Cantrell backs Entergy's call for higher profits after council's vote to slash profitability, rates
Oct. 31-- Oct. 31--Mayor LaToya Cantrell is backing Entergy in its fight with the City Council over how much profit the utility should be allowed to reap from New Orleans residents and other power users in the city.
Cantrell said in a letter Wednesday to the council that Entergy's New Orleans subsidiary needs a 10% return on equity, a measure of the profit it is permitted to make, so that investors will be persuaded to fund the infrastructure upgrades Entergy says are needed to ensure a reliable power supply.
The letter from Cantrell represents a shift in the mayor's position, but it's unclear how it will affect negotiations between Entergy and the council over the rates New Orleanians pay for power.
On Oct. 23, the council's Utility Committee approved a return on equity of 9.35%, which was Cantrell's original position and higher than the council's energy consultants first recommended. Entergy had requested a rate of 10.75%, which is below its current 11.1% return.
"In light of the evidence presented in the rate case, and when looking at established (returns) for companies with similar risk profiles across the Gulf South, I believe that a 10% (return) is justified," Cantrell wrote.
Giving Entergy a 10% return would mean that the anticipated $3 drop in the average customer's monthly energy bill, which was approved by the Utility Committee last week, would be reduced to something closer to a $2 decrease on a monthly bill.
For months, Entergy and council members have been sparring over the "rate case" that will set the price residents and businesses will pay for electricity and natural gas. This year's negotiations are the first citywide change in rates in New Orleans in a decade.
The rate-setting process has offered council members, who have fined Entergy twice in the past year -- first for the paid-actors scandal and later for reliability issues -- an opportunity to prod the utility toward enacting its renewable-energy goals and improve reliability while also lowering rates.
Earlier this year, Cantrell weighed in with her own plan that was backed by some of the city's largest power customers.
The mayor's latest position showcases her willingness to wade into an area that historically has been left to the council. As the primary regulator for utilities in New Orleans, the council alone is charged with setting its rates.
In her letter, Cantrell said that while Entergy's profits should be allowed to increase, the council should set even lower electricity and gas rates in the city than those approved last week, and that council members should press Entergy harder to provide reliable power service.
Cantrell didn't say how much she thinks rates should be cut, and it was unclear how Entergy would be able to lower rates while increasing its profitability.
In his own letter to the council, Entergy New Orleans CEO David Ellis said a 10% return would increase what an average customer pays every month by 78 cents over what the Utility Committee approved. Ellis said that is a meager price to pay considering that the move would allow the company to invest more in critical infrastructure.
Ellis said the proposed 9.35% rate is below the 9.76% national average, and that, coupled with Entergy's below-investment-grade credit rating, it will cause some investors to think twice before financing the utility's projects.
Those projects include help the utility could give to the embattled Sewerage Water Board, both Ellis and Cantrell wrote.
The Ellis and Cantrell letters were both made public Wednesday. Entergy spokeswoman Stephanie Pyle said that to her knowledge the mayor and Entergy officials had not been in communication.
"We are quite pleased with her decision to understand the process and come out and support" Entergy's position, Pyle said.
Councilwoman Helena Moreno, who chairs the Utility Committee, said Entergy's demands are proof of its "lack of self-awareness" about the various ways it has let New Orleanians down in recent years, and that warnings that a lower profit margin will lead to reductions in service amount to "bullying and threats."
Consumer advocates and other interested parties, including a group that represents the S and other large power users, have also expressed their views on the proposed rates. That coalition, the Crescent City Power Users Group, which Cantrell had the city join earlier this year, supported the council's recent resolution.
Cantrell initially supported the coalition's position. But Jonathan Rhodes, head of the mayor's newly formed Utilities Office, said her latest stance is aimed at ensuring even better outcomes for the city's residents and that the mayor was not trying to come to Entergy's aid.
"This is not about doing something better for Entergy. This is about doing something better for the people of New Orleans," Rhodes said.
Committee members backed cutting rates for East Bank residents by almost $3 a month and holding West Bank residents' rates steady for the next two years.
In 2021, Algiers rates will go up by at least 4% in order to equalize them with those paid elsewhere in the city. Customers on the West Bank have paid lower rates for years because they were formerly served by Entergy Louisiana, a separate Entergy Corp. subsidiary.
The council plan also would force Entergy to freeze a $8 monthly fee it levies on all of its electricity customers, offer a "green pricing option" for customers who are willing to support renewable power, and offer continued funding for a council-created incentive program for customers who install energy-saving features in their homes.
The council's utility advisers have said Entergy's original request for a 10.75% return is not backed by sound evidence, and that their analysis shows Entergy can attract capital with a return as low as 8.93%.
Logan Burke of the Alliance for Affordable Energy, a renewable energy advocacy group, said that calls for a higher rate of return than the council committee approved are not in New Orleanians' best interests.
As for Cantrell's claim that residents could pay even less than the council proposed despite a higher profit margin for the company, "there hasn't been anything in the record that shows that Entergy can get a higher rate and we can still have lower rates for residents," Burke said.
Even the $3 average monthly rate drop in the council's plan would be short-lived. Customers will pay $8 more per month starting next year when two new power plants in New Orleans East -- one solar and one gas-powered -- come online.
The full council is expected to consider the Utility Committee's recommendations at its Nov. 7 meeting. Entergy can then appeal the council's actions in court if it wishes.
