Editorials

Strong Infrastructure Encourages Low Gas Prices in Mississippi

MEI President Patrick Sullivan was recently featured in a Hattiesburg American article (read that here) detailing Mississippi’s current low gas prices. We discussed in detail back in 2012 exactly why Mississippi fares better than the rest of the country when it comes to gasoline prices. Read that piece below:

Mississippi Faring Better Than Most When It Comes to Gasoline Prices

An Opinion-Editorial by MEI President Patrick Sullivan published May 11, 2012 by the Clarion Ledger

If you’re like most Americans, you’re worried about the recent rise of gasoline prices and where it’s going from here. But for those who like to look at the bright side of things, it could be worse. At least you’re not filling up your tank up in California or worse, Europe. A gallon of gas in California costs $4.35, 70 cents more than a gallon in Mississippi, and a gallon in the United Kingdom costs the equivalent of $8.23. Additionally, California households pay 52% more per kilowatt hour than we do for electric power, while Londoners pay 130% more for power than Mississippians.

Data shows Mississippi has an energy cost advantage over the national average and a significant edge over places like California and Europe. Why? Mississippi’s energy policy is intentionally and rightfully geared towards diversity, supply and affordability. California’s and Europe’s policies are obviously focused on something other than delivering reliable, affordable energy to those who want it and need it.

Going forward, this is a major advantage for us. Mississippi’s energy situation is a microcosm of what the vast majority of Americans want in an energy policy for our country.

So other than the fact that almost everyone prefers to pay less for energy, why does this matter? From a macro perspective, this is clear evidence of a more favorable supply/demand ratio here, a reasonable and pro-growth regulatory system, and a more favorable tax environment (taxes make up a majority of Europe’s costs). These together add up to more opportunities and more serious looks from investors, i.e. job creators.

Proximity to oil production and refining, an abundance of pipeline assets, diversity in electric power production, and importantly, the state’s hospitable attitude toward those looking to invest big bucks in energy projects are major reasons we pay less at the pump and less to power our homes and businesses.

Not only does this result in more disposable income for families and businesses, but this gives us an edge in today’s incredibly competitive economic development arena. Industrial and manufacturing businesses are looking to site their operations to be in places where energy is available and more affordable than the competition, and today’s competition is not only other states but the rest of the world.

As our state continues to embrace energy supply as a major part of the economic development toolbox, Mississippi will see the payoff in investment and good-paying jobs.

Electric Rates Will Skyrocket Under EPA Plan

A Guest Column by MEI President Patrick Sullivan recently published by the Clarion Ledger on 9/14/14

Mississippians should be aware of what’s brewing in a new proposal from the U.S. Environmental Protection Agency (EPA). If implemented as planned, the added costs to Mississippi households, businesses, and the overall economy will be shocking. Hopefully, good sense will prevail, but we should not assume such.

EPA’s unprecedented plan to alter fuels used for electric power generation in states under the guise of carbon dioxide (CO2) emissions reductions is simply not economically feasible. The economic impacts will be ruinous to U.S. competitiveness. Further, by EPA’s own admission, CO2 levels will not be significantly reduced by the proposed scheme, so this appears to be the next jab in the ideological fight against traditional energy sources that provide about 95 percent of American energy.

Instead of reaping the benefits of the most diverse energy supply in the world, the Administration, through EPA, is proposing a plan I estimate will result in $14.2 billion in unnecessary power plants constructed in Mississippi between 2018 and 2025. Mississippi electric ratepayers will pay the costs off with added interest over a couple of decades through higher electricity rates, much higher.

Virtually overnight, innovation in American oil and natural gas production has made our country the most energy rich in the world when also including abundant U.S. coal reserves, the world’s largest nuclear power fleet, and the variety of renewable energy assets. Coming out of a painful recession still mired in recovery, the logical policy direction is to leverage American strengths, like innovation, our people, and now an abundance of energy, into manufacturing growth and a 21st century industrial economy. Energy and manufacturing jobs typically pay 2-3 times the average private sector wage. However, EPA is proposing a contrary direction.

