September 29, 2008

Sole Provider: Energy Provider in N.O.

By Guillet, Jaime

It's a pocketbook issue.

In the same way many people derive important choices in life such as purchasing a new car or home, the two utility regulators in the state -- the New Orleans City Council and the Louisiana Public Service Commission -- evaluate options and base decisions looking through one primary lens: what is least expensive.

For New Orleans residents, there will be no low-cost solution to the city's debatably higher-than-average rates.

After extended power outages because of Hurricane Gustav, residents and politicians raised questions about utility service and the rates they pay for it.

With affiliates of Entergy Corp. serving 58 of 64 parishes and New Orleans, Jefferson Parish Councilman at large John Young has wondered aloud about deregulating the utility to create more competition.

But the city is between a rock and a hard place when it comes to its power. Entergy owns all three levels of power supply -- generation, transmission and distribution -- meaning it has a tight grip on any competitor who would want to produce or sell power to New Orleans

"In abstract, deregulation sounds great," said Clint Vince, a Washington, D.C.-based lawyer and the City Council's utilities consultant. "But what happens if we deregulate and there is no one to sell a competitive power supply to New Orleans. Then (Entergy) could buy power and sell it back to us at higher prices because it's deregulated.

"We'd love to deregulate if there was a competitive market we could buy from ... but we only want to be competing when we can buy power at a competitive, lower rate."

The council has examined a variety of options over the past two decades, including deregulation and buying all or part of Entergy New Orleans, creating a municipal system as Austin, Texas, and Lafayette have.

The choices all come back to the parent company Entergy Corp. owning all levels of supplying power, making those choices either too risky or too expensive.

"We have a monopoly at all three levels of the electric business," said Virginia Boulet, a corporate attorney and former mayoral candidate who has advocated a municipal utility in the past. "There's no competition at all. Traditionally here in America, that's not the best way to get the best price. It's not healthy."

But most experts concede the city's purchase of Entergy New Orleans is no longer a viable option as it was in the late 1980s. The city would not have Entergy's access to low-cost fuel contracts, which determines ratepayers' fuel adjustment charges, and would rely on its one active generation plant at Michoud. The power plant is considered outdated and costly because it uses natural gas, which has skyrocketed in price over the past 10 years.

It is a complete flip of the city's situation in the 1980s when natural gas was the cheap alternative and Entergy wanted New Orleans ratepayers to help build the $3.8 billion Grand Gulf 1 nuclear power plant. The city sued to keep Entergy from raising customers' bills an extra $100 per month, arguing successfully that New Orleans only used 17 percent of Grand Gulf's power. Now, that power is some of the cheapest in the state.

"Usually when you municipalize, you pay higher to get distribution and you pay a lot less for generation," Vince said. "If we municipalize, we lose the low-cost power supply. It would be shooting ourselves in the foot."

"It is what it is," said Councilwoman Shelley Midura, chairwoman of the Utility Committee. "We get our cheapest power from Grand Gulf and the coal contracts out of (Entergy) Arkansas, which we wouldn't have if we municipalize. We would be our own little city trying to buy power retail, and with Entergy we get it as wholesale."

Even Boulet feels a partial municipalization, of only the transmission system, is feasible.

Midura will grapple this week with an attempt by Entergy Arkansas and Entergy Mississippi to take themselves out of an Entergy system agreement, which will result in extremely high costs to New Orleans ratepayers, although how high has not been yet determined.

The city could build its own plant to sell power to Entergy, but that would cost hundreds of millions if not more because of the high cost of steel and construction, which would have to be borne by the ratepayers, Vince said.

He and Midura agree Entergy should build power plants closer to the New Orleans area and upgrade transmission lines so electricity from independent producers can be supplied to the area.

Michael Twomey, Entergy Louisiana vice president of regulatory affairs, said there is "no single easy answer" to decrease cost of fuel. He argues Entergy has enough transmission capacity.

"We believe the investment we have already made is adequate capacity for the greater New Orleans area," Twomey said.

Entergy upgrades its transmission system every year to accommodate its customers and will continue to evaluate the need for further upgrades, he said. As for building additional power plants, any new construction will have to be borne by the ratepayers.

Entergy has done a variety of things to reduce costs, Twomey said. The company is converting its Little Gypsy plant from natural gas to a less expensive fuel mix of petroleum coke and coal.

"Eventually customers will see their fuel charges go down," he said.

New Orleans' problem is not unique. Cities nationwide are trying to find ways to produce cheaper power, said Lambert Boissiere III, Public Service Commission representative for the New Orleans district.

"Natural gas is very expensive, coal is inexpensive but polluting, and nuclear is expensive to build," Boissiere said. "We're strongly considering options with solar, wind and diversifying our fuel mix. We don't have a lot of good answers, we're just searching for the best answer. But whatever the cost is, we'll have to pay for it."

Credit: Jaime Guillet

(Copyright 2008 Dolan Media Newswires)

(c) 2008 New Orleans CityBusiness. Provided by ProQuest LLC. All rights Reserved.