Bananas Foster Is Beating His Head Against The Wall Again…

…and if he gets his way he’ll probably kill jobs and raise utility rates.

The Baton Rouge Advocate reports on PSC Commissioner Foster Campbell’s latest attempts at limiting the amount of profit utilities can make in Louisiana…

Private utility companies need to trim their guaranteed profit margin paid monthly by customers who have no choices in the marketplace, says Foster Campbell, chairman of the Louisiana Public Service Commission.

His is an idea that is not widely embraced but could have an impact in Louisiana.

“We’re elected by consumers to protect consumers from these monopolies. You’d assume that every commissioner in the country would agree,” said Campbell, who has been pushing the idea among utility regulators nationally since publishing an article in March in their association publication.

Nationally, investor-owned utility companies make an average 10.66 percent “return on equity” or ROE, Campbell said. In Louisiana, dropping that ROE by 2 percent would mean a savings of about $50 a year for the average residential customer, he said.

Campbell argues that the prime interest rate is 3.25 percent. The wellhead price of natural gas, which fuels most of the generators that make electricity in Louisiana, is $2.35 per thousand cubic feet and is predicted to remain low for several years.

“All the ingredients that go into making the ROE are down — the cost of money, the cost of fuel — nobody these days is getting a 10 to 11 percent profit, and it’s guaranteed,” Campbell said.

You might think 10.66 percent is a damn fine ROE. After all, it’s more money than ExxonMobil makes, and there are no guarantees to what ExxonMobil is going to make – publicly regulated monopolies like utilities aren’t in price competition, and while demand for their energy will wax and wane they’re covered in large measure by working in local markets which are often a bit more stable than the global markets oil companies operate in.

But Campbell, whose attention-whoring as a public service commissioner runs the gamut from trying to limit utility profits to forcing phone companies to print and distribute White Pages nobody uses anymore, isn’t getting anywhere. His compatriots on the PSC mostly understand economics a lot better than he does – despite their paying lip service to the “Oh, yeah – I’m gonna protect the public from those rapacious utilities; don’t worry” line they’re supposed to give the papers.

That’s true of regulators elsewhere as well. 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?

Campbell says interest rates are so low it won’t matter; people will rush to finance construction across the board. Ask yourself this – do you think it’s a smart idea to trust him on that, or would it be better for the PSC just to do the job it’s supposed to do and strike a balance between keeping power available at reasonable rates and ROE numbers?

We know what his answer is – it’s the one which gets him headlines. Don’t think it’s the right one, though. More than likely if he gets what he wants we’ll just have less available energy – either because it’s more profitable to transmit Louisiana-generated power to other states or because it’s not as profitable to build power plants here as those states – at, ultimately, higher prices. And that will mean lost Louisiana jobs and depressed economic growth across the board.



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