When a capital-intensive industry enters an asset-building cycle, many companies will operate in the red for a few years or more. That’s not necessarily a bad thing, as cap-ex investments...
Entergy's Grid Grab
Will tomorrow's transmission be privately funded, with the first-class seats reserved for investors?
The six o'clock news has locked its radar on California's power market meltdown , and rightly so. But that's no reason to overlook the nation's heartland, where a utility coming late to the game has set the pot boiling.
I'm thinking about Entergy, which hasn't really been on the cutting edge since the mid-1980s. That's when, under its former name of Middle South, it rocked regulators in Arkansas, Louisiana, and Mississippi with its cost allocation scheme for the Grand Gulf nuclear plant. Energy's multi-state plan threatened to place the local power infrastructure under federal control. That fight offered a stage to crusading politicians, including the young Bill Clinton. He worked to protect the state's rate-setting authority against encroachment from the Federal Energy Regulatory Commission. He should have been governor of California.
Now, Entergy is in the limelight again, and not just for its planned merger with Florida's FPL Group. Faster than FERC Chairman Curt Hébert can say, "Incent and they will come," Entergy has proposed an ambitious plan to award huge premiums to grid investors. It has included the incentives in the rate design it proposes for its stand-alone, for-profit transmission company, or "transco," filed with the FERC as part of a hybrid regional transmission organization with the Southwest Power Pool.
The case is complicated. Some want to know why requests for transmission line-loading relief are rising in Entergy's region. Should today's service quality form the benchmark for Entergy's proposed scheme for performance-based transmission rates? Others have used the case to attack Entergy's source/sink disclosure rule. The FERC approved it a year ago, but it's still on appeal in federal court (). They say the rule has reduced liquidity in power markets in the region. Yet Entergy's proposal may reveal where transmission is heading.
Among other ideas, Entergy proposes that certain transmission expansion projects should be funded privately by individual investors, such as power producers. They would then keep all, or nearly all, of the rights and benefits. Think of how they reserve the box seats for members of the Opera Guild, and you start to get the picture.
"PAY RANSOM TO TERRORISTS?" asks attorney Robert McDiarmid, representing municipal utilities in Mississippi and Louisiana, who oppose Entergy's grid gambit. McDiarmid argues that Entergy has built a dominant position in the generation sector, even as it has let its transmission network go to seed. That has required a crash program of wires expansion, he says, that Entergy will fund through its high rates.
"As a result of this failure to construct," says McDiarmid, "the Entergy area of Mississippi, Louisiana, Arkansas, and Texas may be thought of as one huge load pocket." That poses problems for state-sponsored retail choice, he adds.
"Two of the states in question, Arkansas and Texas, have already passed restructuring legislation. ... By contrast, there is frequently zero import capability into Energy. ... As a practical matter, the failure of Entergy to build new transmission has led to a situation in which restructuring is