Here’s how it could go if they get their way. All conventional coal plants in Mississippi will be prematurely retired. These plants are largely paid off and producing affordable power because coal is an inexpensive fuel for power generation. Next, 13 percent of all electricity produced in Mississippi will be required to come from renewable sources. A fair economic case may exist someday for this scenario, but today, the added costs total $14.2 billion.

To put this in perspective, Mississippians altogether pay slightly less than $2 billion each year in state individual income tax. Of course, low income families will be hit the hardest as the economy is dragged down. Energy costs like electricity, natural gas, and gasoline, make up a much higher share of low-income household budgets than higher income households.

There’s also a fairness issue among states. Kentucky’s targeted emissions level for the regulatory period is nearly 3 times higher than Mississippi’s, so clearly, the proposed CO2 standards are not about health.

Analyzing the EPA proposal causes lots of head scratching, but the absurdity is almost laughable. Because EPA seems to arbitrarily want 13 percent of Mississippi’s electricity to come from renewable sources, some 21,000 acres will need to be covered with solar panels, creating a series of ecological deserts across the state. Another 48,000 acres will need to have giant wind turbines. The area requirement is the equivalent of covering the entire City of Jackson in energy production, and because of their intermittent nature, these resources will only generate power 15-20 percent of the time.

Obviously, the EPA proposal is not grounded in reality. Emissions reductions are achievable, as evidenced over the past 30 years, but consideration of the economic impacts should be required and expected.

Shutting Energy Out Is Selling the Coast Short

An Opinion Editorial by MEI President Patrick Sullivan published July 13, 2013 in the Sun Herald.

Life is a series of choices. For our state and country, important energy and economic policy
questions persist in the public debate. Our options are rather simple: we either produce energy
where it is locally available — and every place is local to someone — or we rely totally on
production from elsewhere.

A few myths commonly and effectively propagated in U.S. society today include “energy
production and tourism cannot coexist” and “development is at odds with environmental
stewardship.” These myths are most often spread by full-time critics or organizations offering
criticism with no practical alternative solutions. Always being against everything requires little
skill, and allowing these organizations to hinder progress hurts U.S. competitiveness and costs
money in the form of lost revenue and jobs.

The recent action by the Harrison County Board of Supervisors to oppose energy production in
state-owned waters indicates these elected leaders may not be looking at the full picture.
Hopefully, their viewpoints will improve. Very real and nearby examples in our neighboring
states of Alabama and Louisiana debunk these “either-or” fibs, and state law already prohibits
exploration and production in the Mississippi Sound. However, there are more compelling
reasons why energy production should be a major area of focus for Coast development.

Energy related jobs, on average, pay about twice the wages of the rest of the private sector with
oil and natural gas industry jobs outperforming the energy sector average. Because higher
household incomes correlate with a better quality of life, shouldn’t our growth strategy target
sectors both demanding significant employment and, importantly, paying higher wages to
employees of all skill levels? A strategy with this focus would be one based on community and
family sustainability with positive ripples into other areas of the economy, like retail and service
sectors.

Instead, public leaders too often buy into the propaganda that allowing energy production, like
offshore production, eliminates the option to specialize in one area, like tourism. This view is
shortsighted for the Gulf Coast. In today’s age of innovation and creativity, to think the economic
and ecological strengths of the Gulf Coast cannot all be leveraged together is regressive and
disingenuous. Seafood, manufacturing, energy production, tourism and a unique and improving
coastal ecosystem do coexist, and looking forward, wise utilization of natural resources can
result in new opportunities in all areas, bringing the needed jobs and revenue for a better quality
of life.

Unfortunately, comparing employment levels in the three coastal counties to pre-Katrina levels,
combined employment today remains around 10,000 jobs short of the summer 2005 mark. Of
note is virtually all the lack of jobs recovery is in Harrison County, while Jackson and Hancock
counties have been back to pre-Katrina employment for several years now. Rather than putting
all hope in the growth in one or two sectors, a more sophisticated and comprehensive approach
will return (higher paying) jobs and yield more wealth for the Coast.

