Average price in Louisiana lowest it’s been since Katrina
BY Mark Ballard
Capitol news bureau
July 24, 2012
Baton Rouge-area customers of Entergy Corp. are seeing some of the lowest monthly electric bills in the past decade, largely because of a dramatic drop in the price of natural gas, say regulators and company officials.
In fact, all of the state’s roughly 2 million buyers of electricity are paying less. The state had the third lowest overall bills in the country during the first three months, according to the U.S. Energy Information Agency. Of that number, Louisiana’s residential customers paid more for electricity, on average, than those in only three other states, statistics compiled by the federal agency showed.
The average price for electricity in Louisiana is the lowest it has been since before Hurricane Katrina in August 2005, according to EIA.
“Right now we’re in an enviable position. It’s like a tax refund to ratepayers, because it’s money they can keep in their pocket right now,” said Jimmy Field, one of the five elected members of the Louisiana Public Service Commission. The PSC regulates utility companies and approves the prices private companies charge their customers in Louisiana.
“I have to give the utilities some credit, they’ve been pretty efficient and are operating more and more efficiently,” said Field, whose district covers much of Baton Rouge to Lafayette.
“But, it’s really been the drop in the price of natural gas, and it has been pretty dramatic, that has the most influence,” Field said.
For Entergy customers in Louisiana, the highest-ever monthly bills were in 2008 when the price of natural gas hovered around $13 to $14 per million British thermal unit, or MMBtu, which is the standard measuring unit, said Mark D. Kleehammer, Entergy Louisiana’s vice president for regulatory strategy. The price in 2012 has dropped to as low as $2 per MMBtu and is hovering around $3, according The New York Mercantile Exchange, better known as NYMEX.
Kleehammer said improvements in technology during the past four to five years have increased the energy industry’s ability to find and extract natural gas with less risk and more efficiency. “It’s simple supply and demand,” he said.
Fuels, such as coal, oil, nuclear rods and natural gas, are burned to turn the turbines that generate electricity. Because Louisiana has an abundance of natural gas, the state’s utility companies have built more generating plants using that fuel.
Field said, however, the glut of natural gas lowering the prices in a state where most of the plants use that fuel is only part of the reason.
Another factor is the invoicing structure Louisiana regulators have imposed on the private utility companies, he said. “Some ratepayers in other states are complaining because they are seeing the news of low gas prices, but their monthly bills are still high,” Field said.
Generally, the base rate is made up of the approved costs of producing and transporting electricity with a guaranteed profit added. In Louisiana, the cost of the fuel to run the turbines at the generating plant is passed through to customers separately, without a profit added.
In many other states, Field said, the cost of fuel is factored into the base charge. During times when fuel prices are high, the arrangement moderates the swing in prices, and thereby could keep consumer bills a little lower, he said. During times when fuel prices are low, like now, customers often pay higher prices on their monthly bills, Field said.
The Entergy Corp. subsidiaries sell power to about the same number of customers in Louisiana as all the other utility companies combined, according to PSC records. Entergy Gulf States Louisiana LLC. provides electricity to customers from Baton Rouge to Texas. Entergy Louisiana LLC handles the rest of the state, outside New Orleans, which is not regulated by the PSC.
For purposes of comparison, an Entergy Gulf States residential customer in July 2007 paid $154.57 for using a typical 1,500 kilowatt hours of electricity, of kHw, according to PSC filings. In July 2012, a similarly situated customer paid $109.18, according to the PSC.
Both bills had the same base rate of about 4-cents per kilowatt hour, called “Energy Charge” on Entergy Gulf States monthly invoices, and the same $4.46 monthly service charge.
“Fuel Adjustment” charges — the price of fuel for the generators — in July 2007 was about 6-cents kHw or $90.89 for 1,500 kilowatt hours. In July 2012, the fuel price was about 2.5 cents kHw, or $38.28.
The 2007 bills and 2012 invoices are not identical, as there are other charges and credits that affect the overall monthly invoices.
For instance, the current bills include additional charges to compensate Entergy’s expenditures to restore power after the hurricanes in 2005 and in 2007, which added $7.65 to the bills of typical customers.
On the other hand, the July 2012 bills also subtracted $13.46 on 1,500 kHw residential bills for past overpayments under Entergy’s “system agreement.” The “system agreement” was Entergy’s promise that all its customers in the four states it services would pay roughly the same amount for electricity.
Field said the expert reports he has been reading indicate that the country has a 100-year supply of low-priced natural gas. Both he and Kleehammer predict monthly bills likely will increase slightly, but not dramatically over the next few years.
The price of natural gas is expected to increase to about $6 or $7 MMBtu as the energy industry seeks a level at which it remains profitable to drill for natural gas, but not so expensive that buyers turn to other options, Kleehammer said.
Plus, utility companies are spending millions on improving the lines, substations and other infrastructure, all of which customers will be called upon to pay, Field and Kleehammer said.
The improvements will help mitigate price increases in the future, the two agreed in separate interviews.