SEC

Southern Company CEO Admits Kemper "Clean Coal" Plant is a Bust

  • Posted on: 27 February 2017
  • By: Connor Gibson

Southern Company CEO Tom Fanning and former U.S. Secretary of Energy Ernest Moniz tour the Kemper facility construction site in 2013. Photo credit: Terri Ferguson Smith and The Meridian Star.

This article was written by Dan Zegart at the Climate Investigations Center. I am crossposting this with his permission. 

Update: I've added some of the FOIA documents, below, from the CIC's investigations into the Kemper facility, courtesy of the Energy and Policy Institute.

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 and onto state regulators, 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.

 

Critics have noted that a natural gas facility comparable to the 582-megawatt Kemper facility would have cost about $500 million. 

During the earnings call, Fanning did not draw the obvious conclusion and admit the plant will never actually use its twin gasifiers to produce electricity.

In fact, while admitting the technology isn't viable, Southern nevertheless claimed in its annual report filed last week that it plans to have the plant on-line with both gasifiers operating by mid-March. 

Mississippi Power already faces three lawsuits over allegations that it misrepresented when the plant would be completed and how much it would cost during the project's seven-year history.  Those allegations, aired in a front page New York Times story last summer, are also the subject of a probe by the Securities and Exchange Commission.

An important prong of Southern's PR strategy seems to be to shift the blame for Kemper onto the PSC itself.  During the earnings call, Fanning also said, as he has frequently of late, that Southern built the Kemper energy facility because the Mississippi PSC wanted a coal facility as a "hedge" against potential "double-digit" gas prices.

However, documents obtained in a Freedom of Information Act request from the Department of Energy, which has provided a total of $407 million in grants for Kemper, demonstrate that the impetus for the facility came from senior management at Southern, including then-chief operating officer Fanning, and from Mississippi Governor and longtime Southern Company lobbyist Haley Barbour, who pressured first the Department of Energy, and then enlisted the secretary of energy himself, to pressure Mississippi's three PSC commissioners into approving plans for the construction of Kemper.  

The documents also reveal that while possible gas price volatility was cited,  Southern Company's proposal relied almost entirely on the plant's promise as a test case for cutting CO2 emissions from burning coal - especially lignite coal, a dirty, low-energy, but plentiful variety found in eastern Mississippi and throughout the world.  

Barbour was both governor of Mississippi and still actively lobbying for the company in early 2008 when he and Southern officials launched an all-out campaign to convince the Department of Energy to transfer an existing grant to build a 285-megawatt coal-fired power plant in Orlando, Florida to a new site in Kemper County, near the Alabama border.

Taking advantage of the availability of hundreds of millions of dollars from DOE's Clean Coal Power Initiative, Southern doubled the size of the plant, added carbon capture and sequestration technology to the Orlando design, which used a first-of-its-kind technology developed by Southern Company and Kellogg Brown & Root (KBR) called transport integrated gasification (TRIG) to heat coal under high pressure in a reactor and turn it into a syngas similar to natural gas to drive a turbine to generate electricity.

KBR and Southern hope that licensing the TRIG technology in coal-reliant countries like Poland where lignite is common will help pay back development costs.

This technology makes Kemper, for all practical purposes, a petrochemical plant, not a traditional coal-fired electric plant.  TRIG uses a KBR process called "catalytic cracking" that, according to DOE, "has been used successfully for over 50 years in the petroleum refining industry."

Notably, however, it had never been used to generate electricity.

Angling for a sizeable increase in support from DOE over what it received for its Orlando project,  Southern tricked out Kemper with additional goodies.  

These included carbon capture equipment,  plus a process to produce sulfuric acid from waste gases. The plan was to strip out the CO2 and connect the plant to an existing network of CO2 pipelines, then inject the gas into older, underproducing Mississippi oil fields to push up more oil - a process known as enhanced oil recovery.  

In so doing, however, Southern now added further complexity and uncertainty to the still-untested TRIG system.

On February 6, 2008, Eric Burgeson of BGR, Haley Barbour's lobbying firm, requested that then-Secretary of Energy Samuel Bodman meet with himself, Barbour, then-Southern CEO-David Ratcliffe,  and other officials Southern Company and Mississippi Power officials to discuss moving and expanding the DOE's commitment from the Orlando project to Kemper.  The initial cost projection was $1.2 billion.  DOE would put up $270 million on top of $23 million spent in Orlando - where the project was already substantially over-budget.

"Front-end Engineering and Design (FEED) is underway to support operation in Kemper County in June 2013," Burgeson wrote, although Southern later admitted that very little FEED had been completed.

