Friday, August 18, 2006

Entergy- Problems and Ways Out

Arkansans are getting ripped off by Entergy. Not only are the present and coming rate increases going to pinch family budgets, they also throw away one of our biggest potential draws for new industry (and the growth of the ones we have). That big draw is that our cost to produce electricity in Arkansas is about 30% cheaper than in neighboring states like Louisiana. But thanks to a multi-state rate plan that Entergy Arkansas entered into, Arkansas rate payers are subsidizing the higher energy costs in the other states.

Most of our energy is generated by coal fired plants which are cheaper to operate than the natural gas plants more prevelent in other states. We also have ample sources of low-cost hydroelectric power.

Entergy Arkansas says it has given notice that it wants out of the agreement, but that agreement contains a clause that says it takes eight years to leave. PSC Chief of Staff Dave Slaton is quoted as saying, " "We're being hit on both ends. We're being penalized on the bottom side for having operated efficiently in Arkansas. This remedy... was creating a set of perverse economic incentives that is going to significantly destroy production costs."

Nevertheless, energy is so vital to our growth and progress that it would be a travesty if our leaders failed to take action to get us off the barrell they have put us over. This is a rare event. Normally, government can't do anything about energy costs because they are determined by free-market forces. In this case though, Entergy Arkansas has entered a perverse pact that blocks free-market action to reduce prices. This is one of those exceptions to the rule. In this case, government intervention can really help consumers rather than simply shift costs among them. Here are some ideas on the forms that intervention might take.....

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5 Comments:

Blogger Mark Moore (Moderator) said...

First let's talk about the way Entergy Arkansas has out-slicked us before. Utilities are granted monopolies over certain areas by the government in exchange for letting the government fix it's profits at a set, usually low, rate. So Entergy Arkansas makes only a small amount on the energy it sells (in this case it is sort of selling it to a consortium of the other Entergy's in the surrounding states before selling it back to the consumer).

What Entergy suits have done is form a "energy management company" that Entergy Arkansas HIRES to run their operation for them. They are outsourcing their own management! Why? Because while Entergy itself can only make a small fixed profit, the mangagement company Entergy hires to run itself is NOT constrained in the profit that it makes!

See how it works. You sign an agreement with the government that the company is granted a monopoly as long as your "net profits" are limited to say, 6%. You then take your own execs and make them into a "management firm" and hire this new firm at an outrageous fee to run your company. Technically, your old company is only making a small net profit because it's costs are higher- it is sending piles of cash to the "mangement firm".

Entergy has outsorced its own management so that its execs can keep exhorbitant profits that Entergy proper would not be allowed to keep under the original agreement. Under this setup, what would have been "profits" to Entergy are now counted as "costs" to Entergy and so they can come back and claim they need another rate increase to keep "profits" at the agreed on level.

8:38 AM, August 18, 2006  
Blogger Mark Moore (Moderator) said...

If we get all the money due us, it could hold down energy bills in this state 19%, so the stakes are high. Here are some suggestions on how to do it...

We need legislation that says when a company granted a monopoly contracts out management or financial services then those "costs" don't count in figuring how much profit the monopoly is allowed to make.

And/Or we need to tax the snot out of all such "energy management companies" and apply the revenue to reducing energy rates in the state.

8:44 AM, August 18, 2006  
Blogger Mark Moore (Moderator) said...

Another thing Entergy has done is to make it impractical to buy power from third parties that can make it cheaper than the "average rate" for all Entergies. That is because the practical effect of what Entergy Arkansas does under the agreement is first sell the energy it makes to the consortium and then buy it back for sale to the consumer- this may not be the actual way it works, but if you follow the shells this is what it amounts to.

Any cheap energy any local producer makes would just be thrown into the pot with the high cost producers and then sold back to us, with a small variance of 11%.

They have not acted in good faith with the monopoly we have given them. Here is the solution: Their monopoly should be limited to distrubution of energy only, not production. There is no reason in this day and time to even grant a monopoly on production. We can make power efficiently in smaller and smaller plants or we can allow Entergy to assess a slightly higher line fee per unit of energy delivered in rural areas to make up the costs. With cheaper electricity the rural users can still save money.

Grant them monopoly on distribution at a fixed profit, but as a condition require them to carry the electricity of any producer that the consumer chooses at a fixed rate. In other words, you as a consumer may not want to buy all of your energy from Entergy, even though Entergy lines are delivering that power to your home. You may want to get yours from "DeGray Lake Electic" because they are cheaper and just as reliable.

Your bill would come from DeGray Energy. DeGray would pay Entergy for use of their lines at the state-agreed on rate for power delivery and that would be figured into the bill.

That is my 2 cents. Do we have any politicians out there with the gumption and brains to do something like any of this?

9:06 AM, August 18, 2006  
Anonymous Anonymous said...

Some points...not absolving Entergy, just additional points...

Electricity costs for Arkansas are, even with the increases, comparable with other states.

The biggest reason for Arkansas being able to produce electricity cheaply is nuclear power.

The rationale for cost sharing between the states is that electricity can be shared across the grid. IE, cloudy in AR, we send power to LA... (then of course, we get stuck footing the bill for rebuilding LA post Katrina... a new Grand Gulf..stinks)

7:06 PM, August 18, 2006  
Anonymous Mark Moore said...

Of course they are comparable with other states- they kept raising out rates until we were comparable! We should be LOWER!

And I don't get the rationale. We can share electricity across the grid by selling them any we don't use cheaper instead of buying theirs that is more expensive. There are other ways to "share across the grid" than to impose a program with perverse anti-free market effects.

7:48 PM, August 18, 2006  

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