JACKSON — In professional boxing, the corner man can throw a towel into the ring if his guy is getting his brains beat out. It stops the fight and saves the hapless fighter from permanent injury.
The Southern Co. could throw in the towel to save its Mississippi Power Co. subsidiary from permanent injury. It’s overmatched trying to build the Kemper County lignite plant. The plant is two years late and $4 billion over budget.
Southern is not only the corner man, it’s the manager who booked and promoted the fight. It underestimated Kemper’s technology, which had never been whipped. But the purse for a knockout was huge. It would set up bigger matches in China. Political fans and contractors were enthusiastic. Besides, if it came down to a decision, two of the judges were in his fighter’s corner. The purse for a decision was smaller, but it seemed like a sure thing. What went wrong? The technology wasn’t in on the fix.
Modern fights go 15 rounds max. The Kemper fight should have been over long ago. Now it’s like when fighters toed the line after each round — until one couldn’t. John L. Sullivan beat Jake Kilrain in a famous bare-knuckle fight in 1889 when his corner threw in the towel after 75 rounds. This one could go on for years. It’s painful to watch. Expensive too — for customers if they pay for it. For the company if they don’t.
It’s costing $30 million a month. But don’t look for the corner man to stop it as long as someone else may pay. The ringside announcer says the plant will start up in six months. (He’s been saying that for two years.) But Southern’s latest 10K filing with the Securities and Exchange Commission carefully walks back earlier hype and optimism.
It’s OK to con the public, but not the SEC. It’s like the Boxing Commission. It can fine a promoter and pull his license. It’s hard to influence. Not like fight judges.
Speaking of judges, there are two new public service commissioners. They seem more hard-eyed than the old ones. They recently asked Kemper’s independent monitors to give them an update — in an open meeting. And they voted to unseal and post secrets from earlier closed meetings.
The independent monitors are like oddsmakers. They are the experts who tell judges how the fight is going and who’s going to win. They may have told the old judges what they thought they wanted to hear: The company is getting roughed up a little, but it’s going to win.
The old judges seemed to believe this. And the promoter probably figured they would give his guy the decision. Why worry about my guy if customers pay?
Now the independent monitors are not sure what the new judges want to hear. So they are telling the truth. The technology is a bear. The fight’s not gonna be over anytime soon. The company made big mistakes.
The challenge is the gasifier. It’s supposed to burn lignite (low-grade coal) in an experimental plant and convert it to synthesis gas to replace natural gas in a conventional gas turbine power plant. The power plant is already running on natural gas. So customers don’t need the gasifier. (Besides natural gas is a lot cheaper.) However, the promoter desperately needs the judges to give it the decision (deem it prudent) to make customers pay for it. Or a split decision so customers pay part. It has already cost $5 billion.
When will the judges decide? They say they aren’t even going to think about it until the gasifier is operating. When will that happen? Who knows? Maybe years from now. Maybe never. Will the promoter’s backers stomach another billion to see? More good money after bad? This is getting to be serious money, even for a $40 billion Wall Street darling. And there’s reputation risk — how could such a smart promoter be so wrong? What about disaster and litigation risk? What’s the exposure if it explodes?
The company says the gasifier will start up in October. The independent monitors say it’s 87 percent ready to start up and is progressing 1 percent per month. So best case, start-up is 13 months away. But the independent monitors say big problems have surfaced in testing that must be solved before start-up. More problems could surface during start-up that could take years to solve.
A big problem is the refractory (insulation) that protects the gasifier’s steel shell from the burning lignite and poisonous gases. It has “rat holes.” The reactor operates at 1800 degrees Fahrenheit and 700 PSI. The independent monitors didn’t say it’s a potential bomb that can explode if the hot gases contact the reactor shell and cause it to rupture. But they weren’t asked.
A Kemper project manager discovered the refractory problem four years ago. He said it was serious and needed fixing then. The company fired him, sued to gag him, then rehired and put him on ice. Looks like he was right.
Why are big problems still unsolved? Why was the promoter so wrong? It started with two bad decisions. One, using data from a small pilot plant to build a big experimental plant. The scale-up is 100 to 1. The prudent way to build big risky plants is incrementally and carefully. Take small steps. Solve problems as you go from small to large — if you can. If you can’t, throw in the towel while the stakes are small. And two, starting construction before doing the engineering. It’s prudent to think, then do. Not the other way around.
Expiring grants and tax credits and politics and hubris led the promoter to take the imprudent giant step first. And then the imprudent hasty step.
Will the judges now say the $5 billion result of these two deliberate imprudent steps is prudent? What are the odds? Where’s the towel?
• Kelley Williams, a Greenwood native, is chairman of Bigger Pie Forum, a Jackson-based research group that encourages economic freedom and discourages cronyism. He is a former chairman of ChemFirst Inc.