One of the many strengths of Mississippians as a whole is rationality and the will to reason, thus
avoiding the impractical. Reliability, affordability, diversity and availability are the key
principles of a growth-based energy strategy. In its own economic interest, the Mississippi Gulf
Coast should not only embrace energy opportunities, but actively seek a greater role in the
energy economy. With more jobs and increased revenues, the winners will be Coast citizens and
communities.

Diversity, Stability Key to State’s Energy Future

An Opinion Editorial by MEI President Patrick Sullivan that ran in the Clarion Ledger on February 8, 2013.

One year ago in this column, I wrote about the difficulty of building large infrastructure projects and developing energy in America today. At the time, the Keystone Pipeline project, which would supply our country with more oil, as well as offshore energy expansion in Mississippi waters, was the subject of debate.

If we want our economy to grow, infrastructure expansion and energy development are absolutely necessary, and many of these projects – like power plants, ports, pipelines, sewer systems, and highways – are rather large and capital-intensive. They are projects that require a great deal of coordination and broad support from the people and their elected officials. That is why it is so discouraging to see organizations with no real answers for energy in our state attempt to block important projects, hurting our competitiveness, raising expenses, and potentially costing jobs. Mississippi Power’s lignite gasification electric power plant in Kemper County is the latest target of this build-nothing-anywhere movement in America.

For those confused by the arguments for or against this project, looking at a previous real-life example may help. In the mid-1970s, Entergy set out with plans to construct a large-scale nuclear power plant at Grand Gulf in Claiborne County. The debate then was quite similar – in fact, almost identical – to today’s debate on the Kemper County plant. Back then, opponents said the Grand Gulf plant would cost too much, while proponents said it was the right long-term decision. We now have the benefit of 30 years of experience to judge the performance of that project and to determine the merits of those arguments, especially those of the nay-sayers. Today, Entergy’s Grand Gulf plant is the lowest cost supplier of electric power in Mississippi with a long life ahead. The opponents were wrong, just as they are today.

Were the initial capital costs for construction high, requiring rate increases in the 1980s? Of course, but the guiding policy principle then is still the same 30 years later. That is, in electric power generation, avoiding over-reliance on one energy resource is too risky, considering the life of projects is a minimum of 40 years. It is better to diversify.

Diversity isn’t just a political buzzword; it has real financial benefit to consumers. The capital cost of power generation projects is high, and that cost of capital is critically important to Mississippi ratepayers. Therefore, when investors in energy projects are able to look at Mississippi as a more predictable and safer place to invest, rates will be lower and large projects will cost Mississippi energy consumers less.

Having diversity in energy and producing more of our own energy should be major guiding policy principles for our state. It makes sense both financially and from an energy security perspective. Innovative financing and, importantly, certainty to encourage investment are key components to keeping rates down when we have to build a new power plant. And make no mistake about it, experts and public officials agree that a new base load power plant is needed by 2014.

Getting down to it, we have three main fuel options for base load power production today – natural gas, nuclear, and coal. Today, natural gas is abundantly available and favorably priced, and natural gas power plants are relatively inexpensive. However, about 65% of electricity in Mississippi is made with natural gas, meaning that the future for Mississippi energy consumers is already heavily leveraged on the future of natural gas prices, and the price of fuel makes up the biggest part of power bills. Both coal and nuclear are considerably more costly during construction but have much lower and more stable fuel costs over the decades of operations. A healthy mix of all three energy sources is in the best interest of reliability and risk management, and that’s exactly what a coal gasification plant helps achieve. By approving the Kemper County project, the Mississippi Public Service Commission has taken an important step toward long-term energy security for our state.

PSC Approval of Kemper Co. Plant Right Decision

The Clarion Ledger featured the following guest column by MEI President Patrick Sullivan in its June 3, 2012 publication.

In financial management, diversity of assets in a portfolio is advised to protect against devastating losses. The same is true in an electric power generation portfolio. A well-balanced mix of fuel sources guards against extreme volatility due to unpredictable market fluctuations in one commodity.

The Mississippi Public Service Commission rightfully approved the construction of the lignite gasification power plant in Kemper County. By supporting more baseload power diversity in a service area already heavily reliant on natural gas, the Commission’s decisions are based on rate stability and affordability for Mississippi Power customers both in the near term and over the 40+ year life of this generation asset.

