More than two months after Hurricane Katrina devastated New Orleans, federal and state officials are facing a wide array of challenges, from strengthening the levee system to restoring nearby coastal wetlands. Former Louisiana senator John Breaux (D) explains potential strategies for rebuilding the Gulf Coast and how to pay for the billions of dollars in storm-related expenses. Plus, Breaux talks about a new coalition of electric utilities and their priorities this year before the Federal Energy Regulatory Commission.
Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining us today is former Louisiana Senator John Breaux. Also with us is E&E Daily senior reporter Mary O'Driscoll. Senator thanks a lot for being here today.
John Breaux: Glad to be with you.
Brian Stempeck: Now you're here on behalf of the Community Power Alliance, it's a new utility coalition. Give us a sense of what this alliance is all about.
John Breaux: Well, the alliance is really an organization of the vertically integrated power companies. I grew up with them in Louisiana. We're very familiar with the companies that not only generated the power they transmitted it. They distributed it to your home. They were really part of the community. They were not just fly-by-night operators, they'd be the ones who went to your Christmas parade and they became part of the community. And we formed this alliance to try and tell the story of the vertically integrated power companies and what benefits they bring to a community that they're located in.
Brian Stempeck: Now what do you see as the top priorities for this coalition? I mean last summer we saw the energy bill wrap up, most of that work is done. So it seems like dealing with FERC is probably going to be at the top of your agenda.
John Breaux: Yeah. We've got a new chairman of FERC. We look forward to looking with him and also participating in what rules they are going to be proposing and making. And it's really to tell the story. To make sure that any efforts in the Congress to break up the vertically integrated companies have all the information they need about the reliability of the energy that we produce, the different types of energy, the diversification that the vertically integrated power companies can produce. It's not just the company producing one form of energy. They can go back and forth with hydropower and coal and gas, depending on what's available and what's the cheapest source of fuel.
Mary O'Driscoll: I wanted to ask you, the FERC is looking to retool Order 888, which was the landmark open access rule that required utilities to open up their transmission lines to merchant generators and other power producers. What are your concerns about what FERC wants to do with that?
John Breaux: Well, you know it may be worth while looking at, but I mean we want to make sure that nothing that they do jeopardizes the ability of the vertically integrated companies to be able to provide the power and transmit it to their customers. I mean we don't mind competition, in fact we support it. I mean on the wholesale level vertically integrated companies buy a great deal of their power on a wholesale level from other generators of power. But we don't want to be mandated to do that. We want to maintain that flexibility to buy the best power that's available, to produce the best power we can and at the best prices. And we would be very much opposed to anything the tries to go back to mandating the type of fuel you have to use.
Mary O'Driscoll: OK, well also, kind of mandating market structures as well. Your members of your coalition, Southern Company, Xcel, Progress Energy and the Salt River Project are in areas of the country where there's a lot of fighting about the structure of regional markets under the regional transmission organization structure. What would you like to see FERC do on that? They still seem to be pushing, but I know a lot of your members and the regulators in your state are opposed to them.
John Breaux: Well the regulators, I think, want to be able to have the best system in an area that best suits that area. One size clearly does not fit all. I mean if they want to try other type of operations and it fits those areas that's OK. But we want to make sure we have the ability to continue to provide the best type of system that is suitable for a particular area, not to be mandated over one over the other. We need that flexibility. I think that what you have now are companies that have produced energy that's, number one, reliable. And in many, many cases is substantially cheaper than any other form of energy. And we believe, like I said, in competition and on the wholesale level we buy a lot of energy from other sources on a regular basis. You shouldn't mandate that one size fits all. It just doesn't work.
Mary O'Driscoll: OK. Well you know companies that are members of your coalition really seem to be doing well in this market. They've got very low generating costs, they're, you know, the spark spread, they're actually able to make a pretty good deal on the spark spread, which is the difference between their generating costs and the price of power in the market. What about those companies that maybe aren't doing that, but maybe have decided to sell off transmission, are selling off their generation? Some utilities have decided to do that. Are they misguided or are they just not operating correctly or what?
John Breaux: I would argue that, look, to have the ability to do it all is important as opposed to just doing one aspect of power generation. I think that when you can generate the power, you can transmit it, you can distribute it and you have to make sure it works. I mean the hurricane in Louisiana was a great example. I mean the power companies were down there even before FEMA was down there because they do more than just generate electricity. They repair the facilities. They transmit it. They distribute it and they make sure it works at an affordable price. That system is a proven system. And we would just argue don't fix something that's not broken. It works and works very well.
Brian Stempeck: Listen, I wanted to ask about that since you brought up the hurricane. Talking about how the energy industry was basically hit by Hurricane Katrina. We saw energy basically declare bankruptcy. We're seeing about 40 percent of New Orleans still doesn't have power. As the rebuilding process moves forward what do you see as the top priority just in terms of talking about energy infrastructure?
