when he stepped down from leading the petroleum giant to become incoming President Trump's Secretary of State.
Tillerson was to be questioned today in Dallas, Texas by lawyers representing a group of 21 youth plaintiffs in what is already a landmark climate lawsuit. The deposition would have meant that a small group of plaintiff's lawyers based in Eugene, Oregon would become the first to question the most senior ExxonMobil official in a lawsuit over climate change.
However, Magistrate Judge Thomas M. Coffin instead ordered what a spokesperson for the plaintiff's called "an informal discovery dispute resolution" after oil industry lawyers said they would refuse to produce Tillerson for questioning.
A telephone conference among the parties and Judge Coffin is to be held January 27th, according to Meg Ward, communications and youth engagement director for Our Children's Trust.
Filed on behalf of a group of of 21 young people, the suit demands that the United States take immediate and aggressive measures to fight global warming.
The lawsuit charges that since the at least the 1960s, the federal government "has known that carbon dioxide ("CO2") from burning fossil fuels was causing global warming and dangerous climate change, and that continuing to burn fossil fuels would destabilize the climate system on which present and future generations of our nation depend for their wellbeing and survival."
But despite this knowledge, according to the complaint, the government "continued their policies and practices of allowing the exploitation of fossil fuels."
Under a somewhat novel legal theory, pioneering climate scientist James Hansen, the former director of the NASA Goddard Institute for Space Studies, is suing the United States as guardian for "Plaintiff Future Generations" who, it is charged, "retain the legal right to inherit well-stewarded public trust resources and to protection of their future lives, liberties, and property – all of which are imminently threatened by the actions of Defendants challenged herein."
The suit seeks both pro-active action to combat global warming and the end of policies that worsen it.
This is the first real set-back in what had been an unbroken advance by the plaintiff's toward trial, which Coffin had tentatively set for the summer or early fall of this year.
If Donald Trump really wants to get rid of federal corporate welfare, he should be frantically tweeting against a congressional plan that could send billions to the grossly mismanaged Kemper power plant by expanding tax credits for injecting carbon dioxide into oil fields.
These so-called "45Q" tax credits would get richer and could even become a permanent part of the federal tax code depending on which of three bills now being considered by Congress becomes law.
And that could result in the so-called "clean coal" Kemper facility that utility giant Southern Company is building in eastern Mississippi getting between $789 million and $4.5 billion, according to a new report co-authored by Friends of the Earth and Taxpayers for Common Sense and released today.
"Instead of keeping CO2 out of the atmosphere through permanent underground storage, 45Q has primarily served as a subsidy for oil production," says the report. "Most of the credits have been claimed for CO2 collected at natural gas processing facilities and then used by oil producers for enhanced oil recovery. Any expansion of the provision would only serve as an additional oil subsidy on top of the billions of dollars in subsidies the industry already receives each year."
The report also notes another troubling fact - -that CO2 leaks from oil fields using enhanced oil recovery, including through carbon dioxide "blow-outs" in which the gas comes blasting out of the ground very much like an oil gusher. At least three of these incidents have taken place in Mississippi and one in Lousiana since 2007.
CO2 gas, which is heavier than air and settles in hollows and near ground level, can fatally suffocate anyone who breathes it in. The Mississippi blow-outs resulted in evacuations of residents and oil field workers. A blow-out in Tinsley Field, near Yazoo City, Mississippi, killed deer, an armadillo, a blue heron and countless birds and other wildlife, while sending one emergency responder to the hospital.
This catastrophic event in August and September of 2011 took 37 days to bring under control at a cost of some $53 million. Specialized equipment and crews had to be brought in from Texas to fight the blow-out, including emergency response teams from companies like Boots & Coots, which worked on the Deepwater Horizon disaster, according to documents from the Mississippi Department of Environmental Quality obtained via a public records request.
Earlier this year, I looked at just how much the largest US coal mining companies depend on access to subsidized federal coal, most of it extracted from public lands in the Powder River Basin of Montana and Wyoming. The US Interior Department tracks the amount of publicly owned coal mined by each company, but doesn’t publicly report this information. As I recently learned, even a Freedom of Information Act (FOIA) might not reveal just how much publicly owned coal companies are mining.
American Electric Power (AEP), one of the largest utilities in the United States, distanced itself from some of the positions of the American Coalition for Clean Coal Electricity (ACCCE), but made clear that it nevertheless remains a member of the coal lobby group, despite the departure from ACCCE of most other major utility companies. From National Journal: Climate Stances Put Pressure on Major Trade Groups (subscription required):
Two more companies - and perhaps three - have confirmed their departure from the American Coalition for Clean Coal Electricity (ACCCE) this week, following the publication of our report detailing major companies’ departure from coal lobby groups.
