Friday, October 27, 2006

The Entergy Shell Game

The cheerful tone and misleading headline of today's Times-Picayune story on the Entergy rate increase masks some serious deficiencies in the compromise. Most striking is that Entergy will be allowed to continue double billing Entergy New Orleans customers for power from Grand Gulf.

Currently, Entergy New Orleans customers pay for the cost of Grand Gulf nuclear power in their rate base. As part of the council's immediate post-flood response to Entergy's bankruptcy, the council agreed to allow Entergy to sell off the inexpensive Grand Gulf power on the open market, and buy more expensive open market power for New Orleans as customers were gradually brought back on line. However, as part of that arrangement, we are required to pay for the power sold off because its still in the rate base. On top of that, we are paying for high cost, open market replacement power.

As part of that post-Katrina emergency rate adjustment reconnected customers are required to pay again for Grand Gulf's power in their fuel adjustment charge. And it's not even clear if Entergy New Orleans customers are actually using Grand Gulf power, since it was sold off on contract, but we are billed for it just the same. Twice. Hopefully somebody either at the T-P, or another knowledgeable person with access to the documentation, can clarify when the we are even using the power for which we are being double-billed.

I attended with a number several weeks ago of former city attorneys from the original municipalization effort from the 1980s and other interested parties, where a number of additional issues which Entergy's rate requests were raise.

One point we discussed was whether the rate-base value of the infrastructure--the investment on which Entergy Inc. claims a right to a guaranteed return under current utility regulation law--should be shrunk. The current operating agreement dates back to the early 1970s, and assumes a population base in the service area closer to 600,00 than the pre-storm 480,000 or the current amorphous 200,000 or so. Why are we even negotiating rates based on assumptions that are decades out of date?

We also discussed whether the rate base should be adjusted downward by the amount of the public's investment through the Louisiana Recovery Authority Community Development Block Grant funds. In brief, it was broke. We (the taxpayers) paid to fix it. It is now our investment and should no longer be used to calculate the Entergy Inc. investment upon which they claim they are guaranteed a return.

The last sticky issue is one that is one again put off to the future by this agreement. All of us who attended utility issue meeting were contacted by a Picayune reporter to comment on Entergy plans to shrink the gas service area. The entire gas system needs to be rebuilt due to brackish water contamination which will rot the pipes over time, at an estimated cost of $384 million. Entergy New Orleans applied to the LRA for federal funds to repair the gas system, but so far have been denied.

Based on the queries by the Times-Picayune Entergy has considered the option of not restoring gas service in some areas. The story ultimately published on on Oct. 17 gave the impression that Entergy was moving forward to repair the entire system while Council President Oliver Thomas was questioning that decision. He should. Replacing the entire storm-damaged gas distribution system at ratepayer expense will result in catastrophic gas rate hikes for ratepayers.

And at the District 4 sector planning meeting last night (which combines the Tulane-Gravier and Mid-City areas into a subplanning district) neighborhood residents of Tulane-Gravier reported they were told that Entergy had no plans to restore gas service to their area. Someone at Entergy or City Hall is not being honest about the real plan, because it appears Entergy is in fact making decisions about which areas to restore and which they will not.

What's being avoided is the same question everyone has been running from since the Bring New Orleans Back Commission released its report last year: can (and should) all areas be fully rebuilt? If the suggestion is that rate payers in populated areas be forced to bear the full cost of restoring gas service to every lot in areas that are substantially unpopulated at this time, I know my answer: No, we cannot afford to rebuild everywhere, at least not with natural gas service.

That is not, however, a fair question. The gas system was destroyed by the U.S. Army Corps of Engineers, and the federal government should be paying the full cost of replacing the gas system, and moving to do so so that all users can have gas service.

We keep putting off this politically dangerous question, but we can't afford it forever. if we're not prepared to go to the mat with the feds for full compensation for the damage they caused us, and continue blithely preparing to rebuild everything, all of our gas bills will triple. Other recovery costs will be borne by the returned for land that my take decades to repopulate, as the current sanitation contracts propose. The ultimate outcome will be a cost of living for the returned that is so high that the city's population will begin to shrink instead of grow. The recovery will fail.

We need to be honest and open with everyone (returned and not) about these issues: Entergy, what areas will have full restoration of services and how it will be paid for, the new garbage contracts, etc. Too much is being hidden from the citizens, even those deeply involved in the recovery planning process.

I'm not sure when I began to suspect that local leaders were hoping that the ACoE would declare most areas east of the canal unsafe, since they (Nagin, Landrieu, etc.) didn't want to make the really unpopular decisions and they didn't expect the federal government to come through with all the money the city needed. At least a few bloggers started saying that resettlement had as much to do with finances as levees before the election.

I haven't really had a chance to carefully reread the article, but it looked like a bit of a snowjob to me. It wasn't as bad as it could be, but the article certainly glazed over the fuel adjustment charge. Basically the article seemded to say, "good news, bills will only increase a little...for now."

Are you serious about Entergy being guaranteed a return on the LRA's investment? Even though it won't be adding much to our bills (or rent in my case, ultimately) I still don't like the thought of ratepayers having to pay for Entergy to build up an interest earning bank account.
Unless the rate base is adjusted downward to reflect this public investment in their infrastructure, that infrastructure (which would be worthless without the LRA money) will continue to be part of the rate base. It don't believe it will increase it, but in my opinion, it should *decrease* the rate base.
The best solution I can see would be to force consolidation of Entergy New Orleans with Entergy Louisiana and to force a sale of or(as a last resort) a municipalization of Entergy's gas service.

The City should get out of the electric utility regulation business.

The utility problem is structurally instable and given the problems of New Orleans in the immediate future will create future problems. The best leverage government will ever have is with the direct contribution of the CDBG money to Entergy. It must be used to restructure the current asymmetric relationship.
Excuse me? They don't plan to reconnect Tulane/Gravier to gas service?! There are two major housing developments planned for the neighborhood. One is fronted by the man who was just named head of RTA's board. Not someone I'd want to tick off if I were Entergy... Besides, this is right in the heart of the city, bounded by Claiborne, I-10, Broad and St. Louis, not on the outskirts where you normally expect to hear talk of "shrinking the footprint".

It sounds to me more like what cable companies used to do: rush to hook up the more affluent, generally white, areas and then build out everywhere else when they felt like it. This practice is known as "cherry-picking", and franchise authorities, elsewhere at any rate, tend to take a dim view of it.

As it happens, Wet Bank himself pointed me toward a now-dormant online forum where I ran across the emerging neighborhood organization for Tulane/Gravier, Phoenix of New Orleans ( So, this becomes personal: I have a good (?) mind to head over there, to the industrial section of the neighborhood between Gravier and I-10, and set up a community gas works!
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