Despite the environmental, economic, and reliability benefits of switching to a renewables future, New Orleans, Louisiana is being blocked by local utility monopoly, Entergy.
NOLA is ready to embrace an all-renewables future. Why? Well, UCS research shows that making the switch would probably save them money. Plus, renewables are more reliable than many of their current sources of electricity. There is only one thing in their way: the local monopoly utility, Entergy New Orleans (ENO).
The king of affiliate transactions
Entergy New Orleans (ENO) is owned by Entergy. Entergy owns a lot of utilities including rate-regulated utilities like Entergy Arkansas and Entergy Louisiana; as well merchant utilities like System Energy Resources Inc (ESRI). ESRI only owns a single power plant, Grand Gulf Nuclear Power Station, which is a notoriously unreliable reactor that has suffered numerous safety and operational issues in the past.
Each of those other companies—also owned by Entergy—are considered affiliated companies. Entergy often has these affiliated companies enter into agreements to buy/sell electricity. And that is an affiliate transaction.
While affiliate transactions certainly aren’t uncommon, Entergy is the king of affiliate transactions between electric affiliates.
Affiliate transactions might not be inherently bad for customers, but they don’t have a great track record of providing consumer benefits. In fact, both electric-electric and gas-electric affiliate transactions have recently come under scrutiny.
I recently went over all the reported affiliate transactions associated with the sale of electricity in 2018. There were some $5 billion dollars in wholesale electric transactions between affiliated companies. But more so than the $5 billion, something else stood out:
20% of all affiliate transactions in 2018 were associated with Entergy affiliates.
Map of service territories of utilities. Map Rendered using S&P Global Software.
Entergy isn’t the only utility that relies on affiliate transactions. UCS analysis of S&P Global data.
Entergy is now using those affiliate transactions to block the development of renewable energy.
Blocking a push for local renewables
Entergy has an established history of using untoward tactics to get customers to pay for questionable investment decisions. Most recently, they engaged in an Astroturf campaign (a fake grassroots campaign) wherein they hired paid actors to feign support for a gas-fired plant that local advocates overwhelming opposed.
Eventually, the New Orleans City Council opted to hear from the public on passing a mandate that a percentage of electricity be generated from renewable sources (like wind and solar).
The vast majority of comments supported a pathway to a 100% renewable electricity standard (RES) with some opting for a 100% clean electricity standard (CES). The latter leaves the door open for technologies like carbon capture sequestration and/or nuclear.
Entergy had a different idea. They proposed a 70% CES: A lifeline to their struggling nuclear power plants. You see, Entergy affiliates already provide Entergy New Orleans with upwards of 57% of their annual energy from nuclear generation (though it tends to be much lower due to outages at Grand Gulf Nuclear Plant). They also appear to be providing Entergy with a very high rate of return.
Entergy’s existing resources, plus a 150MW of new renewables, would get ENO to (or very nearly to) the 70% target. Plus, it would protect any new gas plants they have from the risk of becoming stranded assets.
Earlier this year, UCS helped do some research and analysis for a group of advocates in New Orleans that were pushing for a 100% Resilient Renewable Portfolio Standard. UCS’s research showed that by switching to 100% renewables and efficiency, the city’s residents could likely see lower bills.
UCS even filed a letter in support of a 100% RES for New Orleans.
Entergy did not like that and claimed that coalition (including UCS) was engaging in the intellectual equivalent of climate denial. To suggest that the Union of Concerned Scientists is engaging in the intellectual equivalence of climate denial is the act of a desperate corporation.
Hiding behind FERC
Equating UCS to climate deniers wasn’t the only desperate measure Entergy has taken. They have begun threatening the city council and advocates.
Entergy also attempted to hide behind FERC approval for affiliate transactions as a barrier to build the 100% RPS future NOLA deserves.
Through a couple of different subsidiaries, Entergy owns two coal plants and a nuclear power plant that sell electricity–at wholesale–to various utilities, including ENO. Wholesale transactions are regulated exclusively by FERC.
The transactions between the nuclear plant (Grand Gulf) have a long and dramatic history, dating back to the 1980’s. The transactions were heavily litigated and those litigations even went up to the Supreme Court. Entergy renewed a contract to provide service on the business as usual operations. Both the Louisiana PSC and the Arkansas PSC have pending complaints against Grand Gulf, arguing that it is overcharging for its service.
Entergy is now saying that ENO is obligated to buy electricity from Entergy-owned Grand Gulf, and therefore can’t possibly buy 100% of its electricity from renewables. Plus, Entergy claims that ENO customers are on the hook for any investments that the utility makes into Grand Gulf, with no oversight onto the prudencey or reasonableness of those investments.
Regardless of the squabbles at the wholesale level, my main point is that state and local regulators still have an oversight role. There are a number of questions that seem to fall squarely in local jurisdictions.
One obvious question: Is the recent contract renewal “imprudent” for consumers? Given other favorable options available to the utility, maybe it was.
Another question, are these types of affiliate transactions producing a rate of return for Entergy that is above the allowed rate of return permitted by state and local utility commissions?
I’m not specifically asserting that one or both of these questions is yes. To find the answer one would almost certainly have to litigate the question at the commission or at the courts.
Entergy would have the city council and the people of New Orleans believe that this is a black or white issue. That simply isn’t true. This simply isn’t the clear-cut case Entergy wants you to think it is. Entergy is trying to bully its way into getting what it wants.
I’d also add that there is another way for the contract to be broken or at least renegotiated. Entergy, because it owns both ENO and SEPI, could simply elect to do it. The counterparties of the contract are fully capable of renegotiating terms on their own. So, it isn’t like Entergy can’t do anything about it—in fact, the easiest solution is one they can implement alone.
NOLA has to act now
UCS’s 2018 nuclear power analysis showed that Grand Gulf is uncompetitive compared to the market, and if retired, would likely be replaced by fossil fuels, but that didn’t account for the 100% RES that is being considered by the city of New Orleans. UCS’s report also explicitly acknowledges that with sufficient planning and strong climate and clean energy policies, we can make a smooth transition to clean energy. If New Orleans makes a strong commitment to ramp-up renewables, today, it could avoid investing in natural gas plants and avoid doubling down on Grand Gulf, all while reducing emissions and saving consumers money.
It seems to me that New Orleans could be in an abusive relationship with its utility. Their dynamic is about power and control, and Entergy is trying to use its power to make NOLA feel powerless, to feel like it has no control even though the city has every right to direct its clean electricity future.
The people of the city of New Orleans and the elected officials are the ones with the power over its power. They can—and will—take control of that future and take tangible action to address climate change, which threatens the lives and livelihoods of everyone in the city.