How can regulated utilities create value? Each of five key options present their own risks. Which way should management go?
The CEO Forum: The Ultimate CEOs: J. Wayne Leonard
Fortnightly: Why were last year’s hurricanes so destructive to Entergy’s infrastructure?
Leonard: As you know, Hurricane Katrina was one of the biggest natural catastrophes this country has ever seen in terms of dollars. In our case, Katrina was the biggest natural catastrophe. And Rita was the second biggest, coming right behind it. Katrina hit the vulnerable spot in New Orleans, with the flooding. Rita hit the vulnerable spot with the transmission into Southwestern Louisiana and Southeastern Texas, where you are dead-ended into the Gulf and you’re dead-ended into ERCOT because you are not interconnected there. Then you have a lot of swamp and wetlands and other things where you really have difficulty building anything, whether it’s generating plant or transmission. Rita just separated the generation from the load. It then cut diagonally across our territory. So it got almost every one of our jurisdictions. You couldn’t have had a worse scenario than the way those two hurricanes played out.
Fortnightly: How has this experience changed the type of infrastructure choices you will be making?
Leonard: Can a utility build an infrastructure to avoid that kind of catastrophe? I think today, people would say no. That may change over time. The thing people talk about the most is to put it underground, and there are spots where that makes sense. Not big spots, but there are spots.
Our gas system in New Orleans was virtually destroyed. Even today, as we try to pump water out of the system, it keeps going right back in because the soil is still settling. If our electric system would have been underground, we’d still be trying to get the lights back on. There are places most certainly where it is much better to have it above ground.
We have taken this opportunity to get rid of some of the older wooden pole structures and put in place steel or concrete structures depending on the soil. But there is no universal answer as to which type of structure makes the most sense. A lot of it does depend upon the soil conditions that you find.
It is possible to build things in a correct kind of way and maintain them in a correct way [where], even under very adverse circumstances, they can stand up. Nonetheless, even with today’s technology, you are dealing with a hurricane that has the energy capacity of around 10,000 nuclear bombs over its life cycle. Most of that is over water, of course. But when you’re dealing with a force of nature like that, we’re not talking about easy answers in terms of how you decide a system is foolproof.
Fortnightly: I saw that ERCOT for the first time helped serve 119 MW of load in Louisiana after Katrina. Do you think it is about time that Texas became part of the United States, in terms of greater power exports and imports? Could greater transmission ties help in future crises?
Leonard: That is something that we are studying along with the