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KATRINA: Entergy customers won't be getting relief

by Pam Radtke RussellNew Orleans Times-Picayune
August 23rd, 2006

Entergy New Orleans customers are paying nearly a third more for their power bills than they were last year, and a further proposed rate increase could mean bills will be 50 percent higher than before Hurricane Katrina.

"It's unbelievable, just unbelievable," said Lena Stewart, who moved back into her 1,800-square-foot eastern New Orleans home on June 17 and got a bill for $182 for running only her air conditioner at 79 degrees, her 19-inch television and her gas water heater. "I don't have any problems paying it, thank the good Lord, but just think of all the other poor people who can't."

Over the first seven months of 2006 compared with the same months in 2005, the average electric bill statewide for all utilities has increased 9 percent. At Entergy New Orleans' sister company, Entergy Louisiana, rates dropped more than 3 percent.

And because of a change next month in the way the city will pay for its share of nuclear power from Grand Gulf 1, Entergy New Orleans customers won't be getting any rate relief for at least four months.

In September, Entergy will alter its so-called fuel adjustment charge -- which reflects the cost of procuring natural gas, coal and other fuel -- by including not only the cost of nuclear fuel for Grand Gulf, but New Orleans' entire $7.5 million monthly cost to operate and maintain the plant. Customers, however, won't see bills change much from August to September because the total cost to run the plant, in addition to the rest of the fuel adjustment charge, will keep bills relatively stable.

Entergy justifies the changes that will go into effect in September by saying that customers are already used to higher bills that have increased since last year, even before Katrina.

"The fuel adjustment is going to be roughly what it was before because we had been experiencing historically high gas prices. So when we place that (Grand Gulf) back into the fuel adjustment, you're not going to see a dramatic change," said Phillip May, vice president for regulatory services for Entergy Corp.

Advisers to the New Orleans' City Council say that bills could have been much higher and the change will save customers $27 million over the next few months. And both the advisers and Entergy say the change is necessary to help keep bankrupt Entergy New Orleans afloat.

But one critic of Entergy says that rather than increasing the fuel adjustment, Entergy should have just asked for an overall rate increase to make the whole process more transparent.

"It's a ruse. If you need a rate increase, ask for a rate increase. Don't tell the ratepayers you're saving them money by selling them something you already own," said Mike Fontham, a utilities attorney who often works with the Louisiana Public Service Commission, often against Entergy.

Entergy Louisiana, Entergy Gulf States and CLECO requested and received temporary, emergency rate increases earlier this year from the Louisiana Public Service Commission to help deal with costs related to Hurricane Katrina.

Painful adjustments


Unlike the energy charge, or base rate, on a customer's bills, which changes only about once a year and is currently about $51 for 1,000 kilowatt hours, the fuel adjustment is changed each month.

The fuel adjustment increased 86 percent over the first seven months of the year, meaning fuel adjustment, which was on average $27 for a 1,000 kilowatt hours last year, is now an average of $52.

Calvin and Frances Fayard, who own a 15,000-square-foot Uptown home, saw their power bills shoot up from $1,282 in May to $2,538 in July, largely because of the rising fuel adjustment.

"It's exponential," Frances Fayard said. "It's hot here in May and it's hot here in July, how can it have gone up so much?"

Much of the increase is because of higher natural gas prices after Hurricane Katrina, and rising prices on coal even before Katrina last year.

"There are some things we can control and some things we can't," Councilwoman Shelley Midura said.

Other power companies experienced similar increases because of rising fuel prices. CLECO's bills have increased 23 percent over the past year, largely because of fuel adjustment charges because of higher natural gas prices.

Entergy Louisiana's bills, however, have dropped about 3 percent from last year, primarily because downtime at Waterford III caused the company to turn to higher priced natural gas for part of the year last year, said Mike Twomey, vice president of regulatory affairs for Entergy Louisiana.

Types of electricity


But the other large factor that can alter the price of the fuel adjustment is the kind of electricity available to a company.

Before Hurricane Katrina, much of Entergy New Orleans' power came from Grand Gulf. Most of the cost, $90 million a year, of paying to operate 17 percent of Grand Gulf was paid for through the base rates.

Entergy New Orleans, with the permission of the New Orleans City Council, however, stopped using that power after Hurricane Katrina because there was no need for it, and because there was no way to pay for it. Instead, the City Council allowed Entergy New Orleans to sell the low-cost, desirable nuclear power to other companies to get some cash to help restore the system, and to help the company, which had just declared bankruptcy, stay afloat.

"It was the only thing that we could make liquid and has a market value," said Tracie Boutte, vice president of regulatory affairs for Entergy New Orleans. "We didn't have the load to support it and we didn't have the revenue to pay for it."

As residents returned to the city and more people needed power, Entergy New Orleans turned to more expensive sources of electricity to fill the gap left by Grand Gulf, including the company's own Michoud Power Plant, the company's most expensive source of power. But the ratepayers who remained in the city were still paying base rates that were originally calculated to pay for the $90 million it cost to operate Grand Gulf.