Barbour had personally lobbied for Southern Company for more than a decade before he became governor and began representing it again upon leaving office in 2012.  Despite the questionable ethics of a sitting governor working hand-in-glove with his own lobbying firm to reel in more than a quarter of a billion dollars in DOE money for Southern Company (Barbour defends himself by noting he put his 50,000 shares of BGR in a "blind trust" when he became governor),  the meeting with DOE Secretary Bodman took place on February 26th.

By the fall of 2008, a funding package of almost a billion dollars in DOE grants and federal tax credits was in place.  By then the cost had already gone up to $2.4 billion and the schedule had been pushed back to spring 2014. DOE also waived repayment obligations for what was supposed to have been a loan.

To get the project rolling, however, Southern needed a "certificate of convenience and necessity" from the Mississippi Public Service Commission to certify that the project was needed and allow construction to begin

However, the PSC voted against the project in April 2010, then reversed its decision weeks later. In between, Barbour wrote the Commission urging approval, as did Secretary of Energy Steven Chu. James Markowsky, head of the department's Office of Fossil Energy, responsible for developing new coal technologies, wrote several such letters to the PSC.

There are reasons to doubt that the current PSC, despite campaign promises to the contrary, will actually hang tough with Mississippi Power if the utility tries to stick customers with an outsized bill for Kemper.

While neither of the new commissioners - Sam Britton and Cecil Brown - has made a public statement on the project lately,  Britton's campaign manager during his PSC run was Austin Barbour, Haley's nephew, and a principal in the GOP-focused Clearwater Group, whose other partner is Arnie Hederman, former chairman of the Mississippi Republican Party. 

Though his gubernatorial term ended in 2012, Barbour himself was deeply involved in the PSC races, and is believed to have hand-picked Britton to run in the Southern District against Democrat Tom Blanton, who financed a series of legal actions that overturned an 18 percent rate hike by Mississippi Power to help pay for Kemper. 

Britton is also connected to Barbour through his wife, Robin Robinson, director of organization, development and corporate communication at Sanderson Farms, the third largest poultry producer in the country and a major Barbour financial and political backer.  While governor,  Barbour appointed Robinson to the board of trustees of the state's Institutions of Higher Learning, which oversees public higher education.  Britton spent more than $300,000 on the campaign, an enormous sum for a PSC race, most of which came from his own pocket.  Barbour is thought to have ageed to back Robinson for lieutenant governor in the next election in return for Britton spending so lavishly on his PSC campaign.

All three commissioners have expressed concern that a too-tough stance on Kemper could bankrupt Mississippi Power, an unlikely scenario given past financial support by Southern for its troubled subsidiary. Asked about such a possibility during the earnings call,  Southern's Fanning said he believed that "we will maintain our support for Mississippi Power" and that it's "just not in anybody's interest to consider in any serious way something other than that."

In his remarks to the analysts, Fanning leaned heavily on the argument that low gas prices had suddenly made the coal plant idea economically unsound.  In fact, gas prices were trending far lower than Southern's forecasts when the project was approved by the PSC in 2010,  and opponents argued as far back as 2009 that the plant as proposed was uneconomic given natural gas prices.  

When the PSC held hearings in October 2009 to determine if the state actually needed additional electrical power, the Sierra Club pointed out that Mississippi already had 12 natural gas plants that sat idle 85 percent of the time and could provide up to 7,995 MW of power. Many of these were so-called merchant plants that were for sale for $500 million or less. 

Later, in April 2012, when the PSC reauthorized its approval for Kemper, Louie Miller, director of the Mississippi Sierra Club, complained to a reporter that the project was again being rubberstamped by a compliant PSC, ignoring ultra-low gas prices.

"There is no way they can justify Kemper under current conditions in the energy market," Miller said

 

Industry: 

Will ALEC block EPA coal pollution safeguards at Illinois' controversial Prairie State Energy Campus?

  • Posted on: 26 February 2013
  • By: Connor Gibson

The U.S. Securities and Exchange Commission is investigating the Illinois-based Prairie State Energy Campus, a combined coal mine and power plant spearheaded by Peabody Energy, co-owned by eight public power companies based in the Midwest. Numerous cost overruns from construction delays and equipment problems at the Campus resulted in customers in several states having to pay for power well above market price.

While Peabody defends Prairie State Energy Campus (PSEC) from SEC scrutiny, a corporate front group has developed copycat legislation that could exempt dirty projects like PSEC from national clean air and water laws.

