[StBernard] Power play puts La. at risk

[Westley Annis]

Steel plant could hinge on utility costs 
 
Sunday, February 18, 2007 
 
By Robert Travis Scott
 
BATON ROUGE -- The high cost of electricity in southern Louisiana could be a
factor weighing against the state in its competition with Alabama to win a
new 2,700-employee steel plant, according to industrial power users and
state regulators. 
 
The Louisiana Department of Economic Development is in the home stretch of a
two-state contest to persuade German steelmaker ThyssenKrupp Group to choose
Louisiana for the $2.9 billion project, which would be among the nation's
largest manufacturing announcements in years. But Louisiana's sales pitch
for the plant does not rely solely on state officials. 
 
Entergy Louisiana's electricity bills to industrial customers in 2005 were
on average 48 percent higher than those of Alabama Power, according to the
Energy Information Administration, a federal agency. Including all power
companies statewide, Louisiana in 2006 ranked No. 16 among states for
highest electricity costs to industrial users, and its prices were 15
percent higher than the national average. Alabama ranked at No. 35, with
prices 19 percent below the national average. 
 
Entergy Louisiana spokesman Chanel Lagarde said the company has taken steps
to decrease prices, including efforts to modernize its power plants, which
are dependent on natural gas. Natural gas, in recent years, has been an
expensive fuel to burn for electricity. Entergy has been responsive to
criticism about its pricing and in the past five years has significantly
reduced its reliance on the inefficient gas-fired plants, he said. 
"Historical electricity prices are not necessarily an indicator of what the
future price of electricity may be," Lagarde said. "We continue to diversify
our generation portfolio and reduce exposure to the volatility of natural
gas." 
 
Alabama Power is more reliant on coal-fired plants. But the price of
coal-produced energy could inflate in the future as the Alabama utility
deals with tightening environmental rules, new air-quality equipment and
potential new taxes on coal energy. 
 
Dusseldorf-based ThyssenKrupp said last week it has narrowed its site
selection search to the two states. Locations in Convent on the Mississippi
River in St. James Parish and in north Mobile County are in the runoff for
the project, which would be completed in 2010. 
Alabama Gov. Bob Riley was in Germany last week with the head of Alabama
Power, the state's largest electricity provider. 
 
Entergy Louisiana, the Entergy Corp. subsidiary that provides power for the
River Parishes region, is involved in economic development discussions, but
the company will not comment on the steel plant negotiations, Lagarde said. 
 
ThyssenKrupp spokesman Christian Koenig said the cost of electricity is an
important consideration for a major industrial plant. He and state officials
would not discuss specifics, citing their agreement to keep negotiations
confidential. 
 
Joe Marone of Occidental Chemical said his company has operations in Alabama
and Louisiana, including a plant next door to the proposed site in Convent
and another in Mobile. Although Louisiana has advantages with its river
transportation system and other factors, the difference in electricity costs
is dramatic, Marone said. Entergy's subsidiaries compete favorably on base
rates but charge a big premium to cover the power company's costs for using
natural gas, he said. 
 
Marone would not disclose Occidental's electricity costs, but he said a
large industrial electric user might pay $80 million to $100 million in
power bills annually. At that level of consumption, Entergy's higher prices
cut tens of millions of dollars off an industry's bottom line when compared
with the prices it could get with lower-cost providers. 
 
The problem is that Entergy is overly reliant on old, inefficient gas-fired
power plants and has been slow to upgrade, Marone said. He heads an industry
lobbying organization called Louisiana Energy Users Group, which represents
20 companies, including oil refinery giants ChevronTexaco Cos. and
ExxonMobil Corp. The group is pushing for regulations that would promote
low-cost energy and better power transmission lines that would create more
choices for sources of electricity. 
 
"We have been encouraging Entergy, without a lot of success quite frankly,
for new transmission," said Jimmy Field of Baton Rouge, one of the five
elected members of the Louisiana Public Service Commission, which regulates
most utilities in the state. 
Field said Entergy's old power units pollute the environment, waste natural
gas and produce high-priced electricity. But building new stations and
transmission upgrades are expensive options, so pressure on the company to
upgrade has met resistance. 
"It has been like pulling teeth," Field said. 
 
Major power utilities get their electricity from a variety of sources, such
as natural gas-fired turbines, coal plants, hydroelectric facilities,
nuclear plants and power purchased from other companies. About 20 percent of
Entergy's electricity supply comes from gas- and oil-fueled plants and about
12 percent stems from coal. Nuclear power and purchases from other sources
provide the rest. 
 
Field said Entergy has a healthy mix of power sources that could help
stabilize prices in the long term. 
 
Another cost problem is that Entergy for years has been placing a higher
burden on its Louisiana customers to pay for these power-generation costs
compared to what Entergy charges its customers in Arkansas, Marone and state
regulators said. 
 
Louisiana's commission sought what it believed was a more equitable pricing
system between Entergy's subsidiaries in Louisiana and Arkansas. For five
years the commission wrestled Entergy on the dispute by taking the matter
through the federal regulatory process and the courts. Starting this summer,
Entergy must begin compensating customers in Louisiana for any unfair cost
burden shifted from Arkansas in the past year. In future years the company
will have to do the same. 
 
The three-pronged solution to Entergy's higher prices -- new power plants,
better transmission lines and more equitable pricing for Louisiana customers
-- is taking shape and offers optimism, Field said. 
 
Although he has not taken part in talks about the steel project, Field said
he expected that no matter what deal is made, Louisiana's electricity cost
for the plant will be higher than Alabama's. 
 
But Field said Alabama Power's coal-fired facilities could lead to higher
electricity prices in the future.
 
 
Alabama Power plans to spend $2 billion in the next four years on
improvements to its air-quality control equipment and to meet new federal
regulations on sulfur dioxide and mercury emissions, company records show.
Those expenses will be passed on partly to customers. 
Company spokesman Michael Sznajderman said those expenses will result in
charges to Alabama Power's industrial customers of less than 1 percent of
their electricity bills. He said the company has a policy of keeping its
prices at least 15 percent below the national average. 
 
The utility customizes deals with industrial clients and has about 70
different industrial rates, Sznajderman said. 
 
The Louisiana Public Service Commission in the past has supported some
special deals in which a manufacturing plant's power bill was partly
subsidized by charges to a power company's residential customers. But Field
and PSC Secretary Lawrence "Tubby" St. Blanc said the commission is not
inclined to arrange that kind of deal for healthy industries. 
Still, Field said he would not automatically reject a proposal to place a
light amount of power costs on residential customers if a giant
jobs-producing manufacturing plant was at stake. 
"A lot of policy decisions will have to be made," Field said. "They won't be
easy, but it sounds like a good opportunity for Louisiana if we're the
successful bidder. 
 
 
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