The New Orleans City Council’s utility advisers are recommending a $1.5 million to $2 million fine against Entergy New Orleans for failing to adequately maintain the city’s aging electrical distribution system — the poles and wires that run down New Orleans streets to connect buildings to the grid.
In a report handed over to the council last month, and included as part of Thursday’s council meeting agenda, the council’s contracted legal and technical advisers concluded that the penalty was appropriate because the company’s “actions, inactions and delayed reactions caused adverse impacts on tens of thousands of ratepayers, both commercial and residential.”
According to the advisers’ analysis of data provided by Entergy New Orleans, there were 2,599 outages between June 1, 2016 and May 31, 2017 alone, most of them on fair-weather days.
Questions about system’s stability have been mounting over the past several years, but the pressure on Entergy rose last summer after the company revealed it had removed $1 million from a repair fund for power lines and poles in 2013.
The advisers’ report shows that Entergy also reduced the amount it spent on capital additions to the distribution system by about $21 million from 2014 to 2015. The number and duration of power outages has increased every year after 2013, according to reliability measures provided by Entergy included in the advisers’ the report.
“Clearly, ENO was in the best position to know that this problem existed, was on the rise, and was not limited to one Council district, and yet, ENO failed to take sufficient corrective action in a timely manner,” the report says.
”Numerous electric utilities throughout the country operate systems that have aging legacy construction, but still achieve acceptable levels of reliability.”—Joseph Rogers, Legend Consulting Group
Those problems helped prod the City Council to open a prudence investigation in October to investigate Entergy’s idleness in addressing the problem.
Entergy offered all the evidence in its defense to the council in January, according to the report, blaming its aging infrastructure — rather than a lack of maintenance — for the reliability problem and citing the need to modernize its distribution equipment. But in testimony included in the report, an engineer who works for one of the council’s advisory firms gave a biting rebuke of that defense.
“These comments are excuses, not substantive responses or evidence of prudent conduct,” said Joseph Rogers of Legend Consulting Group. “Numerous electric utilities throughout the country operate systems that have aging legacy construction, but still achieve acceptable levels of reliability. ENO’s assertion that its reliability problems stem from its legacy construction simply highlights failure to maintain and improve its system over time.”
The council will still have to decide whether to follow through on the fine. But if it does, it will be the second major penalty the city, which regulates Entergy New Orleans, has handed down in recent memory. In February, the council voted to fine Entergy $5 million after one of its subcontractors paid actors to make speeches at council meetings in favor of its proposed power plant in eastern New Orleans.
The council had approved the plant in March 2018. Following an investigation into the so-called “astroturfing” scandal, council members briefly considered reversing the decision, but ultimately settled on the fine. Still, it was the largest single penalty ever levied by the council, according to Councilwoman Helena Moreno.
Moreno’s Chief of Staff Andrew Tuozzolo told The Lens that the newly proposed fine will likely be up for public discussion this summer.
“We’ve gotten to a point where the prudence investigation is starting to bear fruit,” he said. “We’re going to hold them accountable in the ways we can. We’re going to hold them accountable through monetary measures, things that their ultimate bosses, the shareholders, will notice.”
”We’re going to hold them accountable through monetary measures, things that their ultimate bosses, the shareholders, will notice.”—Andrew Tuozzolo, chief of staff, Councilwoman Helena Moreno
Brian Guillot, Entergy New Orleans’ vice president of regulatory affairs, told the Lens in an email that the company had “reviewed the comments and testimony filed by the council’s advisors and prefer not to comment on this pending regulatory matter at this time.”
The report comes after nearly two years of vocal concerns from the council, concerns that began with a letter Councilman Jared Brossett sent to then-Entergy New Orleans CEO Charles Rice in 2017.
“I want to give all the credit to Councilman Brossett, who really started this conversation before we even got here,” Tuozzolo said.
“The citizens of New Orleans should expect their lights to come on when they flip the switch,” Brossett told The Lens in an email. “As I have said previously, the status quo relative to distribution system reliability is unacceptable.”
Mylar balloons and squirrels
In June 2017, Brossett sent a letter to Entergy demanding an explanation as to why his office was receiving so many complaints about outages. Later that month, Entergy handed over data that gave the council a glimpse of just how far the distribution system had deteriorated.
The information showed the large number of outages in the city between between June 1, 2016 and May 31, 2017. Perhaps more surprising, the data showed that 56 percent of those outages happened on fair-weather days. The advisers concluded that equipment failures in the distribution system were a primary cause.
”Councilmembers expressed frustration in finding that ENO’s routine explanations for outages—Mylar balloons or squirrels—were not supported by the facts, facts which laid blame on ENO equipment failures.”—City Council utility advisers’ report
“Councilmembers expressed frustration in finding that ENO’s routine explanations for outages—Mylar balloons or squirrels—were not supported by the facts, facts which laid blame on ENO equipment failures,” the advisers new communication said.
A review by the advisers revealed that from 2014 to 2015, the company reduced the amount it was spending on distribution capital additions from $31.3 million to $10.4 million. At the same time, it reduced its distribution operations and maintenance budget by more than $1 million.
Since then, Entergy New Orleans has taken steps to right the ship. It has increased spending on maintenance and capital improvements. And it hired a third party consultant, Quanta Technology, to advise on how to address the failing distribution system. And a 2018 reliability plan Entergy submitted to the council was, according to the council, a vast improvement from its 2017 version.
“Entergy New Orleans has invested over $50 million since 2016 to improve distribution reliability citywide and to strengthen the system,” Guillot said in an email. “So far in 2019, we have seen approximately 40 percent fewer customer interruptions compared to recent years. During 2019 through 2022, the company expects to invest roughly $15 million annually to further improve distribution reliability.”
But the advisers said that whether or not Entergy is now investing in the system, the prudence investigation is about whether the company is at fault for its years of complacency as the system deteriorated.
“Reaction to significant regulatory pressure is not prudence,” Rogers said in the report. “ENO unilaterally chose not to adequately maintain its distribution system for several years, instead reducing distribution investment” and operations and maintenance spending.