A model state bill developed by the American Legislative Exchange Council (ALEC) would block federal pollution regulations when coal is mined and then burned or altered within the borders of a single state. The "Intrastate Coal and Use Act," created within ALEC's Energy, Environment and Agriculture task force, is ideal for projects like Prairie State Energy Campus, which mines and burns coal on site.

By exempting the U.S. Environmental Protection Agency from overseeing permits for projects like Prairie State, ALEC's Intrastate Coal and Use Act leaves regulation to state agencies, which may have weaker pollution standards or simply lack enough staff to do their jobs, as the gas fracking boom has demonstrated.  

Peabody itself is a member of ALEC's anti-environmental task force, which readied the Intrastate Coal and Use Act for national distribution, and a member of ALEC's Private Enterprise Board, which may explain ALEC's role in promoting the Prairie State Energy Campus.

Materials leaked to Greenpeace after ALEC's most recent conference in Washington DC show that the American Coalition for Clean Coal Electricity, a coal front backed by companies including Peabody, was showcasing Prairie State at ALEC's conference. Files in a USB drive branded with the ACCCE logo contained three promotional videos for PSEC while a paper folder with the ACCCE logo contained a promotional brochure for the Campus. 

The ALEC model does not appear to have been introduced in Illinois, although ALEC has been busy pushing a wishlist of state laws for its dirty energy members companies like Peabody, Duke Energy and ExxonMobil.

One of ALEC's national priorities this year is to un-legislate state incentives for clean energy under the false premise that they have an adverse impact on electricity rates. While there appears to be no significant correlation between state clean energy standards and raised utility rates, the Prairie State Energy Campus is raising electricity prices, as reported last July in the St. Louis Post-Dispatch:

The St. Louis suburb [Kirkwood] needed a stable, long-term power source. The plant’s developers needed customers. The parties struck a deal — a 30-year contract that would supply more than half of Kirkwood’s electricity beginning in late 2011. The kicker: The energy produced at Prairie State would be cheap compared with market power prices at the time.

But now, as the first of two 800-megawatt generating units at Prairie State begin operations — six months late — the plant hardly seems the bargain it did five years ago.

The $5 billion price tag is 25 percent more than when the city signed on, driving up the price of electricity that Kirkwood and other cities are obligated to buy. And construction delays mean the city is getting nothing for the monthly $296,000 checks it began writing to Prairie State’s owners in February.

Because ALEC peddles copycat laws that benefit dirty and expensive coal projects while attacking clean energy incentives, renewable energy interests like the American Wind Energy Association and the Solar Energy Industries Association have abandoned ALEC.

History of ALEC's Adoption of the Intrastate Coal and Use Act:

An ALEC legislator in West Virginia named Gary Howell introduced a version of the Intrastate Coal and Use Act back in 2011; his bill inspired the current model bill that ALEC is distributing. Delegate Howell suggested that all of the top 20 coal producing states consider his legislation, indicating where watchdogs should keep their eyes peeled for ALEC's model legislation.

While the bills weren't passed in 2011, West Virginia is again considering the Intrastate Coal and Use Act in the 2013 session, renewing their attempts to keep the EPA from overseeing permits to burn coal from mountain top removal.

Another version of the Intrastate Coal and Use Act has surfaced in Kentucky.

In fact, it was the Kentucky-based Bluegrass Institute that sponsored ALEC's Intrastate Coal and Use Act within ALEC's anti-environmental task force, apparently based off of what WV Del. Howell has been introducing into his own legislature. Like ALEC, the Bluegrass Institute is a member of the State Policy Network, an umbrella organization for state and national think tanks and interest groups that are usually funded by the Koch brothers and company.

Coal's Broken Promises: Not Cheap, Not Clean

A 2005 Peabody company newsletter shows that PSEC was supposed to cost $2 billion, less than half its actual price. The cost estimate was later doubled to $4 billion before reaching its actual $5 billion price tag. According to a 2012 report by the Institute for Energy Economics and Financial Analysis:

Instead of being a source of low cost electricity, the first year cost of power from Prairie State is 40 to 100 percent higher than the current cost of power in the Midwest wholesale markets and is expected to remain higher than market prices for the next ten to thirteen years, if not longer.

The Campus proposal was supported by former Illinois Governor Rod Blagojevich (currently serving a 14-year prison sentence for corruption charges), who publicly supported construction of the plant and ate up Peabody's false promises of cheap energy. In Big Coal, author and journalist Jeff Goodell notes that Peabody's desire to build its own coal plant was to help burn its own reserves of high-sulfur coal from Illinois, which the market did not have much of an appetite for. A representative of the Illinois Office of Coal Development told Goodell, "Most power plants are built in order to generate electricity. Prairie State was really conceived more as a platform to burn Peabody coal." While Peabody sold all but 5% of its stake in PSEC to eight nonprofit power companies, it has been the driving force behind the Campus since 2001.

