The Hayride

Bananas Foster Is Pushing His Dopey Assault On Utility Profits Again

Bananas Foster Is Pushing His Dopey Assault On Utility Profits Again
January 10
09:55 2013

Proving once again that for a Republican Public Service Commission member to agree to allow him to ascend to that board’s chairmanship was a bad idea, Louisiana’s last Longite socialist “Bananas” Foster Campbell is pressing a familiar line of attack against companies the PSC regulates.

Namely, that they make too much money, and Campbell wants to wet his political beak with some.

As Louisiana’s largest power provider prepares to set its rates for the coming year, the state’s head utility regulator is calling for an investigation into whether electric companies are making too much profit. Public Service Commission Chairman Foster Campbell said Monday he plans to propose reducing the rate of return utilities earn on the funds invested by shareholders, possibly by as much as 25 percent.

Campbell made his remarks ahead of a rate filing to be brought to the PSC by Entergy Louisiana and Entergy Gulf States in the coming weeks.

“I’m going to be pushing to reduce the rate they can make therefore reducing the cost of electricity,” said Campbell, promising transparency. “Everybody is going to know about this. This will be hot because [companies] do not want to reduce their rates.”

No kidding they don’t want to reduce their rates. And they definitely won’t be interested in Campbell’s idea of trying to reduce their profit margins from 11.7 percent to 8.5 percent.

An 8.5 percent profit margin is an amazingly low profit margin. If you go to a venture capitalist looking for a loan or equity capital and you show him an 8.5 percent profit margin, you’re going to have a rough time getting a check.

Campbell wouldn’t know anything about this stuff, as he proves by saying that because interest rates are so low Entergy can get capital just for the asking.

We explained this stuff in pretty vivid detail back in July of last year when Campbell first started running his mouth about it. That was, of course, before outgoing PSC member Jimmy Field committed what is becoming an unpardonable sin and voted with Democrat Lambert Boissiere and against his fellow Republicans Eric Skrmetta and Clyde Holloway in making Campbell the chairman of the commission – by doing so he allowed Campbell the gavel and the power to bring up stupid ideas like this in order to grab headlines for himself and play hero for his rube constituents..

Last month Campbell was giving a speech to the Southeastern Association of Regulatory Utility Commissioners in New Orleans about trying to ratchet utility margins down to eight per cent, and he was greeted by the sound of crickets chirping. Except for a regulator from Alabama who spoke up to essentially tell him he doesn’t know what the hell he’s talking about.

That’s because Campbell doesn’t understand what his job is as a regulator. He would do well to read his employer’s website

The overall goals of the Commission are to ensure a regulatory balance that enables utilities to provide customers with safe, adequate and reliable service, at rates that are just and reasonable, equitable and economically efficient, and that allow utilities an opportunity to earn a fair rate of return on their investment.

In other words, his job is to make sure the public has power at reasonable rates.

Louisiana’s electric rates across all sectors average out to 8.20 cents per kilowatt hour, which ranks 20th in the country. And Louisiana’s average utility ROE of 10.66 percent ranks smack-dab in the middle of the rate cases surveyed in November by Public Utilities Fortnightly.

So our electric rates are reasonable, and based on the survey of the rate cases our utilities get a fair rate of return.

Campbell wants that rate of return to go under nine percent. Apparently he doesn’t read Public Utilities Fortnightly. If he did, he’d see that the worst ROE restriction a utility has been hit with in a rate case was 9.5 percent.

So Campbell wants to make Louisiana’s utilities the worst-performing in the country, in one fell swoop by fiat of the PSC. Why not, right? That just means our consumers get the best rates in America.

Except that he probably ought to check with his fellow lefty Democrats in Washington. The EPA is currently conducting a war on coal energy, and because of the out-of-control regulatory jihad they’re conducting, coal power capacity is taking a dive. That makes a difference to us here in Louisiana for a couple of reasons.

First, thanks to things called regional transmission organizations power gets allocated across state lines to places where it’s most needed; Louisiana’s largest utility Entergy has received permission to join one of them (the Midwest Independent System Operator) within the next year or so.

As you’ll see, these RTO’s are set up to move power a fairly long way…

Transmission capacity is a big deal, and the growth of the RTO’s is a response in no small part to the fact that we just don’t have the transmission capacity – and in a lot of cases the generation capacity (more on that in a second) – that we need to keep up with demand. According to the American Society of Civil Engineers

The U.S. generation and transmission system is at a critical point requiring substantial investment in new generation, investment to improve efficiencies in existing generation, and investment in transmission and distribution systems. The transmission and distribution system has become congested because growth in electricity demand and investment in new generation facilities have not been matched by investment in new transmission facilities. This congestion virtually prohibits outages required for proper maintenance and can lead to system wide failures in the event of unplanned outages. Electricity demand has increased by about 25% since 1990 while construction of transmission facilities decreased by about 30 percent. While annual investment in new transmission facilities has generally declined or been stagnant during the last 30 years, there has been an increase in investment during the past 5 years. Substantial investment in generation, transmission, and distribution are expected over the next two decades and it has been projected that electric utility investment needs could be as much as $1.5 to $2 trillion by 2030. Some progress in grid reinforcement has been made since 2005, but public and government opposition, difficult permitting processes, and environmental requirements are often restricting the much-needed modernization.

