To meet the demands of Louisiana’s ongoing industrial boom, the state’s largest utility needs to come up with more power — about the same amount as it takes to light New Orleans on the hottest day of the year — before the end of 2016, and then find even more by the end of 2019.
That likely means building power plants for about $1 billion a pop, which the 1 million customers of Entergy Corp.’s Louisiana companies will be expected to pay.
The privately owned utility bought a plant in Arkansas to make electricity, mostly for Louisiana, and a new unit in Westwego will go online by New Year’s Day. Entergy is spending a couple of billion dollars over the next few years to move huge amounts of electricity to where the new manufacturing facilities will be located and also is asking for bids to buy power from elsewhere.
“All that will help, but ultimately we’re going to need to build new generation,” said Phillip R. May, the head of Entergy’s Louisiana operations. “It has to be new steel in the ground to meet all of this new load. … We’re on the front end of a pretty steep curve in growth.”
Attracted largely by cheap natural gas and some of the nation’s lowest utility rates, corporations from around the world are investing about $59.2 billion in Louisiana operations — for things like steel, chemicals, wood pulp, liquid natural gas exports — that are well underway or already completed, mostly along the Mississippi River between Baton Rouge and New Orleans and in the Lake Charles region. Another $60.1 billion in projects are in the permitting stage.
The boom will be great for the state’s economy and will create thousands of jobs.
But not everyone is happy with Entergy’s plans, which have not been officially submitted, for providing power to all these new operations.
Existing manufacturers are asking if there is a better, cheaper way to make the needed power.
Jennifer Vosburg, who heads Louisiana’s units of NRG Inc. and supplies cooperative utility companies across the state with electricity, suggests looking at a wider array of alternatives. One is lessening the regulatory burdens that keep industries from making electricity to meet their own needs, called cogeneration, rather than have Entergy provide all the power.
“With so many sophisticated companies developing in Louisiana, this is a time to promote industrial cogeneration of electricity on plant sites to meet the industrial-specific needs,” Vosburg said.
Consumer groups are questioning whether residential and commercial customers should be paying at all.
“We support bringing industry back into the United States. We don’t feel it’s fair that residential and commercial customers should have to foot the bill (for power) that will be needed primarily by the large industrial sector,” said Casey DeMoss Roberts, who heads the New Orleans-based consumer advocacy group Alliance for Affordable Energy. “The industrial customers should have a special rider to pay for it.”
Meeting power needs will be the subject of much debate in the coming year, particularly at the Louisiana Public Service Commission, which oversees how much the private utility company can charge customers.
Monthly bills will not be dramatically affected, said May, who is president and CEO of Entergy Louisiana and Entergy Gulf States Louisiana, the two companies that service about half the customers in the state. Entergy New Orleans covers that city and is regulated by the City Council rather than the PSC.
It’s a matter of mathematics, May said.
Rates are determined by how much it costs to make and distribute electricity divided by the number of customers using it. May said other utility companies around the country are seeing their sales grow by about 1 percent. Louisiana’s sales are growing at about 3.5 percent, largely driven by the large industrial projects locating here.
“We’re adding a lot of new customers,” May noted, saying that will help keep down the already low prices.
The situation also opens the opportunity for Entergy to build plants using newer, more efficient technology that will keep costs lower in the long run, May argues.
Also in the mix is the fact that some of Entergy’s contracts to buy electricity are nearing their end. Plus, the average age of the fleet of generating plants in Louisiana is about 35 years.
“We have to decide whether it’s more cost-effective to continue to maintain the old plant, build a new plant or enter into a contract to buy power,” May said.
The New Orleans-based Entergy Corp., which delivers power to 2.8 million customers in Arkansas, Louisiana, Mississippi and Texas, reports it can make about 22,000 megawatts of electricity. It expects to need to add 5,000 to 7,000 megawatts of electricity during the next five years, largely to supply new industrial projects in Louisiana and Texas and to replace older units. Louisiana alone accounts for 2,000 to 3,000 megawatts of that amount.
PSC Commissioner Clyde Holloway, whose district includes Lake Charles, said time is of the essence.
“I’m confident we can handle it, but we have to get started,” he said. “We have to have a plan, and they keep telling us they’ll have a plan, but I haven’t seen it.”
It takes about three years to build a new power plant.
One of the big questions for PSC Commissioner Foster Campbell, of Bossier Parish, is how long the price of natural gas will stay low. Industry is attracted to Louisiana because the cost of natural gas is about a third of what it is in Europe, Asia and South America.
But history has shown how quickly the energy market can change.
Shortly after Hurricane Katrina in 2005, the price of natural gas was so high that regulators pressured Entergy to build plants that would be fueled by anything but natural gas. Then came fracking, or hydraulic fracturing, a drilling method that breaks up underground rock layers to release natural gas. Fracking created an abundant supply of gas, and the price of the commodity dropped four-fold. That could change.
“I need some economists to tell what is going to be happening,” Campbell said.
Entergy looked at sites to build another nuclear power plant, a hugely expensive enterprise that provides customers with very inexpensive power.
But the costs of building natural gas facilities are more predictable than for the more technologically encumbered nuclear plants. And the price of natural gas is now so low, and likely to stay that way for a while, that building a plant that uses any other kind of fuel doesn’t make economic sense, May said.
“They have built dozens of them. They have built this exact plant all over the world,” he said. “You don’t want a lot of construction risks associated with this. You don’t want a lot of technology risks associated with this.”
PSC Chairman Eric Skrmetta, of Metairie, said he’s heard discussions about the need for new generating plants, perhaps as many as five.
“We’re monitoring it very close,” he said. “We want to make sure there’s a mechanism, that there’s a portion in this transaction that is fairly borne and that Louisiana consumers pay only their fair share.”