In March 2018, Entergy New Orleans got permission from the New Orleans City Council to build a new gas power plant in eastern New Orleans, often called the New Orleans Power Station, or NOPS. In the eight months leading up to that vote, and in the 17 months since, the price tag was reported at $210 million, which customers would pay back over 30 years.
But that was just the estimated cost to build the plant. An analysis by the Alliance for Affordable Energy, which opposes the project, predicts that over 30 years, customers will pay between $650 million and $685 million for the plant after operations costs, debt financing, and Entergy’s profits are taken into account.
That doesn’t include the price of the electricity the plant actually produces, which customers will also have to purchase.
A spokeswoman for Entergy New Orleans told The Lens in a statement that the analysis was inaccurate and the costs overstated. The company declined to provide its own long-term cost estimates.
The cost of construction doesn’t even appear to be the largest expense within the total sum. The biggest cost will be the $240 million to $280 million that Entergy will be authorized to collect from customers for shareholder profit and debt financing repayments, according to the analysis, primarily performed by the Alliance’s Executive Director Logan Burke and fact-checked by three utility industry experts: Justin Barnes, the director of research at EQ Research, a utility regulation research firm; Pamela Morgan, the president of Graceful Systems, a utility consulting firm; and Robert Fagan, the vice president of the consulting firm Synapse Energy Economics.
The group didn’t analyze how much of that $240 million to $280 million would go to Entergy shareholders versus debt financing costs. But according to Susan Miller, a staff attorney for Earthjustice who has worked with the Alliance for Affordable Energy in the past, the majority of that sum will be Entergy’s profit.
“I think it’s very safe to say that,” she said.
That would mean Entergy’s profit for building the plant could be more than $120 million. Media outlets, including The Lens, have previously reported that this return would be much lower at around $23 million to $25 million.
That number — which was erroneous, according to the analysis — was reached by applying Entergy’s “return on equity” rate of 11 percent to the $210 million price tag of the plant. The return on equity is the amount of profit that the council allows Entergy to collect from customers on capital investments.
Based on the new analysis, there appear to be two central errors in that calculation. The first was only considering the return on equity. The total percentage that Entergy can collect is called the “rate of return,” which is determined by a weighted average of the rate of profit and cost of debt rates. The cost of debt is what the council allows Entergy to collect from customers to recoup costs associated with taking on debt to fund the project, such as interest payments.
The Alliance for Affordable Energy’s analysis shows two different rates of return at 8.48 percent and 9.72 percent. The smaller rate of return is based on the council’s utility advisers’ recommendations. The larger one is based on Entergy’s.
The second and more impactful error was only multiplying the rate once — by the total cost of the plant. According to the analysis, the rate of return won’t just be applied to the total cost of the plant once. The advocacy group’s numbers show that Entergy will get a return every single year by applying the rate of return to the remaining unpaid balance of the plant’s initial cost. That calculation is done annually until customers pay off the initial costs.
For year one of proposed plant service — 2020 — the remaining value of the plant that Entergy can earn a return on will be $194 million, according to the analysis. With an 8.48 percent rate of return, customers will owe Entergy $16.4 million. The costs will get lower every year as the plant is paid down. In 2021, the return will go down to $15.8 million. In 2035, it will be $7.9 million.
That is expected to continue until customers pay off the plant completely in about 2050.
The construction costs plus profit and debt payments alone will run between $450 million and $500 million over 30 years, the Alliance’s numbers show. That doesn’t include annual operations costs. The baseline annual cost to keep the plant in service, which includes insurance for the plant and operations and maintenance expenses, will add up to roughly $205 million over 30 years. All of that will be paid by Entergy New Orleans customers.
”There are errors in the calculation provided that causes it to be overstated.”
—Statement from Entergy New Orleans
The bulk of the information that served as the basis for the estimates came from a September 2018 Entergy filing in its ongoing “rate case” before the City Council, which regulates the utility. A rate case is a negotiation between a utility and its regulators over what electricity rates it can charge customers. The last time the council and Entergy New Orleans completed negotiations on a comprehensive rate case was 2008.
The September filing shows what Entergy New Orleans was hoping to charge ratepayers for the plant in 2020, when it’s scheduled to go into operation. The bill includes $6.5 million for plant construction, $7.5 million for operations and maintenance, $140,500 for insurance and a nearly $19 million return on rate base, which is based on the company’s preferred rate of 9.72 percent.