And when it comes to generation capacity, we’ve got a real problem. The EPA’s war on coal means something like eight percent of our current power generation capacity nationally will be going away in the next 2-3 years; that’s going to have to be replaced, and it’s going to cost money to replace it.

Louisiana is not immune from these issues. There is a plant in Westlake, the Nelson plant operated by Entergy, which will be shut down by 2015 per the new EPA regulations and some 213 megawatts will be going with it. Additionally, NRG runs three coal-fired power plants in Pointe Coupee Parish, one of which will not be attempting to renew its permits and is weighing a conversion to natural gas. Those are multi-million dollar changes which will have to be made.

And they’ll need to be made all over the country. Because building transmission and generation capacity will be something electric utilities will be seeking financing for everywhere, and many – if not most – of those utilities operate in multiple states. Entergy is a good example; it holds a significant share of the power market not just in Louisiana, but also in Arkansas, Mississippi and Texas as well (not to mention operating nuclear power plants in a number of other states).

So if Bananas Foster gets his way, Entergy would have to make a decision which of the states it operates in it will prioritize its infrastructure improvements.

And if Louisiana allows an ROE far less than that of anybody else in the country, do you think Entergy is going to spend money building a new power plant or stringing new transmission lines here, or in Mississippi or Arkansas?

What Campbell is asking is to make Louisiana’s utilities less profitable than anywhere else, which of course he has to know he won’t get support for. But by going for the whole enchilada, he’ll be putting pressure on Skrmetta, Holloway and most importantly new commissioner Scott Angelle, who was elected in November, to craft a compromise and shave the rates.

This is where it will get interesting. Angelle, perhaps Gov. Bobby Jindal’s closest political ally and the Governor’s legislative liaison last spring, has to know that the state is in the midst of a major push for industrial development. And heavy industry uses a massive amount of power; so much so that their concerns in siting facilities are as focused on reliability and availability as actual rates. So if a petrochemical company is considering building a plant in, say, St. James Parish, they’ll want to know that Entergy’s transmission capacity to their site is adequate and consistent. They’ll also want assurances that will stay the case, and that Entergy will be able to maintain and improve those lines over time.

If Entergy’s Louisiana operations are forced to become the least profitable in the country, those assurances are less solid. And said prospective petrochemical firm might like the idea that Bananas Foster is getting them a few nickels in rate savings, but not at the price of brownouts down the road.

We’re also still recovering from a fairly significant hurricane which blew through the state in September and made a mess of the transmission lines, knocking out power for much of Southeast Louisiana. The money to make those repairs on an expedited basis has to come from somewhere. Starve the power company’s bottom line and do you think that will improve their ability to get the juice flowing quickly after a hurricane, or detract from it?

Angelle, it’s commonly recognized, is a politician with fairly high ambition. He was a statewide officeholder, as Jindal’s appointed lieutenant governor, as recently as 2010, and most believe he’ll be making a run at statewide office as soon as the next election cycle in 2015. And as what could well be the deciding vote in the next rate case, he’s going to need to make the call. Does he agree with Campbell and position himself as the New Savior Of The Common Man by sticking it to those greedy utilities, or does he diss Bananas and go with the other two Republicans?

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2 Comments

  1. John Gordon
    John Gordon January 10, 16:28

    Very comprehensive and well written. It is worth mentioning that rates are only one of the many line items on an electric bill – the rest are costs that are passed directly to customers per the order of the PSC. What you allude to in this article that is very important is the following: that while lowering rates may sound good to politicians, the increased financing premiums for infrastructure costs may actually cancel out those savings as a result of decreased profits. Therefore, lowering rates can actually increase total long-term electric costs for customers.

  2. Jules P. Guidry
    Jules P. Guidry January 15, 13:29

    Anytime the politicians get involved in anything, in the name of restricting "profit", or whatever, the cost to consumer is going to go up. This BS by Campbell is not going to work out any different. What an ideological idiot. Somebody please pull the influence plug on this blowhard. Got any dirt on him? Let's play by the left rules and smear him into his own dirt. Simply tired of listening to politicians who think they know what is good for the rest of us.

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