Entergy sues the City Council over lower profit rate and $1 million fine

Entergy New Orleans CEO David Ellis sits at a City Council utility committee meeting in October.

Entergy New Orleans, the city’s electric and gas utility, filed two lawsuits on Friday over recent decisions by the New Orleans City Council, which serves as the company’s regulator. 
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by MICHAEL ISAAC STEIN
Article originally published by The Lens
DECEMBER 10, 2019

One of the suits challenges the council’s November decision to lower the profit rate the company can collect from New Orleans customers. The other challenges a $1 million fine the council levied on the company for its “inaction and omissions in mitigating” the thousands of power outages the city experiences every year.
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In a letter to the Clerk of Council, Entergy attorney Alyssa Maurice-Anderson said the company needed to file the suits within 30 days of the Nov. 7 council votes in order to maintain the option of pursuing a judgement down the line. But, she wrote, the company is willing to negotiate with the council through the city’s regulation process, known as a utility docket. 

“I would emphasize that [Entergy New Orleans] remains open to efforts to resolve the issues in this docket through agreement as opposed to continued litigation,” the letter said. 

As part of a resolution setting citywide gas and electric rates, called a “rate case,” the City Council last month voted to lower Entergy’s “return on equity” rate, a key factor in determining the amount of profit it can collect from customers, despite threats from the company that it would sue. The council’s decision also went against the wishes Mayor LaToya Cantrell, who sided with Entergy’s demand for a higher profit. 

The council cut Entergy’s return on equity, or ROE, from 11.1 percent to 9.35 percent. Entergy had argued that its ROE should be 10 percent, saying the lower rate would threaten the company’s ability to fund critical projects. The council’s utility advisors, however, argued that the rate should be set even lower, at 8.93 percent. 

Meanwhile, a coalition of major power users that included the city and the Sewerage and Water Board advocated for the 9.35 percent rate. 

In the lawsuit, Entergy claims that the council’s decision will cost the company $25 million per year. In the complaint, the company says it “would suffer irreparable harm” with the 9.35 percent rate. 

But the lawsuit doesn’t only ask the court to overturn the new rate. Entergy is challenging the entire rate case resolution, even the parts it doesn’t specifically object to in the complaint. The council worked on the rate case resolution for more than a year. It includes a host of critical issues aside from the ROE, including freezing base rates on monthly bills and creating avenues for residents to pay extra to source their electricity from renewable sources

Aside from the ROE, the complaint also takes issue with language referring to its controversial gas plant project in eastern New Orleans. 

A coalition of environmental and consumer advocates sued the City Council last year, saying the March 2018 vote to approve the new gas plant was invalid because the meeting filled to capacity, barring some members of the public from entering and participating. 

They argued that was a violation of the state’s Open Meetings Law. Civil District Court Judge Piper Griffin ruled against the council in July, but placed the blame in large part on Entergy and its alleged role in the use of actors who were paid to attend meetings in support of the plant. The actors were hired by an Entergy New Orleans subcontractor, and the company has denied knowing about the scheme. But a team of investigators concluded last year that top executives “knew or should have known” what was going on. The company later paid a $5 million fine over the so-called “astroturfing” campaign. 

The council and Entergy New Orleans have appealed Griffin’s decision to the Fourth Circuit Court of Appeal. 

The rate case resolution says that Entergy cannot recover costs from the power plant, which is currently under construction, until the costs are “approved through a final judgment of the Council.” In its lawsuit, Entergy argued that the appeal may still be ongoing when the plant is expected to go into service in June 2020. That’s when Entergy is supposed to start charging customers for hundreds of millions of dollars in construction costs and shareholder profit. 

It’s unclear what would happen if the judge ruled in Entergy’s favor, but it’s possible it would force the council to restart the rate case process. In a letter to the council prior to the vote, an Entergy executive claimed another rate case would cost customers $7 million in regulatory costs. 

​Entergy didn’t respond to a request for comment. A spokesman for City Council President and utility chair Helena Moreno said he couldn’t comment on ongoing litigation. ​

$1 million fine 

The council passed the $1 million fine on Entergy last month as the result of a so-called prudence investigation that began last year in response to frequent outages the city experienced between 2013 through 2017. In 2013 and 2014, Entergy cut funding for maintenance and system improvements to the distribution system by millions of dollars. 

The number and duration of power outages has increased every year after 2013, when the disinvestment began, according to reliability measures provided by Entergy included in the resolution.

There were 2,599 outages between June 1, 2016 and May 31, 2017 alone, according to the resolution. Most of those occurred on fair-weather days, the council’s utility advisers found. And according to a report from an Entergy consultant, Quanta, roughly 41 percent were caused by equipment failures.

In its lawsuit, Entergy argued that the fine should be dismissed by the court because there weren’t preexisting reliability standards or set penalties for failing to meet them. 

“The council improperly, arbitrarily, and unlawfully imposed a $1 million penalty on ENO in the absence of a pre-existing penalty structure, or any regulatory criteria to assess reliability,” the complaint says. 

It points out that before the prudence investigation began, the council first opened a docket to set those very standards. The council has since closed the investigation and levied the fine, but has yet to pass a final resolution to set reliability standards and penalties. 

The council’s longtime utility advisors first recommended a $1.5 million to $2 million fine in May. In that report, the advisors argued that although there weren’t specific reliability performance metrics laid out, the City Code and regulations set by the City Council still oblige Entergy to provide “safe and reliable service in accordance with industry standards.”

“Clearly, ENO was in the best position to know that this problem existed, was on the rise, and was not limited to one Council district, and yet, ENO failed to take sufficient corrective action in a timely manner,” the report says.
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The suit over the fine was originally assigned to Judge Robin Giarrusso, mother of current City Councilman Joe Giarrusso. But she recused herself and ordered the case reassigned to another division of Civil District Court. ​

View original article on The Lens

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MICHAEL ISAAC STEIN

​Michael Isaac Stein covers New Orleans' cultural economy and local government for The Lens. Before joining the staff, he freelanced for The Lens as well as The Intercept, CityLab, The New Republic, and... More by Michael Isaac Stein