The grand total for year one of a 30-year payment plan: $33 million.
Over the past several weeks, The Lens has provided Entergy New Orleans with the analysis from the Alliance for Affordable Energy, as well as summaries of its own reporting, repeatedly requesting detailed responses and, at one point, agreeing to delay publishing the article to allow the company to check the group’s analysis and point out specific flaws or come up with its own cost estimates.
Ultimately, the company provided brief written statements challenging the analysis without providing specific rebuttals.
“There are errors in the calculation provided that causes it to be overstated. The calculation also fails to account for the energy produced and capacity made available by NOPS and sold into the market, which will even further reduce the costs to customers,” a statement, provided by spokeswoman Stephanie Pyle and attributed to the company, said.
“[The power plant] is designed to help prevent blackouts, provide much needed local generation and self-start capability during a hurricane, reduce reliance on transmission, protect against volatile energy markets, and serve as a foundation for more emissions-free renewable resources while still maintaining reliability,” the statement said. “These material benefits are also not considered in the calculation provided.”
”Entergy is very well known for keeping a lot of things confidential, which is a longstanding problem.”
—Logan Burke, Alliance for Affordable Energy
One of the council’s long-time utility consultants, Clint Vince, did not respond to questions about the analysis’ accuracy or potential flaws. Mayor LaToya Cantrell, the City Council Utilities Regulatory Office and City Councilwoman and utility committee chair Helena Moreno all declined to comment.
Burke, the executive director of the Alliance for Affordable Energy, told The Lens that while her group’s analysis might not be 100 percent accurate, it is the best possible guess that can be made from publicly available information, given the lack of an official long-term cost estimate from Entergy.
“Entergy is very well known for keeping a lot of things confidential, which is a longstanding problem,” Burke said. “What this spreadsheet is and attempts to do is use publicly available data to calculate long term costs.”
She said that the numbers could likely change due to rate cases over the next three decades.
The biggest admitted inaccuracy in the spreadsheet, Burke said, is on the accumulated deferred income tax column. Accumulated deferred income taxes, or ADIT, represent the difference between how much customers have given to Entergy to pay its income taxes versus what the company has actually paid.
“Customers are kind of paying for future tax obligations in advance,” said Barnes, who is currently working for the Alliance as an expert witness in the rate case. “It’s basically ratepayers paying income taxes ahead of time. And because they’re doing it ahead of time, it’s reflected as a reduction in the rate base for that particular investment.”
”It should be someplace in that ballpark figure.”
—Justin Barnes, EQ Research
The annual ADIT is subtracted from each year’s “rate base,” the number multiplied by the rate of return to yield what Entergy can collect for profit and debt financing. So when ADIT goes up, customer costs will be lower than what appears in the analysis. When they go down, costs will be higher.
The Alliance analysis shows the accumulated deferred income taxes staying consistent at $872,000, the number that Entergy listed for year one. But Barnes said that in reality, that number will oscillate up and down.
“So from a numerical standpoint that’s incorrect, but we don’t know what numbers to put in there,” he told The Lens.
But, he said, while the year over year numbers will be different, the cumulative cost to ratepayers over three decades will “equal out.”
“As far as the overall return that a utility gets on that investment, that number should be the same,” he said. “It should be someplace in that ballpark figure.”
Barnes added that there are some areas in the analysis that potentially understate costs to ratepayers, particularly in annual operations costs.
“Just given inflation, things like insurance and operations and maintenance expenses could increase over time,” he said.
“The thing that stands out to me is what the analysis leaves out,” Burke said. “Even this number doesn’t tell the whole story and that is largely due to variables that are unknown, but that we know do exist.”
Ratepayers will have to foot the bill for fuel costs, for example, which aren’t included in the estimate. It also doesn’t consider whether the federal government will institute some form of carbon pricing for emissions.
The other big question mark is whether construction costs will fall above or below the $210 million estimate. Entergy told The Lens that it had already spent $140 million on the plant.
In February, the council passed a resolution introducing new cost protections for customers. One measure forces Entergy to get permission from the council before spending money on the plant that would push the total cost over the estimate.
But if the plant’s construction cost does go up, so does the profit that Entergy is allowed to collect from customers. That, Burke says, is one of the problems with how Entergy is regulated.
For many utilities, profit incentives from regulators encourage the construction and ownership of new, expensive infrastructure. And as Burke points out, “a publicly traded company has a fiduciary responsibility to their shareholders to make money and increase their profit over time.”
