For years, Entergy Louisiana’s 1 million customers paid among the lowest electric bills in the nation.
But that era of cheap electricity is about to change as rates are expected to start rising in 2019 and should continue to do so for the next decade, according to a study by the Louisiana Public Service Commission released just before the holidays and open for public comment in January. As the state's utility regulators, the PSC will be endorsing or rejecting Entergy's decisions.
Prices will be going up as Entergy builds up to a dozen new technologically advanced plants costing billions of dollars that the utility’s customers will pay for but the corporation’s shareholders will own.
Though Entergy disagrees, the major manufacturers along the Mississippi River – the state’s largest employers and Entergy’s biggest customers – predict rates will go up 40 percent. Higher electric costs in Louisiana could add $5 million to $10 million in additional costs for a mid-sized plant using 50 megawatts of electricity, predicts the Louisiana Energy Users Group, which represents the industrial consumers.
LEUG wants out.
The big companies want to make their own power or buy it on the open market. That way Entergy wouldn’t have to build as many plants, thereby lowering the monthly bills for the remaining customers, Randy Young, LEUG’s Baton Rouge attorney, testified to the PSC.
LEUG and the Alliance for Affordable Energy, a New Orleans-based consumer group representing residential and small business users, rarely agree on energy policy. But they have similar worries on this one, said Logan Atkinson Burke, head of the Alliance.
Entergy will be called upon to provide more power to meet growing needs and also will need to replace six electricity generators that have been in use for more than 40 years. The older units are one of the reasons why the utility’s rates are so low, she said.
“They’re like an old car, they’re paid off,” Atkinson Burke said in an interview Thursday. “They do have some maintenance costs but are those costs large enough to justify buying a new car?”
What Entergy’s current low rates don’t consider are the three new electricity generating plants that are about to open and whose costs will start showing up on bills in 2019, she said. And then what about the costs of the additional new plants on the horizon?
“We’re getting nervous about what all this is going to look like,” Atkinson Burke said.
Yes, the opening of new plants “will give a little pop to our rates,” but that’s not the whole story, countered Mark D. Kleehammer, Entergy Louisiana’s vice president of regulatory affairs.
First, the assumptions underlying LEUG’s math are off. The rates won’t go up that much, Kleehammer said Friday in an interview.
Secondly, Louisiana prices will rise from a much lower starting point. Even with higher rates, monthly Entergy bills still will be among the lowest in the nation – except then customers will benefit from new plants that are more reliable, operate more efficiently, therefore more cheaply, and are environmentally cleaner, he said.
Louisiana customers paid 7.4 cents per kilowatt-hour in 2016 compared to the national average of 10.3 cents, according to the U.S. Energy Information Administration. Louisiana’s utility rates have increased 6 percent over the past 15 years as opposed to 41 percent in the United States as a whole.
While Louisiana has the lowest rates in the country, Entergy has the lowest rates in Louisiana.
“You need to look at the numbers,” Kleehammer said pulling out a calculator and the PSC report on monthly bills to make his point.
Baton Rouge makes for a good comparison. Most of the city is serviced by Entergy Louisiana. Large portions of the parish are subdivisions served by DEMCO. A typical residential consumer uses about 1,300 kilowatt-hours of electricity every month. But 1,000 kWh is easier to calculate.
In 2018, a Baton Rouge residential customer of Entergy using 1,000 kilowatt-hours of electricity paid a total $1,055.31 for the year. A comparable DEMCO customer paid $1,203.66 in 2018. The state average for 2018 was $1,197.64. (Customers using 2,000 kWh paid twice those amounts.)
Entergy’s rates will go up about $3 per month for the 1,000 kWh residential customer in mid-2019 when the newly built St. Charles Power Station on River Road near Montz goes online. A similarly sized plant being built in Lake Charles will go operational in 2020, causing another similar bump in rates, according to a draft of Entergy’s latest Integrated Resource Plan, which will be released in early 2019. Another plant in Washington Parish goes online in 2021.
The state-of-the-art St. Charles facility will make 980 megawatts of electricity – enough to power about 675,000 homes – and cost close to $1 billion.
That’s the math that worried then-PSC Chairman Scott Angelle, whose request in April 2017 started the PSC study called “Status of Electric Rates in Louisiana: Where are we and Where are we going?”
Angelle noted that Entergy’s Integrated Resource Plan indicated that the utility would need to generate up to 9,000 megawatts of electricity. Extrapolating the costs of the St. Charles station – about $1 billion for 1,000 megawatts – Angelle was concerned of the financial hit Entergy’s customers would take building new assets for the private corporation’s shareholders.
Neither of the other two major privately owned utilities operating in the state – Cleco and SWEPCO – have plans to build new plants, according to the PSC report.
LEUG asked the PSC to start considering options now, rather than wait until plant closures left regulators with no other option but approve new construction. They forwarded several ideas that would cut down on the amount of power Entergy would have to produce at any given moment.
For instance, LEUG offered to expand a pricing scheme that allowed Entergy to divert electricity usually sent to a plant to cover other power needs during peak times, such as when air conditioners are cranked up on a summer afternoons. But LEUG’s number one suggestion is to let the industrials out of the system.
Entergy’s Kleehammer said the utility could work with LEUG on some of the pricing options. But allowing the industrials isn’t a good idea.
“In that type of mechanism, you’ll have winners and losers,” Kleehammer said. The rates become set by competitive factors rather than fairness, which is the hallmark of regulated systems. Plants and commercial ventures connected to large corporations with more bargaining stick often pay far less than similar-sized establishments.
“You have a fundamental question,” Kleehammer said, “Should a mom and pop store on the corner pay a different rate than a retailer of the same size” but connected to a national company?
The industrial class of customer in this state uses more energy than the residential class, which makes Louisiana unique, the Alliance’s Atkinson Burke said.
Removing big manufacturers indeed would lessen the need for more building, but fewer customers would be in the pool to pay, meaning bills could go higher, Atkinson Burke said.
“We need to be very careful,” Atkinson Burke said. “There are ways to do it but isn’t free and it isn’t easy.”