New Orleans took a giant step toward post-Katrina recovery last week when the City Council approved an agreement that will help Entergy New Orleans emerge from bankruptcy -- without saddling local ratepayers with huge hikes in their monthly bills.
Council members took their bows as the agreement was announced, as they should, but the real hero of the white-knuckle talks with Entergy New Orleans (ENO) was Clint Vince, a Washington attorney who has been advising the council on utility regulation for the past 20 years. The soft-spoken Vince typically shies away from publicity, but behind the scenes he has helped save New Orleans ratepayers hundreds of millions of dollars during the years he has sparred with Entergy lawyers and analysts.
In July, ENO filed a formal request with the council for a 25 percent rate increase, which would have raised the "average" bill $45 a month. The rate hike was intended to pay off hurricane damages (for which ENO apparently did not -- or could not -- insure adequately or set aside sufficient reserves of cash) and create a future storm reserve of $150 million.
During the negotiating process, the utility warned that if it did not get at least $700 million in direct federal aid that rates could soar by 140 percent. Nobody realistically thought that would happen, but such bluster certainly can have an adverse impact on recovery efforts. The Louisiana Recovery Authority has recommended $200 million in relief for Entergy, a figure that insiders say should adequately compensate the utility for its storm-related losses after insurance recoveries.
Under the agreement hammered, out the ENO electric rates will remain frozen at current levels until January 2008. Gas rates will rise gradually to approximately $12 more a month for an average ratepayer by November 2007. ENO also will begin collecting less than $3 a month per ratepayer next March to create -- over a 10-year period -- a storm reserve fund of $75 million. The "average" monthly gas and electric bill will rise by about $15 a month by 2008, at which time electric rates could increase by 2.5 percent.
That's certainly a lot less than 140 percent, or even 45 percent.
And while cushioning customers from immediate, dramatic rate hikes is vitally important to residents' mindset, the long-term impact of the deal is even more striking. Allowing ENO to emerge from bankruptcy is a crucial milestone in the city's ongoing recovery efforts. It sends a message to the world -- particularly outside, private investors -- that New Orleans is regaining its infrastructure. That, along with a predictable, reliable source of relatively cheap energy will help calm the nerves of investors as well as displaced residents who are trying to decide whether to return. The agreement removes one more "wild card" from the deck.
The agreement has other important provisions as well. They include:
• Making ENO submit a plan to rebuild its natural gas grid over the next 10 years with money that it is getting from its insurers, plus additional money it hopes to obtain in Community Development Block Grants.
• Requiring ENO to seek lower-cost sources of electricity. This will be particularly helpful during peak summer months when high-cost electricity is obtained from older, less efficient Entergy power plants such as the one in eastern New Orleans.
• Restoring $6.9 million to an energy efficiency fund. The fund will help underwrite a program to educate customers about residential energy efficiency as well as pay for improvement at some homes. The fund was cut after Katrina to help Entergy restore power.
• Reducing the storm reserve fund from $150 million to $75 million -- and putting Entergy on the hook for any costs in excess of the fund's balance if it must be tapped during the 10-year period in which the fund is built up. Also during the 10-year build-up phase, the city and ENO will lobby Congress for changes to the Stafford Act, which bars the federal government from paying for utilities' storm damage, so that future storm damage could be covered by federal aid. If such a change is made, the reserve fund could be used for other purposes and the $2.59 monthly rate increases for it rescinded.
Utility regulation is not a sexy political issue, but it's a very important one. Now more than ever, New Orleans needs a win -- and we got one last week with the new Entergy agreement.