Entergy to receive $200 million from LRA; Grant money will help cushion rate increases in New Orleans

BYLINE: By Pam Radtke Russell, Business writer

In a move that a state consultant said will eliminate all but a 9 percent increase in electric and gas rates for Entergy New Orleans customers, the Louisiana Recovery Authority's board of directors overwhelmingly approved giving the utility $200 million in Community Development Block Grant money on Thursday.

Anything further to mitigate Entergy New Orleans costs for Katrina-related damage will have to be addressed by the New Orleans City Council, Entergy Corp. or through more grants directly from the government, said John T. Landry, chairman of the LRA's infrastructure task force.

"I personally don't see any more Community Development Block Grant money coming forward for this project," Landry said. Entergy New Orleans had requested $592 million of the federal grant money. "Although they hoped for more, they were really happy to get $200 million. But it's not a perfect solution."

Landry said the LRA's remaining $445 million in uncommitted infrastructure money will be used across the state, including possibly addressing some of the $1 billion in requests from Cleco, Entergy Louisiana and Entergy Gulf States that were not addressed Thursday.

The LRA, though, chose to address the problems in New Orleans first because the CDBG money would have a greater impact on the city's residents than if it were applied to larger utilities across the state with much larger customer bases.

The $200 million applied to Entergy New Orleans can significantly reduce rates for the 85,000 customers in the city. Ronald Nichols, a consultant hired by the LRA, said the $200 million will offset a 13 percent rate increase on electric bills and a 36 percent rate increase on gas bills, leaving a total increase of about 9 percent, including a storm reserve fund. The same amount applied to Entergy Louisiana might only reduce increases from 4 percent to 3 percent, said Andy Kopplin, executive director of the LRA. Gov. Kathleen Blanco agreed with Kopplin and urged the board of directors to approve the request.

The money allocated to the LRA for infrastructure "is simply not enough. We have to take the money and use it where it will have the highest level of impact. If we don't do it, New Orleans just can't afford to come back," she said.

Passing on costs

Utilities have the legal right to pass their costs on to customers, said Blanco, who spent seven years as a member of the Louisiana Public Service Commission, which regulates most utilities across the state.

Still, not all LRA board members were convinced. Tom Henning of Cameron Parish and Mike Woods, also of southwest Louisiana, voted against the measure. Henning wanted the board to consider giving the money directly to the parish, along with other infrastructure money requested by Orleans, and allow parish officials to decide whether Entergy New Orleans should get the money.

Fellow LRA members sympathized with Henning and Woods, saying they too at first weren't willing to give the money to Entergy New Orleans.

"I never thought I'd be supporting this," said Sen. Diana Bajoie, D-New Orleans. "The amount of damage would be astronomical. Many people cannot afford these energy bills."

Based on a list of stipulations in the LRA resolution, the money must be used to directly offset rate increases. That money would go to repay the company's costs incurred in restoring the city's electric and gas utilities and to help Entergy New Orleans come out of bankruptcy, several LRA members said. The utility declared bankruptcy less than a month after Hurricane Katrina struck and is still in bankruptcy though it is still operating.

Dan Packer, chief executive officer of Entergy New Orleans, has repeatedly said the company needs CDBG money, insurance proceeds and a rate increase to come out of bankruptcy. Packer said he hopes the company will be able to file a plan of reorganization by the end of the year. The utility had said that without $592 million in CDBG money New Orleans customers would face rate increases of 120 percent per month.

Rate increase requested

It already has requested a 25 percent increase from the City Council that addresses the utility's reduced customer base, money to recover what it has spent on the storm and a future storm reserve fund that would insure the system for future damage.

The 25 percent rate increase would mean an increase of $45 per month for a typical electric bill and bring the average customer's monthly bill from $177.58 to $222.58. The 9 percent increase would mean an increase to $193.58 a month.

Packer said he couldn't determine what rate increase still might be necessary with the CDBG money because Entergy and the New Orleans City Council are still negotiating over the proposed increase. The City Council must vote on the Entergy New Orleans request by the end of the month.

New Orleans City Councilman Oliver Thomas reiterated on Thursday that the council is hoping for a zero or a minimal rate increase.

By Nichols' estimate, Entergy New Orleans still needs $188 million to address unresolved physical damage, specifically damage to the gas system that can be paid for over the next 10 years.

The LRA didn't attempt to address Entergy New Orleans' request for $194 million in unrecovered fixed costs because of a reduced customer base.

"Our evaluation stopped at physical costs," Nichols said. The LRA is "not taking any position on uncollected costs. There's enough to deal with just the physical restoration."

Packer said he couldn't address whether Entergy New Orleans would pass those unrecovered fixed costs to customers because that also is subject to ongoing negotiation.

More money coming?

In its resolution, the LRA agreed to work with the congressional delegation and the governor to secure more federal money for the state's utilities. Landry, though, said that while Thomas and LRA board vice chairman Walter Isaacson have committed to pushing for more money for the state's utilities in Washington, D.C., Gulf Coast Recovery Coordinator Donald Powell hasn't given LRA much encouragement.

Blanco, too, pointed out that the White House has simply refused to give money directly to utilities.

Before it voted, the LRA removed from its resolution a stipulation that Entergy Corp. use its best efforts to keep its headquarters in New Orleans. Thomas said that the council had received a letter from Entergy Corp. that it was the company's intention to remain in New Orleans. That letter was sufficient for the City Council, Thomas said.

Councilwoman Shelley Midura, who attended the meeting, acknowledged the LRA's action was just one step needed to keep New Orleans' electric and gas bills low.

"It's done and we can now take up the rest of the process," she said. "I'm grateful to the LRA for helping us out."

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Pam Radtke Russell can be reached at (504) 826-3351 or prussell@timespicayune.com