JOSEPH DANIEL, SENIOR ENERGY ANALYST - Originally published on Union of Concerned Scientists blog
Over the past year or so, a lot of states with renewable portfolio standards (RPS) have opted to double down on that policy mechanism to set a path to 100% clean electricity. However, most jurisdictions in the deep south have been reticent to pass such policies. That might change later this year, as the City of New Orleans considers passing an RPS. And that’s the crazy trick that could save customers money. Passing an RPS.
I’m not saying that an RPS will guarantee more affordable energy; but, by passing a 100% renewable portfolio standard, the city of New Orleans has the opportunity not only to help reduce carbon emission but also make electricity more affordable for its residents.
I had the privilege to work with the Alliance for Affordable Energy in drafting technical responses to questions posed by the city council—which also serves as the local utility regulator—about the cost complying with an RPS. A copy of the comments can be found here. There are two important takeaways I wanted to share:
Protecting New Orleans’s electricity consumers
While state-level RPS policies have proven to be an affordable driver of new renewable energy development, the best policies feature strong consumer protections to help ensure that people can still pay their electricity bills. Nationally, one in every three Americans struggle to pay their energy bills, and that burden is three-times greater on low-income households.
Income inequality plagues New Orleans. Any increase in energy bills could be devastating. As a result, the Alliance for Affordable Energy has suggested some sound strategies for protecting New Orleans’ most vulnerable power consumers as the city seeks to transition to a renewable energy economy. These recommendations include:
That last one is important…
What is New Orleans’s utility up to with customer’s money?
New Orleans is served by Entergy New Orleans LLC (ENOL) which is owned by Entergy Corp. If you follow energy utilities like I do, you may recognize ENOL’s name from the infamous antics they pulled: pretending to be New Orleans community residents in an underhanded attempt to trick New Orleans City Council into building a new, unneeded gas-fired power plant. Entergy also owns other vertically integrated utilities (like Entergy Mississippi, Entergy Louisiana, and Entergy Arkansas) and independent power providers like System Energy Resources Inc (which owns the Grand Gulf Nuclear reactor in Mississippi). In 2018, ENOL spent over $100 million buying electricity from many of these companies that are affiliated with ENOL’s parent company.
UCS conducted analysis on coal and nuclear power plants and found many of Entergy’s assets are uneconomic compared to market prices. It appears that Entergy may be using bi-lateral contracts with affiliated companies to prop up otherwise uneconomic coal and nuclear power plants.
For example, ENOL buys electricity from Entergy Arkansas at an average price of $49/MWh in 2018, or roughly 64% higher than average Arkansas Hub market prices in 2018. Entergy Arkansas owns and operates the White Bluff and Independence coal plants, two coal-fired power plants in Arkansas that regularly operate when it is uneconomic to do so. One reason these coal plants might be doing this is that a bi-lateral contract could make them indifferent to market prices—they’re guaranteed money either way. As a result, ENOL customers in New Orleans would be subsidizing uneconomic coal plants in Arkansas.
For comparison, other utilities have signed contracts for solar plus storage at $45/MWh. Solar or wind (without storage) comes in even lower, with solar as low as $25/MWh and the average wind PPA last year coming in at $20/MWh.
ENOL also buys electricity from System Energy Resources Inc (another Entergy subsidiary) owner and operator of the Mississippi-based Grand Gulf nuclear power plant. UCS analysis found that the Grand Gulf plant operates at a cost around $40/MWh; if the power plant were reliant on market prices alone, it wouldn’t be economical to own and operate the reactor. ENOL buys electricity from System Energy Resources at an average price of $77 /MWh or over two times the Louisiana hub market average. Over the long run, rooftop solar in New Orleans today would likely cost about $70-$80/MWh.
Is it possible that ENOL customers are funding a nearly 50% profit margin to Entergy and subsidizing an otherwise uneconomic nuclear plant in Mississippi while simultaneously being deprived of rooftop solar?
Yes, it is entirely possible.
This isn’t the first time someone has accused Entergy of turning a blind eye to cheaper resources in favor of operating more expensive plants it owns. This past April, the state of Mississippi argued in court that Entergy Mississippi defrauded customers by not buying cheaper power off the market and demanding the utility repay up to $2 billion to its customers.
Enacting an RPS will force Entergy to wean itself off those above-market contracts and sign contracts for renewable energy, which as outlined above, are likely to come in at or below the costs of existing contracts for coal and nuclear. An RPS in NOLA is probably going to drive energy costs down.
The Energy Future New Orleans Coalition is: