A group of major New Orleans power users that includes Mayor LaToya Cantrell is splitting with the mayor over her recent move to back Entergy New Orleans in a dispute over how much profit the local utility should make from the city’s ratepayers.
Last week, the New Orleans City Council’s utility committee voted to advance a resolution that would cut a key component of Entergy’s profit rate — called return on equity — from 11.1 percent to 9.35 percent, which will help lower electric bills for east bank customers by an average of $2.86 per month and maintain Algiers customers’ current levels.
The 9.35 percent rate was first introduced and recommended by the Crescent City Power Users Group, a coalition that includes the Sewerage and Water Board, University Medical Center, Touro Infirmary, and New Orleans Cold Storage & Warehouse Co. It also includes the city, which Cantrell touted in a September press release.
“As part of a coalition of ratepayers, the City has brought in some of the nation’s best utility experts to provide an in-depth analysis of Entergy New Orleans’ rate filing,” Jonathan Rhodes, Director of the Mayor’s Office of Utilities, said in the release. “CCPUG’s analysis recommends the greatest rate reductions for residents and businesses.”
But on Thursday, the Advocate/Times-Picayune reported that in an about face, Cantrell is siding with Entergy New Orleans over CCPUG and the utility committee. She is now calling for a 10 percent return on equity.
“We didn’t receive word from Cantrell about the letter,” said Luke Piontek, an attorney for CCPUG. “By the same token we haven’t received word from her that she is withdrawing from CCPUG.”
The Crescent City Power Users Group remains in support of the council’s proposal, he said, and is working on a public letter of support.
The current process of setting rates, called a rate case, has been in the works for over a year. It appeared to be largely complete following last week’s unanimous committee vote. That’s the last step before the rate case goes to the full council for a final vote, which is scheduled for next week.
But on Wednesday, Entergy’s assistant general counsel Alyssa Maurice-Anderson, sent a letter to the City Council asking to renegotiate the return on equity rate “to avoid the lengthy and costly litigation.”
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 received by the Council at around 6pm on Wednesday, according to Moreno’s Chief of Staff Andrew Tuozzolo. That morning, Entergy had its third quarter earnings call with investors. During it, CEO Leo Denault highlighted the importance of collecting returns from capital investments.
He said the “fundamentals that underlie our steady, predictable growth” consists of three things: “a robust capital plan,” “constructive regulatory mechanisms which give us the opportunity for fair and timely recovery of our capital plan” and a “proven track record” of executing large capital projects.
“Entergy has a plan to spend a lot of money,” Logan Burke, the Executive Director of the Alliance for Affordable Energy, told The Lens.
She argued that Entergy was following a decades old utility business model of making large capital investments and collecting guaranteed profits from customers.
“The job of the regulator, especially in a situation like this, is to protect the people,” Burke said. “There isn’t a reason to depend on an old business model that is hurting people.”
On Thursday, Cantrell sent a letter backing Entergy’s request. The letter included language about improving the deal to more aggressively support clean energy and the “green economy,” but it only put forward one specific policy proposal: set the ROE at 10 percent.
Entergy’s ROE is a key factor determining how much customers pay on their monthly bills. As The Lens has previously reported, the return on investment the company gets on its assets can be even larger than the cost of building those assets.
For Entergy’s $210 million power plant in eastern New Orleans, an analysis by the Alliance for Affordable Energy showed that a 8.93 percent return on equity would yield a profit of $245 million for Entergy over 30 years. That 8.93 percent rate had been originally suggested by the council’s own utility advisors.
The return on investment can add up quickly because it isn’t just applied to capital investments once. It is applied every year to the remaining balance of the investments that hasn’t been recouped from customers yet. The gas plant, according to the council’s rate case proposal, will be paid off by customers over 50 years. That means for 50 years, customers will be paying a diminishing return on investment to Entergy.
In a letter to Ellis on Thursday, councilwoman and utility committee chair Helena Moreno said she was “truly disappointed.”
“After breaching the public trust multiple times over the last few years, ENO now responds to the Council with bullying and threats,” the letter said.
The council fined Entergy $5 million earlier this year over the use of paid actors at public meetings on the eastern New Orleans plant. A second fine — this one for $1 million — over the city’s frequent outages, advanced through the utility committee last week.