‘The key question’
Vince told The Lens that the Alliance wasn’t asking the “essential question” by simply tallying up the total cost of the plant.
“The key question is what ratepayers will pay for NOPS versus what they would pay from other sources,” he wrote in an email.
Vince did not respond to a request to elaborate on the comment, referring The Lens to the council’s resolution approving the plant, which summarizes many of the arguments — from Entergy New Orleans and groups opposed to the New Orleans Power Station — for and against the plant. And it lays out the utility advisers’ rationale for its recommendation to proceed with the plant. The advisers concluded that solutions like solar, battery storage, transmission fixes or buying electricity on the open market could either take too long, become too expensive or would not provide the reliability that the local system needs in the absence of local generation from a new plant.
Vince recently provided some estimates as to how the plant, and another recently announced project, might affect customers’ monthly bills.
Last week, The Times-Picayune/New Orleans Advocate reported on proposals from Entergy New Orleans and the council’s advisers in the current rate case that would lower the combined gas and electric bill of a typical New Orleans resident by $3 to $4 per month. However, that calculation doesn’t include the cost of the gas plant or the recently announced new solar plant that will be built in eastern New Orleans. On average, those would cost $6.63 and $1.50 per month, respectively, according to the article.
”The initial capital expense associated with the projects likely will result in a near-term increase in customer bills.”
—Clint Vince, Council Utility Advisor
When those are factored in, typical residential bills will rise by roughly $4 to $5 per month. Clint Vince, one of the council’s long time utility consultants, said that this potential overall rise in customer bills was “roughly correct,” but that the actual number was “more nuanced and less certain.”
“The net benefits relating to those projects will be passed on to ratepayers for the life of the projects,” Vince wrote. “However, the initial capital expense associated with the projects likely will result in a near-term increase in customer bills.”
Burke has argued for years that there were cheaper alternatives to the gas plant that weren’t taken seriously by Entergy or Vince. She said that the arguments from the Alliance and other advocates were consistently mischaracterized by Entergy and the council’s consultants.
“It’s been said that we want to build solar at any cost or invest in 100 megawatts of batteries,” she said. “Not once did we say that. Not once. What we have said is that real alternatives that are viable, that are cost-effective, and that the company is using in other places and that other utilities already use were never considered seriously by the utility. And they weren’t forced to consider them by the regulator.”
In a statement, Pyle said that the company is open to alternative solutions, but said that the plant was the best way to address immediate transmission and peak demand needs in New Orleans and set the city up to add more renewables in the future.
“The Company is not opposed to alternatives, as we recently announced a 90 MW solar portfolio and proposed a target of 70% clean energy by 2030 (which includes 150 additional MW of grid-scale solar), but New Orleans needs a local, dispatchable resource to address serious reliability risks and other alternatives were simply not feasible,” the statement said.
The Alliance was part of a coalition of advocacy groups that sued the City Council last year over its decision to approve the plant. They argued that their due process rights were violated in the process that led to the March 2018 council vote approving the plant. They cited a prior agreement struck between Entergy and the City Council in 2015 directing the utility to pursue a new power plant with similar characteristics as the one that was ultimately approved by the council in 2018.
The groups called the council utility consultants’ impartiality on the 2018 decision into question because those consultants had been involved in the 2015 negotiations. They also said that the public was not properly informed of the previous agreement in the lead-up to the 2018 plant vote. Orleans Parish Civil District Court Judge Piper Griffin disagreed, noting that the 2015 agreement was approved in public meetings.
“In other words, Petitioners believe that the Council had a duty to disclose and discuss a document that was already public,” Griffin wrote in her June ruling. “It is disingenuous to suggest that the Council withheld evidence of a settlement approval that was the subject of multiple public hearings.”
In another lawsuit, also filed last year, a coalition made up of many of the same groups said that people were locked out of key council meetings related to the plant because the rooms were at capacity — a violation of the state’s open meetings law, they claimed. Their argument was based in part on the hiring of paid actors — by a subcontractor working for an Entergy public affairs contractor — to appear at the meetings and support the plant.
In the second lawsuit, Griffin ruled in the coalition’s favor. Though she found that the council did “nothing wrong,” she ruled that “Entergy’s actions undermined” the open meetings law. Griffin’s order voided the council’s votes in favor of the plant. The council is appealing the decision, however, and Entergy is allowed to continue with construction for now.
“The essential point is that the alternatives would have cost way less than this thing,” Burke said.