The New York Times yesterday reported on a presentation given to a coal industry conference last year titled “Survival is Victory: Lessons from the Tobacco Wars.” The presentation was prepared by Richard Reavey, a former executive at Philip Morris and now a Vice President at Cloud Peak Energy, a coal company focused on mining taxpayer owned coal in Montana and Wyoming. From the Times:
It would be hard to find an image of a cozier relationship between a giant energy company and a regulator than the joint appearance in Philadelphia on July 28th by Southern Company's Tom Fanning and U.S. Secretary of Energy Ernest Moniz.
Moniz and Fanning kidded each other like old pals at a Bipartisan Policy Center energy forum as they discussed their common view that the United States needs to aggressively pursue carbon capture and sequestration for coal-fired power plants - like Southern's Kemper project in Mississippi - to keep coal in the mix as a fuel for as long as possible.
But Moniz flatly refused to answer specific questions about charges raised in a front-page New York Times investigation in early July that Southern deliberately misled investors and its customers about when the Kemper plant would enter service, allegations that the Securities and Exchange Commission is also investigating.
The Department of Energy helped Kemper get off the ground with a $270 million grant in 2008, and in April, awarded Southern another $137 million to lessen what has already been a substantial rate impact on the 23 largely poor, rural Mississippi counties that are having to pay for a substantial part of Kemper's cost, which has ballooned to $6.8 billion from an initial budget of $2.4 billion.
Former Kemper manager Brett Wingo, who first raised the issue of schedule irregularities inside the company and then became a key source for the New York Times story, has claimed, supported by others, that the project management software used to plan the building of the plant was deliberately altered to make it seem like Kemper was on schedule when in fact it was at least two years behind.
Asked by this reporter whether he thought the DOE's inspector general should investigate Kemper and DOE's relationship with Southern in light of the Times' piece and the SEC's fraud inquiry, which could result in criminal penalties for violation of federal laws on internal financial controls and financial reporting, Moniz refused to answer, saying he was appearing at the Bipartisan Policy event as a private citizen, not in his official capacity as energy secretary.
Fanning dismissed the Times story, and said Wingo's charges were investigated twice, first internally, and then by the Jones Day law firm, and found to be without merit. Southern has not released the details of either investigation.
"The New York Times chose not to include the other side of the story," said Fanning.
Engineers who worked on Southern Company's Kemper coal plant say the proposed start-up date of September 2016 is as unrealistic as previous dates given by the company and that the plant is unlikely to go on-line before sometime in 2017.
One of the engineers, Brett Wingo, who blew the whistle on schedule delays at the plant in a New York Times investigation earlier this month, noted that aside from the gasifier itself, which is supposed to turn lignite coal into synthesis gas, or syngas, there are numerous other first-of-its-kind systems that Southern is not publicly acknowledging as likely delaying factors in its bid to put its "clean coal" power plant - already two years behind schedule and almost $5 billion over-budget - on-line.
These new, untested technologies include the key systems that transport and dry the low-grade lignite coal mined adjacent to the plant, and others that treat the syngas and remove pollutants, including carbon dioxide.
The plant is supposed to remove 65 percent of the CO2 it produces, making it roughly equal to a natural gas plant in its carbon footprint, and pipe it to oil fields in the region to coax more oil from underproducing wells. The plant has been running on conventional natural gas since the summer of 2014.
So far, Southern has focused attention on generating syngas as the limiting factor in getting the plant into commercial operation. In a Securities and Exchange Commission filing yesterday, Southern projected August as the date for "reliable syngas" production, with September still the date for commercial operation.
But Wingo, and another engineer expert in gasifier technology, both noted that there are numerous other kinks that will have to be worked out before Kemper can be declared "in-service," at which point Southern is expected to move immediately to get its Mississippi customers to pay for a big chunk of the plant's $6.8 billion cost.
Just how much still isn't clear, but is a major worry to customers of Southern - or rather Mississippi Power, Southern's Mississippi subsidiary, the plant's operator.
The engineers point out that once debugged, the individual systems then have to be made to run "synchronously" - like the cylinders in an auto engine - to keep the plant running smoothly and producing electricity. A breakdown anywhere in the chain will shut the plant down for what would almost certainly be lengthy and expensive repairs.
Another sticking point is the gas-fired turbines at the plant, which are part of the "power block" that actually produces electricity, as opposed to the gasifier island which makes the syngas and sends it to the turbines. First, the two Siemens turbines, designed for natural gas, have never before been run on syngas, and the control system for the power block will have to be integrated to run in tandem with the brand-new, untested control system for the gasifier.
About two months was supposed to be allocated for the integration of the various gas clean-up systems that will remove CO2, sulfur dioxide and other pollutants, with at least four months more to solve problems in the power block and coordinate the turbines with the gasifier - - adding at least another six months to the proposed September start date.
That would put commercial operation off at least until January 2017.
But that's not all.