Additionally, the fuel is indigenous lignite coal to be mined within sight of the plant, meaning fuel price over the life of the plant in this case is predictable, unlike most energy commodities.

A diverse, affordable fuel portfolio is the right energy strategy for Mississippi. To suggest ratepayers would be better off with more natural gas power in the place of the Kemper County plant ignores this basic policy and other important points.

First, history tells us natural gas prices are unpredictable. We only need to look back to the U.S. Energy Information Administration’s 1999 predictions for natural gas prices from 2000-2009. In the late 1990’s, large discoveries created a perceived supply glut. The prediction was cheap, steady, modestly rising prices with an average price of $2.32/mcf. The actual average price over this period turned out to be $5.70/mcf, an underestimation of 146%.

In no way does this criticize the EIA, but this simply demonstrates our severe, if not total, lack of ability to predict demand and prices, even in the very near term. Even with the enormous shale gas developments in the U.S., speculation remains at best an educated guess.

Natural gas is a great fuel with multiple uses in our economy – power, heating, manufacturing, transportation – but putting all our eggs in one basket exposes ratepayers to unpredictable price swings. If this was a predictable venture, surely many market experts would have shorted natural gas futures in 2008 and taken a long position in 2000 and made fortunes for their clients and themselves.

Second, in Mississippi, natural gas already accounts for 54% of power generation, more than coal and nuclear combined. As long as prices stay low, this is good, and the hope is with the abundance of shale gas in the U.S., price will remain low for a long period. Low natural gas prices are good for just about everything in the economy, but there are no guarantees.

Basing long term investment decisions only on capital costs (coupled with unpredictable fuel costs) takes us back to the ill-advised notion of investing our entire estate on one stock. While coal and nuclear power generation are more capital intensive during construction, they historically cost less over time due to long operating lives and more stable fuel costs. This plant is slated to still be generating power in 2050. Diversity, capacity, and reliability are what we want to protect ratepayers and to attract business and industry to our state.

Third, for the first time in the United States at this scale, the Kemper County plant will be capturing carbon dioxide emissions for geologic sequestration. Why does this matter? Mississippi is one of few players in enhanced oil recovery (EOR) in the U.S. EOR is the use of carbon dioxide injections to revitalize oil production in old oil fields. Because of EOR, oil production in Mississippi has been on the rise for the last several years. Simply put, this means more investment and jobs out in rural Mississippi and more tax revenue for the state. Further, because EOR is so prevalent in MS, the captured carbon dioxide will have a monetary value and already has eager buyers, rather than be deemed a waste byproduct as in conventional coal plants. Selling carbon dioxide emissions will help offset the cost of building the plant.

New oil and natural gas technologies in the U.S. have dramatically transformed our country into an energy heavyweight, now with more known energy reserves than any other country in the world with the ability to produce at a low cost, including oil, natural gas, and coal. And on a much smaller scale, we are getting better at capturing energy from wind, sun, biomass, and water. As China and others become more industrialized and energized, world energy demand will rapidly increase. If U.S. leaders will sincerely embrace realistic energy development, we have a real opportunity to compete globally in ways that seemed impossible just 3 years ago. With our state’s aggressive growth goals, every reasonable opportunity Mississippi has to participate in energy development and innovation should be considered and pursued.

Like the shale gas and oil boom, successful solutions to energy challenges in many cases require technology development and commercialization. By showing the way on lignite gasification, carbon capture, and market based solutions like EOR, Mississippi is now home to a major platform for future energy.

Thank goodness we have regulators in Mississippi who understand the extremely long term nature of these projects and the importance of diversity. Due to our brief 4 year political cycle, the politically expedient decision for today is to build the cheapest source based on today’s prices, but this risky strategy would be contrary to sensible long term planning. Not only is the Kemper County plant in the best interest of Mississippi and its ratepayers, but the plant also sets out to prove Mississippi can be home to energy innovation.

Let’s plan for more innovation here.

