Prudence Review vs. Utility Reporting: A Tale of Two Regulatory Bodies

From February 14th - 18th, 2021, Louisiana and Texas experienced extremely cold temperatures, relatively unusual for the region. Referred to as Winter Storm Uri, or most recently as The February Arctic Event, the freezing cold temperatures pushed our electric infrastructure to the brink of mass failure. Electric generating units failed due to the freeze, ice-covered tree branches took down power lines, gas supply could not meet demand, because of the nature of gas used in the region, the pipelines themselves could not withstand the temperatures, and the demand for energy to heat our homes was at an all time high. This created a Maximum Generation (or Max Gen) event within our electric market, MISO, and did lead to rolling blackouts for Louisianans.

Now that that extreme weather has passed, and Louisiana was spared the worst of it, our utility regulators want answers. Simple ‘supply and demand’ principles mean that that Max Gen event is going to come with a hefty price tag, but for who and when? The high fuel costs, recovered through the Fuel Adjustment Clause (FAC) will likely be spread out over 6-12 months, while costs associated with damaged power plants and transmission & distribution lines can be securitized with long-term bonds.
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The New Orleans City Council, which has regulatory authority over Entergy New Orleans (“ENO”), has opened a docket (UD-21-01) in order to conduct a prudence investigation of ENO’s decision-making during the winter storm. 

Preliminary findings have revealed that while MISO ordered ENO to shed 26 MW of power in order to avoid a total grid shutdown, instead it shed approximately 60 MW, more than double the required amount, leaving 25,000 New Orleanians freezing in the dark during one of the coldest nights of the winter. Compounding the injury, many ratepayers saw their bills increase drastically in the wake of the storm, while Entergy gleaned a record $1.4B in profits in 2020.

While the New Orleans City Council regulates Entergy New Orleans, the Louisiana Public Service Commission (LPSC) regulates almost all of the State’s other utility providers, including Entergy Louisiana, Cleco, SWEPCO, Atmos, and our electric co-ops. The LPSC posed a series of questions to their jurisdictional utilities. Sure, information gathering is a great first step, yet allowing the utilities to control the narrative through self-reporting can be a slippery slope. Further, the LPSC seems positioned to revisit an old rulemaking docket from 2018 that addressed a similar Max Gen event in January of that year, which could help to determine what went wrong and why, identify best practices and set rules for future Max Gen events. That process, however, likely will not result in customer refunds should the LPSC determine our utilities incurred costs imprudently, and then passed those costs along directly to the customer. That process could end up buried in a fuel audit docket five years from now, which will then be subject to Commission review, and due to regulatory lag, may not be subject to public engagement and scrutiny until 2030. We know customers are already paying these high fuel costs associated with the Winter Storm, and it’s going to be a lot harder to claw back those dollars through the usual regulatory process. 

Max Gen events should be unusual and fully investigated to make sure that all of the costs passed along to the customer are incurred prudently. We, in Louisiana, are in a unique position of having two separate regulatory bodies regulating our Investor Owned Utilities (IOUs) which can result in very different utility policies (and costs!) for a neighboring zip code. A Max Gen event and investigation can pose some very unique challenges as all of our IOUs are in the same MISO electricity market. Should New Orleans’ prudency review uncover some company wide market shenanigans, will the LPSC follow through for utility customers they represent?