This past Wednesday, April 18th, the LPSC voted to approve Entergy Louisiana’s application to Extend and Modify their Formula Rate Plan (FRP). Despite requesting significant bill increases, we worked to bring their Return on Equity (ROE) to 9.8%, the lowest in the state, and Entergy Louisiana customers will be the first in the state to see a bill reduction due to the corporate tax cut from 35% to 21%.
Here’s what that means, why that matters and how we got this far.
A utility, like Entergy, sets rates based on it’s Formula Rate Plan, or FRP, which takes into account their rate base investment (power plants, electric grid, etc.), rate of return (allowable profit) and their operating expenses. This is traditionally set in a rate case, but to avoid the lengthy process, Entergy opted to extend their current FRP with a few modifications (increased charges), however, this most certainly requires approval.
In this case, approval looks like months of negotiations between Yours Truly, the Louisiana Energy Users Group, Oxy Chemical, Marathon Oil and staff of the LPSC versus Entergy Louisiana. This may be one of the few times the Alliance is on the same side as Marathon Oil, but since we’re all ratepayers, it’s in our collective interest to ensure we’re not giving Entergy a blank check leading to notable bill increases, which is exactly why this matters.
It’s no surprise that Entergy needs to put significant money towards upgrading their transmission, and we know that they’re not planning on using their profits to do so. Those costs will be directly passed on to the ratepayers. Entergy is also ‘under-earning’ because we are refusing to pay exorbitant bills in favor of adopting more energy efficient practices. That, combined with the cost recovery of two power plants, St. Charles & Lake Charles, expected to hit bills in the next two years sets the stage for nearly a $15 month increase on an average home. The only way to mitigate that is by holding Entergy accountable by forcing them to return the money they collected in taxes that they will never have to pay, and keeping them at a reasonable ROE. In the end, we were able to successfully negotiate an initial bill decrease, exactly when people need it the most.
Yet the fight is not over! Entergy Louisiana is embarking on their 20 year Integrated Resource Plan (IRP) process, which is likely to include building new power plants. Not to mention, Entergy New Orleans is looking to continue charging customers the 35% tax rate through August 2019.
On March 26, Entergy New Orleans responded to City Council’s January directive to provide information on the impact of the federal tax cuts. In their filing Entergy provides information about all of the tax benefits from various revenue streams that result from the tax cut. It turns out, there are over $100 million in taxes that should be flowed back to customers in New Orleans.
These dollars fall into a few categories, which have varying federal rules attached for how they can be given back to customers, but at least $37 Million falls into the category of dollars that can be given back to customers immediately. Entergy New Orleans’ proposal is to hang onto all of the money until at least August of 2019 until the completion of the first rate case in New Orleans since 2009.
We believe the dollars should begin to benefit customers sooner than 16 months from now. If Entergy is allowed to hang on to your money, the Council must insist that the utility give back that money with interest. These are customer dollars that were (and continue to be) collected for the purpose of paying state and federal taxes that will never be paid to any taxing agency. Customers in New Orleans can certainly not afford to let the utility sit on their money for over a year.
Other utilities in the state, including Cleco and Swepco, do not yet have a mechanism in place to flow back the tax reduction benefits. We will continue to advocate that the dollars benefit customers as soon as possible. Needless to say, we’ve got our hands full, but we’ll make sure to keep you updated along the way.