Mississippi Faring Better than Most when it Comes to Gasoline Prices

An Opinion-Editorial by MEI President Patrick Sullivan published May 11, 2012 by the Clarion Ledger

If you’re like most Americans, you’re worried about the recent rise of gasoline prices and where it’s going from here. But for those who like to look at the bright side of things, it could be worse. At least you’re not filling up your tank up in California or worse, Europe. A gallon of gas in California costs $4.35, 70 cents more than a gallon in Mississippi, and a gallon in the United Kingdom costs the equivalent of $8.23. Additionally, California households pay 52% more per kilowatt hour than we do for electric power, while Londoners pay 130% more for power than Mississippians.

Data shows Mississippi has an energy cost advantage over the national average and a significant edge over places like California and Europe. Why? Mississippi’s energy policy is intentionally and rightfully geared towards diversity, supply and affordability. California’s and Europe’s policies are obviously focused on something other than delivering reliable, affordable energy to those who want it and need it.

Going forward, this is a major advantage for us. Mississippi’s energy situation is a microcosm of what the vast majority of Americans want in an energy policy for our country.

So other than the fact that almost everyone prefers to pay less for energy, why does this matter? From a macro perspective, this is clear evidence of a more favorable supply/demand ratio here, a reasonable and pro-growth regulatory system, and a more favorable tax environment (taxes make up a majority of Europe’s costs). These together add up to more opportunities and more serious looks from investors, i.e. job creators.

Proximity to oil production and refining, an abundance of pipeline assets, diversity in electric power production, and importantly, the state’s hospitable attitude toward those looking to invest big bucks in energy projects are major reasons we pay less at the pump and less to power our homes and businesses.

Not only does this result in more disposable income for families and businesses, but this gives us an edge in today’s incredibly competitive economic development arena. Industrial and manufacturing businesses are looking to site their operations to be in places where energy is available and more affordable than the competition, and today’s competition is not only other states but the rest of the world.

As our state continues to embrace energy supply as a major part of the economic development toolbox, Mississippi will see the payoff in investment and good-paying jobs.

In Mississippi, Let’s Be Rational About Energy Projects

The Clarion Ledger featured MEI President Patrick Sullivan as a guest columnist in their February 4, 2012 publiction.

A common fib in public debate today is we must choose between development and a healthy environment. This argument arises almost without fail in large infrastructure projects, industrial development, and, especially, energy projects.

The Keystone Pipeline project halted by the Obama Administration in January is an unfortunate example. After three years of extensive environmental review with a favorable result, the President decided, amidst environmental opposition, to delay billions in private investment and thousands of American construction jobs indefinitely, likely until after the election.

Closer to home, the Mississippi Development Authority has rightly released rules for offshore oil and natural gas exploration and production within Mississippi’s Gulf of Mexico property. An initial goal of this program is, through seismic testing, to determine the prospective areas for production and production potential. Unless exploration is allowed, the State of Mississippi will remain in the dark about how large or small of an opportunity this may be, in terms of jobs and revenue. Unlike the Keystone Pipeline, state government leaders will not let this long-term project be delayed by political whims, and hopefully, findings will be significant.

Through 65 years now, more than 50,000 oil and natural gas wells have produced energy for our country. About 3600 are still active. More wells sit in Alabama, Louisiana, and Texas waters. As with anything, accidents have happened, but the overall safety record is remarkable. The energy industry is an enormous part of the coastal economy and helps make up the diversity of this unique economy – energy, nature-based tourism, manufacturing, seafood, and gaming all coexist and are even dependent on one another.

To say that expanding one area of this economy, energy in this case, automatically takes away from another part of the economy, tourism, is simply not consistent with history. Some detractors of MDA’s rational program cloak their argument in anecdotal economics, but this only leads us back to the lie about energy development being incompatible with a healthy, aesthetic environment.

The truth is…if our goal is economic growth and opportunity, the right policy for Mississippi and for our country is to allow access and opportunity for maximum energy development. I don’t think anyone is expecting production off the coast of Mississippi to be a real game changer, but Mississippi should play its part. The launch of this program is consistent with an economic growth-based energy policy, one that’s focused on supply and building more energy capacity locally and domestically, including through conservation and efficiency.

The choice is not between energy and the environment. That’s propaganda. The real choice is between developing our assets responsibly or not.