Goodell noted that even with its highly-touted pollution control equipment, PSEC is still a dirty coal plant. It still emits hazardous particulates, acidic gasses and heavy metals. It still dumps immense amounts of carbon dioxide into our atmosphere, the key greenhouse gas that is contributing to global climate change:

"Prairie State will emit more than 11 million tons [of carbon dioxide] a year, marginally less than a similar size coal plant built thirty years ago, but more than twice as much as every vehicle sold by the Ford Motor Company in a single year."

Illinois' bind demonstrates the lose-lose situation promoted by the coal industry: drink and breathe our pollution now, and pay more...now and later.

As clean energy becomes increasingly viable, even without considering the costs of fossil fuel pollution and climate change, some cities are taking matters into their own hands, including [the ironically-named] Carbondale Illinois, which recently established that 100% of its power will come from clean energy. Cincinnati, Ohio dumped Duke Energy and made a similar commitment, as have all municipal facilities in Austin, Texas.

But clean energy advocates be warned: the more the American public recognizes that 19th Century energy like coal is a thing of the past, the more the dirty energy industries are going to spend big to desperately defend their bottom lines.

Industry: 

Following SEC complaint, Greenpeace asks TransCanada for honest Keystone XL jobs explanation

  • Posted on: 31 January 2012
  • By: Connor Gibson

Greenpeace Executive Director Phil Radford speaking at a 350.org event last week about Big Oil corruption's in Congress and the Keystone XL tar sands pipeline.

To Infinity And Beyond: Keystone XL Jobs Claims Spill All Over The Map

Posted on behalf of Phil Radford, Greenpeace's Executive Director in the U.S.

TransCanada has some explaining to do.

Greenpeace just sent a letter to TransCanada's CEO, Russ Girling, as well as the company's board of directors asking for complete documentation of how it came to its inflated conclusions on Keystone XL pipeline jobs here in the U.S. That letter is posted in full below (click here to see it).

We are following up on a letter Greenpeace sent to the Securities and Exchange Commission last week noting that TransCanada's job claims per mile of U.S. pipeline are 67 times higher than the estimates they provided to the Canadian government for its portion of Keystone XL. SEC notified us that our complaint was sent to their enforcement division.

TransCanada has already bit back at our complaint, insinuating that Greenpeace doesn't know anything about pipelines. Perhaps TransCanada can explain why its existing Keystone pipeline leaked 14 times in less than 18 months when it anticipated a rate of 1.4 leaks per decade -- check out this infographic for descriptions of the first twelve leaks. Nebraska's ecologically sensitive Sandhills region and the Ogallala aquifer cannot be subject to TransCanada's insufficient pipeline safety standards, especially when that pipeline carries corrosive tar sands for almost 2,000 miles. And with well over 1,000 miles of pipeline proposed in our country, it's alarming that as little as 50 people may be employed to monitor and maintain it, as Cornell's Global Labor Institute suggests. Read the independent Cornell report yourself.

TransCanada has also boosted its employment statistics by equating one job to one full year of employment for one person. This is part of how TransCanada and its allies inflated State Department estimates of less than 7,000 jobs, while the Cornell assessment concludes that Keystone XL could kill more jobs than it would create. Meanwhile, the American Petroleum Institute, the U.S. Chamber of Commerce and others are paying big for advertising campaigns that re-hash TransCanada's flawed 20,000 jobs claim, and from there claim hundreds of thousands of jobs from indirect employment. By indirect employment I mean services the oil industry isn't actually providing, which would would dry up after pipeline construction ends.

I'm not saying temporary jobs don't count--we need all the employment we can get, which is why it's a slap in the face to the American people for TransCanada to grossly exaggerate its employment promises as if it's on the campaign trail and building Keystone XL is the inauguration. Tell it like it is, TransCanada, citizens seeking employment don't need to be teased after the 2008 economic recession.

Unfortunately, the media is buying TransCanada's lies despite some reporting from the Washington Post and others that have already called the jobs numbers into serious question. According to Media Matters, 0% of broadcasters covering Keystone XL were critical of the jobs claims. Things weren't much better in coverage on cable news (11%) or print news (5%) either. Excluding USA Today and the Los Angeles Times, all major media outlets quoted more Keystone XL pipeline supporters than opponents. That's pretty bogus--Jack Gerard must have been popping the champagne over at the American Petroleum Institute headquarters as he put millions of dirty dollars to work through advertising campaigns like "Vote 4 Energy."

