Wednesday, June 16, 2021

What's in it for Entergy?

Quite a deal they all announced this morning.  

Made a big to-do about the roll out too. In fact it looked like they might have even put it out to the T-P under an embargo so the story (or the bones of it) could drop on the website  at the same time as the press conference. 

Currently, about half of the S&WB's pumps already are powered by Entergy.This plan would switch over the rest by building a new substation at the Carrollton Plant and installing frequency changers that would convert Entergy's power to the archaic standard used by about half of the S&WB's equipment.

The $75 million deal would be jointly paid for with state money set aside for the plan, city funds through the issuance of bonds and money from Entergy. The S&WB expects to generate savings of $5 to $6 million annually from what S&WB executive director Ghassan Korban said would be a cheaper source of power than the fuel currently used to power the turbines.

Of course it's not like they had to scramble to write up at least a sketch of the plan.  It's actually quite similar to a scheme that was floated back a few years ago.  

The calls to make the switch to Entergy became more urgent after the flooding in the summer of 2017, which was blamed in part on a lack of power. Former Mayor Mitch Landrieu specifically called for making the change as he prepared to leave office.

Despite those discussions, however, the process has moved slowly, beset by issues over funding the equipment needed to make the change. Entergy had originally sought to strike a deal where it would fund the entire project in exchange for permission to make a higher profit, a plan rejected by the City Council.

For more context on how that happened see my prior notes here.  At the time, the City Council, which regulates Entergy's monopoly to sell electricity in New Orleans, was in the middle of a negotiation over a new rate case agreement. This is where the council sets parameters that determine how much money Entergy can charge you for power. The mayor, who is not typically a party to these talks, intervened at the last minute on Entergy's behalf, arguing it should be allowed to charge higher rates to New Orleanians in return for a one time $75 million kickback in the form of a new substation serving S&WB. 

That would have been a bad deal for most New Orleanians. This one, at least so far, appears to be a bit better. Details here via The Lens.

The $74 million will come from three different sources. The initial $34 million investment to build the substation will come from Entergy. The Sewerage and Water Board will then pay Entergy back for that investment over time.

Officials said that the investment should have no impact on the bills of Energy and Sewerage and Water Board customers. Korban said that the new substation will save between $5 million and $6 million a year that would otherwise be spent on generator fuel and maintenance for the aging turbines. Those savings will be used to pay Entergy for the substation.

The second tranche of money will be $20 million in state capital outlay dollars to integrate the substation with the Carrollton plant. 

And last, the city will cough up $20 million from its own budget to install “frequency converters.” Some of the pumps in New Orleans require an antiquated type of electricity that is rarely used today, and is different from the form of electricity provided by Entergy. The “frequency changers” will allow the electricity from Entergy to power those older pumps.

That last $20 million comes from bond sales already approved in a citywide infrastructure ballot measure in 2019.  

So, if they aren't getting higher rates out of the deal, what's in it for Entergy this time?  Well for one thing it looks like they don't really spend any of their own money on the capital.  And, in the long run, they get to sell more power to SWB in perpetuity.  Also, as the sole supplier of power to the public utility, they gain a degree of leverage over the city they didn't have before. One would think that should be enough but, well, we have come to expect differently so keep an eye out.  More details are supposed to be available next week.

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