Meanwhile, Entergy New Orleans made more than $57 million from selling the power, money it says was used to help restore power to the city and to help shore up the company, which declared Chapter 11 bankruptcy just weeks after Hurricane Katrina.

If Entergy New Orleans had not sold that power off when it wasn't needed in New Orleans, the results would have been disastrous, said Paul Nordstrom, a City Council utilities adviser with the law firm Sullivan & Worcester.

"Those sales have been instrumental to keeping Entergy New Orleans out of Chapter 7" liquidation bankruptcy, Nordstrom said.

The money that was used to pay down Entergy's debt and restore the system also will help lower customer's bills in the long run, Midura said.

Even Karen Wimpelberg, board president of the Alliance for Affordable Energy and a regular critic of Entergy, doesn't question the decision to sell off Grand Gulf power after the storm.

"No, they really needed to do something to get cash, and it's kept them in cash," she said. "I don't fault them for that."

The fuel adjustment price reached a critical juncture in May, when Entergy New Orleans, because of its bankruptcy status, lost two low-cost fuel contracts and had no way of replacing that power at a reasonable rate because companies didn't want to do business with the bankrupt company. That meant that Entergy New Orleans had two options: ask ratepayers to pay even more for fuel, or bring Grand Gulf back into the fuel mix.

But there was a glitch. Some of Entergy New Orleans' creditors wanted the company to continue to sell Grand Gulf power to bring in money to the company, May said.

And because there were fewer customers in the city, the revenue collected from the base rates wasn't covering the costs associated with Grand Gulf.

If Grand Gulf power were brought back to New Orleans, cutting off the money it was making by selling the nuclear power to other companies, Entergy New Orleans would slide deeper into debt, Boutte said.

So in June, Entergy New Orleans asked the City Council to bring back Grand Gulf and to pay for the $7.5 million a month needed to operate the plant with a charge on the fuel adjustment.

The council's Utilities Committee, in its first meeting since new council members were sworn in, followed the recommendation of its energy advisers and agreed to the expedited Entergy request to bring back Grand Gulf and use the fuel adjustment clause to pay for its share of Grand Gulf.

Starting in September, the costs for running the Grand Gulf plant will be absorbed into the fuel adjustment, roughly an additional 2 cents per kilowatt hour, May said. The total fuel charge will be just under 6 cents a kilowatt hour, roughly what it's been for the past several months.

But had New Orleans brought back Grand Gulf without tacking the costs onto the fuel adjustment, customers' rates would be 2 cents lower per kilowatt hour, or roughly what they were last year before Hurricane Katrina.

"It would be way lower," Fontham says of the bills.

That is strictly a mathematical argument, however, May said. "Had we brought that (Grand Gulf) back and not had a means for recovering costs associated with it, this company would have gotten into some serious financial difficulties," he said.

But Wimpelberg said there could have been other options. The council shouldn't have been rushed to a decision so quickly in June.

She asked the council to postpone its decision by a week, to talk to other energy providers to see if a better rate could be negotiated.

"One week is all I asked for, just one week. We could have talked to suppliers," she said.

Had they turned the city down in its time of need, Wimpelberg said, "We could have made the suppliers look terrible."

While the advisers stand firm in their recommendation to bring back Grand Gulf, Nordstrom said he can't address whether Entergy brought back Grand Gulf in time to help ratepayers.

"There's a tipping point," he said. "I don't know that I've ever seen a precise analysis of when Grand Gulf should have been brought back."

Request to raise rates


The higher fuel adjustments, in part because of Grand Gulf, will be firmly in place when Entergy New Orleans makes its case for increased rates to the City Council later this year.

The council's action "caused fuel to go up, and it will stay up with Grand Gulf," Fontham said.

Entergy New Orleans says it prefers to keep the Grand Gulf charges in the fuel adjustment, rather than put it in the base rates.

Whether Grand Gulf is put in the base rates or the fuel adjustment, the impact will be essentially the same for customers, May said.

However, if it is in the fuel adjustment, if more people return to the city, the cost will be spread out among more customers more quickly, May said. If it is in the base rates, those rates would remain stagnant for at least a year.

The company is asking for an increase of about $3 on base electric rates in each customer's monthly bill, and for an additional $9 per month for storm recovery costs and a storm reserve fund. While that amount would be just a fraction above what bills have been for the past several months, it would be an increase of 50 percent over last June's bills, when a customer using 1,000 kilowatt hours was paying $85.10 a month.

But that too is purely a mathematical argument. The council has until February to finalize any rate increase with Entergy, and Clint Vince, an adviser to the council Utilities Committee with Sullivan & Worcester, said that he hasn't heard any council member who is willing at this point to give the company an increase.

"The council members want to see the evidence and I haven't heard anyone say that they are in favor of a rate increase at this point," Vince said. "I don't think that level of increase (50 percent) is sustainable for ratepayers."

Low-income customers who are having trouble paying their bills can contact Total Community Action at (504) 827-2200. Seniors can contact the New Orleans Council on Aging at (504) 821-4121.

After Hurricane Katrina, Entergy New Orleans stopped turning off customers for nonpayment. That policy is still in effect, a company spokesman said.



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