Tuesday, March 19, 2019

Industrials Challenge Entergy Louisiana Fleet Additions

By Rich Heidorn Jr.

Entergy Louisiana CEO Phillip May | © RTO Insider

NEW ORLEANS — Entergy Louisiana CEO Phillip May says his company’s electric rates are among the lowest in the nation. Attorney Randy Young, who represents a group of industrial customers in the state, says his clients can do better.

Entergy and the Louisiana Energy Users Group (LEUG) will eventually make their competing cases to the Louisiana Public Service Commission. On Thursday, May, Young and others previewed the debate at the Gulf Coast Power Association MISO South Regional Conference.

At issue is Entergy’s proposal to spend $10 billion to $12 billion to address a 7,000-MW capacity deficit Entergy Louisiana forecasts through 2038.

Of the total shortfall, 5,800 MW is from generation deactivations while only 750 MW is from projected load growth. As a result, Young said, costs will increase much faster than sales, which LEUG consultant Brubaker and Associates says would increase base rates by at least 50%.

Attorney Randy Young | © RTO Insider

Young said industrial customers should be given the option of purchasing from the wholesale market or using combined heat and power (CHP) generation to serve their needs, which he said would decrease the shortfall, potentially saving money for Entergy’s remaining captive ratepayers. He’d also like a new tariff that gives industrials the option of choosing interruptible service, real-time pricing and a market-based standby service, under which customers pay for capacity and energy based on MISO clearing prices.

Young’s position was echoed by Devin Hartman, CEO of the Electricity Consumers Resource Council (ELCON), a D.C.-based group that represents large industrial electric consumers nationwide.

Hartman, who joined May in the final panel of the conference, said his members want to take advantage of falling energy prices and flat load growth. “When you have supply-side shifts or demand-side shifts in the electric industry, you’re going to see markets respond very differently than a regulated, cost-of-service process will,” he said. “Overwhelmingly we’ve seen upward pressure [on rates] in most regulated states for end-use consumers across classes, whereas we’ve seen downward pressure for the most part in the market states.”

Failing that, he said, regulators should ensure state procurements for new generation are truly competitive and not gamed by incumbent utilities.

Devin Hartman, Electricity Consumers Resource Council | © RTO Insider

Hartman said industrials’ interest in direct market access is most pronounced in regulated states in an RTO. “MISO is going to be one of the next ground zeroes, I think, for this going forward,” he said.

While some advocates for residential consumers have reservations about retail choice, Hartman said, “You’ve seen [commercial and industrial customers] just say, ‘Give us the markets. We don’t need to have our hands held anymore. We don’t need a paternalistic approach.’”

With generation trending toward low-marginal-cost renewables, “it becomes more and more important to make sure that we’re injecting more accountability mechanisms and competitive forces to drive more efficient procurement and entry [and] exit of resources in the overall electricity sphere,” Hartman said.

Entergy Responds

May responded that “unregulated states are paying substantially more than the regulated states” and that Louisiana has “some of the lowest rates in the country.” According to the Energy Information Administration, Louisiana had the cheapest residential electric rates and sixth-lowest industrial rates in November 2018, the most recent data available. A recent survey by LEUG found Entergy Louisiana’s industrial rates were the eighth-lowest among 30 Southeastern utilities.

May said LEUG’s projection of a 50%-plus increase in rates must be put in context. “If rates go up 50% [though 2038], that’s 2.5 to 3% annually. Base rates for industrial customers are about half [of residential rates], so maybe 1.5% [annually] … which is about the rate of inflation.

“I can tell you we want to provide the lowest-cost electricity we can to those industrial customers because they are competing on a global stage, and we intend to continue to be competitive so we can attract that load and have them continue to be successful.”

RTO Insider Editor Rich Heidorn Jr. (left) moderated a panel discussion with Entergy Louisiana CEO Phillip May (right) and Devin Hartman, CEO of the Electricity Consumers Resource Council. | © RTO Insider

With the planned opening of the St. Charles Power Station in June and the Lake Charles Power Station in June 2020, Entergy Louisiana will have replaced about half of its older capacity with more efficient natural gas units since 2004.

LEUG made its proposal in a docket opened by the Louisiana PSC to consider alternatives to integrated resource plans filed by Entergy Louisiana, Entergy Gulf States, Cleco Power and Southwestern Electric Power Co. (S-34426).

The commission held two technical conferences in 2017 and received written comments earlier this month in response to a Dec. 14 staff report on the issue. LPSC spokesman Colby Cook said no timeline has been set for commission action.

A View from Arkansas

Arkansas Public Service Commission Chair Ted Thomas, who appeared on an earlier panel with Young, said he would consider an equivalent to the LEUG proposal in Arkansas, but he would “match it with a … program that gave residential [customers] as much of an opportunity to change their behavior as the commercial people do.”

Ted Thomas, Arkansas Public Service Commission | © RTO Insider

“We need low rates for our industrial customers to compete and provide jobs. But the area between [New Orleans] and the boot heel of Missouri — if you draw a circle around that [Mississippi] river — is the most protracted area of poverty in this entire country. And we can’t shift costs over to them,” he said.

Thomas said his “end goal” in Arkansas is “a grid that is plug-and-play with respect to all existing and new technologies, that serves as a platform for an apples-to-apples price comparison and provides price visibility for all technologies with respect to capacity, energy and ancillary services. … It’s a challenging goal because then you’d want some way to compare the price of, say, a rooftop solar installation with an interruptible tariff. You want competition across the whole thing.”

To get there, Thomas said, third parties need to have the same access as incumbent utilities to automated meter data “under the right privacy restrictions.”

“If you don’t have data access, you don’t have a level playing field, and if there’s not a level playing field, your entrepreneurs and innovators won’t come and play and there will be no innovation,” he said. “A second key issue is aggregation. If you’re going to have data access and you want to represent customers, you have to put them in a group. If you don’t have data access and aggregation, you’re not going to get the consumer involvement that you need to have a consumer-driven innovation the way that we’ve seen in telecom and other areas.

“There’s only so many utility nerds out there … most of them are probably sitting in this room,” Thomas continued. “We need a killer app to automate demand response, to automate the consumer to have a consumer-driven system.”

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