Interview Transcript:

Ashby Foote: The second plant is where the real controvesy is and where the expense is. This is the gasifier plant which is used to take the lignite coal and turn that into what they call synthetic gas, or syn gas and … then that’s shipped over to the first plant.

Marshall Ramsey: OK.

AF: So it’s the second plant where all the controversy is and where the money is. Because that plant — rough estimates — it’s about $2 billion of the $2.8 billion. Now one of the things that people need to be aware of — and this is where I think I have some problems with the way Mississippi Power has presented this — is that they’ve got this expensive gasifier plant, but they don’t want to talk about the expense of that plant. They talk about the cheap lignite. And lignite is cheap because it’s got very low Btu value. … So they do have a very low-cost fuel, but the process of turning that fuel into syn gas requires [capital expenditure] of $2 billion or thereabouts —

MR: The fixed cost.

AF: The fixed cost, and that ends up creating a syn gas — if you include the fixed cost over 30 years, the syn gas that it creates, depending on your capacity and utilization, goes anywhere from $12 to $15 to $20 per [m]Btu. Now that’s a lot of money, because it’s competing with natural gas that, because of fracking, is now trading at $3.30 per Btu.

Now the end result of this, based on reasonable estimates — and these are still rough estimates, but I think they’re pretty reliable — it’s going to cost the consumers for Mississippi Power and the Southeastern Mississippi Electric Power Association, which is going to buy some of this power from Kemper — an extra $300 million a year to operate this gasifier, to cover the expense of the gasifier … and that’s going to result in about a 50 to 60 percent increase in electricity rates for all the ratepayers in that ratepaying area. And that’s going to be a terrible burden for the economy in Southeast Mississippi.

Now, that’s trying to reduce something that’s a very complex project down into about four or five minutes. … Now, when they got started with this, they were not aware that fracking was going to dramatically drop the price of natural gas. But that began to happen about two and a half years ago.

And they’ve had plenty of time where they could have taken a step back and said, “Wait a minute. At this point this plant — the second plant, the gasifier plant — makes no sense at all.” In fact, they should stop the gasifier plant today, and it would save the ratepayers a lot of money and just operate the first plant —

MR: As a natural gas plant?

AF: As a natural gas plant. I mean, it’s crazy to spend $2 billion to turn coal into syn gas at a cost of $12 to $20 per mBtu when you can buy natural gas. And the U.S. Government through the Energy Information [Administration], EIA, is estimating the price of natural gas because of fracking is going to stay below $5 for the next 20 years.

MR: Right.

AF: So it’s a terrible burden to continue to build this plant with … all the ratepayers down there paying 50 to 60 percent higher electric bills. And that may be a conservative estimate. …

MR: Of course, I’ve heard Sierra Club talk about it … but that was an interesting take on it from an economic point of view.

AF: Right … This isn’t the Sierra Club’s perspective. They’ve got their reasons. This a different reason: This is an economic reason.

There’s a number of ways we can swerve to miss this ditch that Southeast Mississippi is going to drive into, which will affect all Mississippians. I would encourage the politicians to take another look at this and look at the reality of the forces at play in the energy world today. You saw the price of oil drop $4 today, and part of it is because inventories from fracking for oil are starting to impact — or the success of fracking for crude oil — is now starting to impact inventories in a positive way. …

That’s the beauty of the free market. When markets set prices, prices signal you to things you might otherwise not know about.

Politicians — Gov. Bryant could be a real hero if he stepped up and said, “We need to rethink this Kemper plant right now, because the reality is we can have cheap electricity in South Mississippi for years to come if we put the gasifier part of this plant on ice and just focus on natural gas as the input for this power plant.”

MR: Ashby, thanks for coming in today. … Ashby Foote, Vector Money Management.

Bigger Pie Forum
10/4/12