Sunday, July 21, 2024

Entergy can recover $170 million in Ida costs from customers, consultant says

by BIZ Magazine

Michael Isaac Stein, Verite

NEW ORLEANS — Consultants for the New Orleans City Council have issued a new report saying that Entergy New Orleans should be able to collect $170 million from local customers to pay for damages caused by Hurricane Ida, just shy of the $179 million the company has asked for.

The consultants found the company responsibly and correctly spent $170 million to recover from Hurricane Ida, which ripped through New Orleans in August 2021 and left the city completely without power. The Aug. 15 report also states that current legal precedent allows Entergy to recoup those costs from customers through extra fees.

Councilmembers Helena Moreno and JP Morrell have both previously argued that customers shouldn’t be on the hook for damages from Ida. Neither confirmed to Verite whether they will vote to approve the consultant recommendation. But both indicated publicly and to Verite that they will likely have no choice but to greenlight Entergy’s request.

“The system of paying for storm restoration is broken,” Moreno told Verite in a statement. “We’ll continue to look for all options to reform this broken system and build a more resilient grid.”

“The Council will review the record in its entirety to ensure that ratepayers are only footing the bill for the costs necessary to restore power after Hurricane Ida,” Morrell said.

“Under federal law and court precedent, the Council … is limited in its review of an application for cost recovery to the questions: Are the cost calculations correct? And were these costs prudently incurred?”

The consultant report was fairly clear: “Nothing suggested that [Entergy New Orleans’] actions were not in accordance with prudent utility practices.”

Entergy New Orleans did not respond to a request for comment for this story.

Residents and government officials alike have harshly criticized the company for its preparations and response to the storm. It took over a week to return power to most of the city as 21 people died, mostly from heat exposure.

Councilwoman Moreno and then-council candidate Morrell responded in the aftermath of the storm by saying that they would do whatever they could to make sure costs weren’t shouldered by customers who were already dealing with skyrocketing bills.

“I do not support Entergy passing through the cost of power restoration,” Morrell said on his campaign website after the storm.

Nearly two years later, it appears the council may be out of options and will likely have to approve Entergy’s request. Local consumer advocates with the Alliance for Affordable Energy told Verite they were worried about the impact to customers.

“We are concerned about the effect of these storm costs on ratepayers, especially when compounded with Entergy’s pending applications before the Council for increases in both electric and gas rates and for $1 billion for storm hardening,” Jesse George, policy director for the alliance, told Verite in an email. “Ratepayers in New Orleans suffer one of the highest energy burdens in the nation while Entergy routinely boasts to its shareholders about increasing profits and shareholder dividends by slashing maintenance spending.”

Although the cost recovery hasn’t gotten final approval yet, customers began paying a fee for costs related to Ida in January. In December, the council voted to allow the company to preemptively start charging customers so that it could finance the recovery costs through bonds, and so that Entergy could lock in lower interest rates. If cost recovery ultimately isn’t approved by the council, that money would likely be refunded or turned into discretionary council funds.

According to a sample bill on Entergy’s website, a typical residential customer in New Orleans is paying $5.25 for the new storm recovery fee in August. Morrell’s chief of staff Monet Brignac said that 62.5 percent of that fee was going to directly pay for Ida costs. The rest is dedicated to refilling the company’s storm reserve fund, which was drained by Ida and previous hurricanes in 2020.This article first appeared on Verite and is republished here under a Creative Commons license.

‘We fought for months’

Councilmembers had first attempted to avoid charging customers by lobbying the federal government, making trips to Washington, D.C. and meeting with representatives of the Biden administration.

“We fought for months to get federal assistance to help take these costs from overburdened ratepayers,” Moreno said.

But Moreno’s chief of staff, Andrew Tuozzolo, told Verite that to his knowledge, no federal funds were ever dedicated to Entergy New Orleans’ cost recovery. Mayor LaToya Cantrell’s office did not respond to questions about federal assistance for Entergy reimbursements.

The council also tried to find a way to force Entergy to pay for some of the recovery itself, instead of charging all of it to customers. According to Brignac, the council is obligated to follow a “prudent investment rule,” which basically states that if a utility company like Entergy is “prudent” in its storm recovery, regulators have to allow the company to recover those costs from customers.

The council opened a process to investigate Entergy’s post-Ida spending, to ensure that all of it was indeed spent prudently. That process resulted in the new consultant report.

The advisors’ suggested recovery amount — $170 million — was only slightly lower than the $179 million Entergy originally asked for. According to the report, 98 percent of the damage was to the local distribution system, the smaller poles and lines that bring electricity from building to building.

That might come as a surprise to some residents. The post-Ida blackout was primarily caused by problems in the transmission system: the bigger poles and wires that transport electricity regionally to the city. Hurricane Ida brought down all eight transmission lines that come into New Orleans, leaving the city an “island” without power.

Most of the damaged transmission equipment was outside of the Entergy New Orleans territory, and mostly owned by its sister company, Entergy Louisiana. The Louisiana Public Service Commission, which regulates Entergy Louisiana, approved its separate request to recover $1.5 billion for Ida damages in January.

When New Orleans was cut off from outside electrical transmission in the storm’s aftermath, Entergy opted against activating a controversial new power plant — the New Orleans Power Station — inside city limits, which company executives previously said would be useful for just such a situation.

In response to questions from the council and the press, the company said that although the black-start capability could have been used, it was faster to repair the transmission lines first, leading critics to question the usefulness of the plant’s black-start capability.

The company was also criticized for not adequately preparing for an era in which climate change is predicted to bring more intense storms. Following Hurricane Ida, the council asked Entergy New Orleans to develop a plan to harden the grid that would incur less damage from storms and therefore result in long-term savings.

Entergy New Orleans came up with a $1.3 billion storm hardening proposal, which would add over $11 to customers’ monthly bills by 2028. The plan has not been approved by the City Council yet.

This article first appeared on Verite and is republished here under a Creative Commons license.

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