John Breaux: Well the good news is the fact that the power companies actually have an army of employees that were down there within a couple of days of the hurricane. FEMA was still trying to find New Orleans and the power companies were already there repairing the lines and fixing the poles. I mean about 80 percent of the electricity, within a couple of weeks, was there and ready to be installed. They didn't have a lot of places to install it to because the homes were gone. I mean the power source was there and ready to go as soon as the rebuilding takes place. I mean they were right there on the spot. And that was one of the good things about the vertically integrated companies, that they're able to form coalitions. That when energy was suffering in New Orleans that southern companies, for instance, were able to bring their workers in there. Like I said they were there before FEMA was in many cases. So that vertically integrated concept really works because they can form coalitions all over the country to help not only provide power, but to do it in a reliable fashion.
Brian Stempeck: Beyond just the utilities in New Orleans how do you see the rebuilding process moving forward so far? It seems like there's a lot of confusion right now as to who has authority, basically trying to get consensus of where to go from there. What's your sense of what's happening?
John Breaux: The administration has appointed Don Powell, who was a former FDIC chairman, to sort of supervise over all reconstruction of Louisiana, coordinating with the federal government, the state, Kathleen Blanco, Mayor Ray Nagin and all of the other local officials. I've been involved in trying to help coordinate it. I think it's getting better, but this was a monumental disaster, 30,000 homes down in Florida after Hurricane Andrew, over 300,000 in New Orleans. I mean it's a magnitude many times over what was normal.
Mary O'Driscoll: Well, who's going to pay for all of this? The costs are just astounding for everything from the levees to the wetlands to the utilities and all the infrastructure. Who pays for all this?
John Breaux: Everybody pays, Mary. I mean the individuals are going to suffer individual losses with their homes, insurance companies who have insurance on the buildings and the homes. And the federal government, through the tax system, is going to help rebuild. I mean that's a normal response in a disaster whether it's an earthquake in Los Angeles or tornadoes in Kansas or hurricanes in the Gulf or in Florida. That everybody is part of the solution to the problem. Louisiana drains two thirds of all of North America through the Mississippi River, so it's a very valuable service to the rest of the country. And it is the United States of America and everybody's going to be helping to try and rebuild and share in the costs.
Mary O'Driscoll: Well this hits you personally. You're from Louisiana. That's where you came from, where you represented for what, 32 years?
John Breaux: 32 years.
Mary O'Driscoll: Do you think the federal government is taking a strong enough role in this?
John Breaux: Yeah, we still have a House with a blue tarp over it as a roof right now in New Orleans, so like everybody else who's suffered a lot more than we have. But I think that the federal government was slow in the beginning. It was not coordinated very well. There was a lot of breakdown in communications. We saw what happened to the FEMA director who was not doing a good job. He got fired. I think things are better now. They had to get better. They couldn't have gotten much worse. So I mean I think things are back on track. But again one of the shining lights in all of this confusion, were the power companies. I mean they were out there, like I said, before FEMA was. And FEMA was still trying to find out where to go and who to talk to and they were out there doing their job.
Brian Stempeck: What do you see as the basic things that need to get done? There's talk about rebuilding the levees so that they can withstand a category five hurricane. There's talk about restoring some of the marshlands around New Orleans that could've been a buffer against the storm. All these things are obviously very expensive long term projects. What's the first say three steps that need to be implemented?
John Breaux: Well, I think the priority of the state number one is to make sure we get a commitment from the federal government to rebuild the levees. I mean businesses do not want to come in unless they know it's going to be safe. And the rebuilding of the levees, at least announcing that they're going to be rebuilt and eventually up to a category five protection, would be great comfort to businesses that are looking to decide whether they're going to come back. Also for individuals as well. I mean emergency health care has been taking care of. People were evacuated and they've gotten treatment by doctors. Now it's the rebuilding, the levees are the first priority of the state. And then trying to get some type of legislation, which is now working its way through Congress, to try and give some assistance to companies and individuals who do come back. They're going to need help. It's like old enterprise zones. This is an area that is right now in a depressed state because of the inability of people to find jobs. So you're going to need some type of incentive to try and help people relocate their businesses back in Louisiana along the Gulf Coast, Mississippi as well.
Brian Stempeck: Now there are some very politically difficult decisions that need to be made. Talking about rebuilding some of the lower lying areas of New Orleans, the Ninth Ward areas, like that. How is that going to move forward? I mean do you think it's time to just basically say there are certain parts of the city that we have to give back to the swamps?
John Breaux: No not necessarily. If you have a levee system that works the whole city would be safe. I mean the levee systems along the Mississippi River were fine. The Mississippi River didn't break anywhere, but it was the inefficiency of the Lake Pontchartrain levees that collapsed. Had those levees worked New Orleans would've been high and dry. If you remember right after everybody was talking about, well, New Orleans dodged another one. And they did dodge the hurricane, but caught the flood because of the inability of the levees to function as they should have. So clearly if you have the proper levee system the whole city would be safe. They would've been the last time. So I mean if you do that, I mean I'm not saying just rebuild just like you did. Build smarter and wiser, maybe at higher elevations. And also do a different type of housing which I think would be important. So all those issues are major issues, what type of houses, where we build them, what kind of a healthcare system, education system. New Orleans is like a clean slate. I mean here's a city that you almost say start from scratch and decide what you want it to look like. So as bad as it was it's also an opportunity I think to be able to come back better than we were before.
Brian Stempeck: All right. Senator we're out of time. We'll let that be the last word. Thanks a lot for coming on the show.
John Breaux: Thank you.
Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.
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