It's ridiculous although unsurprising that TransCanada and Big Oil act as if pipeline jobs are the only ones that exist. Why mention that any dollar invested in a polluting, outdated, climate-destroying industry is better invested in creating jobs in the clean energy sector? Big Oil would never be that forthcoming. They'd rather keep Americans fenced within the Kingdom of Crude, where not only are they the most profitable industry on earth, but taxpayers still pay handouts for their multi-billion dollar operations.
 
Greenpeace will continue demanding accountability from TransCanada and its Big Oil allies here in Washington, DC, and we'll let you know when we start getting some answers.
 

Letter to TransCanada CEO Russ Girling:

Dear Mr. Girling:

I read with considerable interest your company’s response to our request to the Securities and Exchange Commission (SEC) that it investigate the possible illegal use of misleading and deceptive job claims to win approval for the Keystone XL pipeline, which would boost your company’s bottom line considerably:

“These groups have never built or operated a pipeline,” said company spokesman, Terry Cunha, to Politico.

Mr. Cunha is correct; Greenpeace has never built a pipeline funneling corrosive tar sands crude oil across the heartland of the United States, endangering America’s groundwater, and then selling the oil overseas. What we do have experience in, however, is examining facts. Your claims just don’t add up. How will your pipeline create 67 times more jobs in the U.S. than your company told Canadian officials it would in Canada?

Greenpeace calls for an end to destructive tar sands mining, which you must be aware is fueling global climate disruption and poisoning indigenous people in northern Alberta. Our opposition extends to projects like Keystone XL that aim to solidify continued decades of carbon pollution. I must admit that we probably won’t ever try to build something that will spill oil, threaten aquifers and create a several thousand mile-long terrorist target.

However, you clearly do have such expertise, both in building pipelines and watching them spill, as demonstrated by 12 reported leaks in the first year of your existing Keystone pipeline’s operation. That’s why I’m inviting you to (possibly) head off SEC action and significant public embarrassment by explaining how TransCanada created such contradictory job creation claims.

I invite you to provide a detailed, plain-language explanation of this remarkable difference in job creation rates. Several groups of people await this important explanation, including investors, dozens of politicians and pundits who have recycled your company’s fictitious job creation numbers, and SEC enforcement officials eyeing SEC Rule 10b(5) – Employment of Manipulative and Deceptive Practices.

Greenpeace also would appreciate it if you could direct your contractor, Ray Perryman, to give a detailed accounting of the assumptions and methodology of the calculations he performed for your company on the pipeline’s supposed benefits.

We’ll gladly post any detailed, credible explanation of this wide discrepancy in job creation numbers on our website.

Regards,
 
Phil Radford
Executive Director
Greenpeace

Cc: TransCanada Corporation Board of Directors
Sent by email, fax and direct mail.

Industry: 

SEC to Investigate TransCanada's Lies on Keystone XL Job Claims

  • Posted on: 26 January 2012
  • By: JesseColeman

Today Greenpeace sent a letter to the Securities and Exchange Commission (SEC) asking them to stop TransCanada Corporation from continuing to illegally mislead investors and the American public with wildly inflated job creation claims for its Keystone XL tar sands pipeline. 
 

TransCanada and its allies in Congress (TransCanada has spent $1.3 million dollars on lobbying for Keystone XL) have routinely used deceitful jobs numbers in their support of the Keystone pipeline, claiming that it would create 20,000 jobs in America.  In reality the pipeline will create less than 1/3rd that number, possibly far less according to studies by the EPA and Cornell University.

Furthermore, TransCanada knows its jobs claims are exaggerated.  According to the company, the U.S. pipeline would create jobs at a rate 67 times higher per mile of pipeline than the rate given to Canadian officials for the miles of pipeline it would build in that country.

SEC rules forbid the use of "manipulative and deceptive practices" to directly affect the value of the company's stock.   TransCanada CEO Russ Girling directly connected the pipeline’s approval with his company’s profits in an April 2011 earnings conference call, making his company’s manipulative and deceptive jobs data illegal according the SEC rules.

As Phil Radford, Executive Director of Greenpeace said in a recent speech, "It’s wrong for politicians and pundits to use these false numbers, but it’s illegal for TransCanada to lie to investors. The SEC needs to take immediate action to hold TransCanada accountable for misleading investors to boost its valuation,” "TransCanada needs to knock off the propaganda and level with people that they'd create a few temporary jobs just to move dirty oil through our country so it can be shipped to Europe for maximum Big Oil profits."