Council passes $1M fine and lower allowed profit for Entergy, over objections from Mayor Cantrell and the company
18th November 2019 · 0 Comments
By Isaac Stein
The Lens
The New Orleans City Council on November 7 approved new electric and gas rates for the city, which the council has said will lower electric bills by an average of about $3 per month for east bank residents and keep Algiers bills about the same, at least for the time being.
As part of the resolution, the council also lowered the profit rate that the city’s gas and electric utility, Entergy New Orleans, can collect from customers by nearly two percentage points. The lower rate was approved despite objections of Mayor LaToya Cantrell and threats of litigation and new costs for ratepayers from Entergy.
The Council also levied a $1 million fine on the company for its “inaction and omissions in mitigating” the thousands of power outages the city experiences every year.
The rate reductions will be retroactive to August, though it was not immediately clear how bills will be adjusted to account for the past three months. Although many customers can expect lower bills for now, they will likely go up again as soon as next year when two power plants — a solar plant and a highly controversial gas plant — are expected to go online and customers begin paying them down.
Both resolutions — the new rates and the fine — were passed through the council’s consent agenda. The consent agenda is made up of typically noncontroversial items that the council votes on as a group. It often includes utility-related resolutions that have already been debated in the council’s utility committee, such as the two that passed recently.
Councilman Jay Banks put forward motions to move them to the regular agenda, which would allow council members to amend them and debate them individually. But Banks’ motions both failed in 4-3 votes. Councilwoman Cyndi Nguyen and Kristin Palmer voted with Banks.
The consent agenda passed in a 6-1 vote, with Banks as the sole dissenter.
“The council recognizes that the people of this city face many financial pressures coming from every direction,” Councilwoman and utility committee chair Helena Moreno said at the meeting. “We owe to them to deliver the best deal to reduce their bills and to provide a positive path for the city’s energy future for years to come.”
Entergy’s allowed profit, along with a long list of critical regulatory issues, was determined through a process called a rate case. The council has been working on the rate case resolution for more than a year. But over the past two weeks, the most contentious piece of the resolution has become Entergy’s return on equity, the key component determining the company’s profit rate.
The resolution cut Entergy’s ROE from 11.1 percent to 9.35 percent. Entergy had argued that its ROE should be 10 percent, saying the lower rate would threaten the company’s ability to fund critical projects. The council’s own utility advisors argued that the ROE should be set even lower, at 8.93 percent.
Entergy’s opposition to the 9.35 percent rate ramped up after the resolution passed unanimously through the council’s utility committee last month.
In late October, the company sent two letters to the council. One of them was from Entergy’s assistant general counsel Alyssa Maurice-Anderson, asking to renegotiate the return on equity rate “to avoid the lengthy and costly litigation and additional rate cases that will follow otherwise.” Entergy New Orleans CEO David Ellis also sent a letter, saying that the council’s proposed at 9.35 percent return on equity rate would “severely limit our plans to invest in” reliability, clean energy and the Sewerage and Water Board.
Those letters were sent in the evening of October 31. That morning, Entergy had its third quarter earnings call with investors. During it, CEO Leo Denault highlighted the importance of convincing regulators, like the City Council, to set good return rates on capital investments.
A day later, The Times-Picayune/Advocate reported that Cantrell wrote a letter to the council backing Entergy, saying the company should get the 10 percent ROE it was requesting. Her stance represented a split with a coalition of major power users that the Mayor and the Sewerage and Water Board had joined, called the Crescent City Power Users Group.
CCPUG had originally suggested the 9.35 percent rate, and the group sent a letter to the council on Monday to reaffirm their support for the council resolution.
The possible reason for the mayor’s split with the coalition became more clear this week. Entergy offered a deal, promising to provide up to $75 million for projects related to providing reliable energy to the Sewerage and Water Board in return for the higher profit rate.
First reported by The Times-Picayune/Advocate, the offer, sent by Entergy New Orleans’ Vice President of Regulatory Affairs Brian Guillot, also included a promise to spend $100 million over five to seven years to improve system reliability to reduce the city’s frequent power outages.
Both of those offers would be “subject to appropriate approvals and cost recovery to be discussed,” the email said. Details about whether the money would come from ratepayers, and how much profit the company would be able to collect on the funding, were still unclear, Moreno said at the meeting.
Guillot warned that with a 9.35 percent ROE, Entergy “cannot offer these benefits and others.” Guillot also suggested that if the council didn’t increase their ROE, they would simply open another rate case next year.
“Under that scenario, customers would be forced to pay the cost of another rate case ($7 million dollars)—a cost that can absolutely be avoided if the Council approves a reasonable deal now,” Guillot wrote.
Neither Cantrell’s office nor Entergy New Orleans immediately responded to requests for comment.
‘This is not an offer. It is extortion.’
The settlement offer from Entergy triggered a backlash from consumer and environmental advocates.
In a letter to the Council, Logan Burke, the executive director of the Alliance for Affordable Energy, said that Entergy’s strategy was akin to “arm-twisting.”
“Entergy has an obligation to serve the customers of New Orleans reliable, low-cost power, and with their most recent letters they are holding the Council hostage to threats of lawsuits and additional regulatory costs, throwing misleading ‘offers’ on the table,” Burke’s letter said. “This is not an offer. It is extortion.”
At the meeting, Burke further argued that it was Entergy’s obligation to provide reliable power, not something the company could dangle as an initiative it may or may not pursue.
But the biggest issue with Entergy’s offer, both in the eyes of Burke and the council, was that it lacked the specificity to predict the financial impact on customers.
“The offer does not have all the specifics necessary to know if it’s a good offer or bad offer,” Banks said. “But I would not be true to myself if I did not talk about how we have to look at every available option, so we lessen the burden on the people who are less able to pay.”
He argued that the city has to find millions to fix the Sewerage and Water Board’s crumbling infrastructure one way or another. He said he wanted to delay the resolution so they could deliberate further. Banks is a member of the board of directors of the Sewerage and Water Board. He also worked for Entergy from 2005 to 2008, and for one of the council’s utility consulting firms, Legend Consulting Group, from 2013 to 2017.
“Whether it’s aid to the Sewerage and Water Board or improvements to reliability, Entergy New Orleans is not doing this for free,” Moreno said at the meeting, noting that the company’s profit rate is applied to its capital investments, so it could earn a profit on the cost of its promised improvements. “It is not a gift.”
Moreno did agree with Banks’ sentiment about the needs at the Sewerage and Water Board, but said that Entergy told her they wouldn’t have the necessary specifics until the second quarter of 2020.
“We are not closing the door on these options or the higher ROE,” Moreno said, adding that the company could come back when they had a more detailed offer.
Councilman Joseph Giarrusso said that a key issue for him was the interest rate customers would have to pay on Entergy’s upfront investments. He suggested that the Sewerage and Water Board could find cheaper funding, such as low-interest bonds. He pointed out that later in the meeting, the council would consider a resolution to allow the Sewerage and Water Board to issue $25 million in bonds at an interest rate of only .95 percent. That resolution was approved later in the meeting.
The above article originally appeared in The Lens on its website (www.thelensnola.org). The Louisiana Weekly enjoys a partnership with The Lens.
This article originally published in the November 18, 2019 print edition of The Louisiana Weekly newspaper.
