Hurricanes Katrina and Rita caused severe damage to energy facilities along the Gulf Coast, leading Entergy New Orleans to declare bankruptcy after the storms. While Congress recently approved billions of dollars to help rebuild in the region, it is unclear how much money will be put into energy infrastructure. Will Entergy need more funding from appropriators to avoid bankruptcy? And can the city and the utility resolve their long-standing differences? During today's OnPoint, Clint Vince, head of the energy and environmental practice at Sullivan & Worcester, and an adviser to the city on energy issues, discusses these questions and more.
Brian Stempeck: Hello and welcome to OnPoint. I'm Brian Stempeck. Joining me today is Clinton Vince. He's the head of the energy and environmental practice at the law firm of Sullivan & Worester. Clinton thanks a lot for being here today.
Clint Vince: Glad to be here Brian.
Brian Stempeck: Now you've been acting as the adviser to the New Orleans City Council on energy issues as the city recovers from the major hurricanes that hit it last fall. Give us kind of a status situation right now. How much progress has been made in restoring the energy infrastructure in New Orleans?
Clint Vince: Well, right now Entergy is basically able to serve anyone that needs to take power, which is a huge incremental improvement. But a lot of the system is jury-rigged right now. Their electric and gas system was just decimated after, not just the hurricanes, but the levee failure and the flooding.
Brian Stempeck: How much longer is it going to be before the entire city has electricity restored?
Clint Vince: That depends on how much federal money comes in and where the city determines it's going to repopulate. Right now in the core city, Entergy is able to serve locations that can receive power. So now we need to see how much federal funding comes down to the city and where the city leaders and state and federal leaders determine the city should focus on repopulating.
Brian Stempeck: At the end of the year we saw Congress pass the defense appropriations bill and that included some block grants that could be used in New Orleans to help out Entergy and some of the other utilities down in Louisiana. Is that money going to be enough? I mean is that going to be enough to basically get them going on some of these problems?
Clint Vince: It's going to be very helpful to start out. It may be enough to help Entergy get restoration for rebuilding the electric and gas system. It's not going to be enough ultimately to help them with the lost revenues and incremental losses they've suffered. They're now serving only 65,000 customers. Just before Katrina they were serving about 190,000 electric customers. And the city population was about half a million before Katrina. It's now down to about 145,000. The estimation is that it will increase to about 190,000 population by September. And then the hope is it will get to be about 250,000 within about two years.
Brian Stempeck: How much money exactly will Entergy end up seeing from the defense bill?
Clint Vince: Well, no one is sure of that, but Entergy hopes they will at least recover their entire cost of rebuilding the electric and gas system. That's been estimated to be anywhere from $265 million up to $325 million.
Brian Stempeck: Now before, right after the hurricanes hit, almost immediately, Entergy New Orleans declared bankruptcy. Their parent company is being given some loans to try to cover some of these costs. Will this money, from the defense bill, will that able to cover, get them out of bankruptcy essentially?
Clint Vince: That's the hope. Entergy's New Orleans unit is the unit that's in Chapter 11 right now. The parent company made upwards of a $200 million debtor-in-possession loan to that company, of which maybe $90 to $100 million has already been spent. Our hope is that going forward all the costs of restoration will be covered by the federal government. It's essential for us because if those costs were to be put through right now to the ratepayers, there would be approximately a 140 percent rate increase.
Brian Stempeck: At the same time what kind of increase are the ratepayers going to see? I mean you mentioned that it's mostly going to be federal funding that needs to take care of this. But for the residents of New Orleans who are paying their power bills what is kind of a reasonable expectation on what, how much you're going to put on them?
Clint Vince: No one has made that calculation yet, but you have to assume if the city is only half its size within two years that that's a much smaller pool of ratepayers able to pay the fixed costs of the company. That's why we need federal funding, not just for restoration, but we hope to get some federal funding to help with some of the incremental revenues that have been lost as well.
Brian Stempeck: Where do you anticipate that money coming from? I mean we saw, attached to the defense bill, is this going to be a case, this year, were we see it attached pretty much to anything that's moving through Congress?
Clint Vince: Well I'm not sure how much of the money will come from the defense bill appropriation. That goes, $6.2 billion of that goes to the state of Louisiana. And then the state of Louisiana makes that money available to the city through CDBG, Community Development Block Grants. We're not certain how much of that money will actually reach New Orleans for rebuilding the electric and gas system. We will probably come back to Congress early in the next, in this year and try to get additional funding to help with some of the lost revenues. But first we have to make our case and no one has done the revenue projections yet. They're not even certain how many residents there actually are in New Orleans right now. And how many customers there will be within the next few months.
Brian Stempeck: Is there, you've been dealing with a lot of this, basically firsthand, watching this whole process go on. If this kind of disaster happens in the future, to another city, is there a way for the federal government to get in there faster, get the money out faster for the power companies to respond in a more immediate way?
Clint Vince: Boy, I hope so. I think that this has been a model of how not to do it. New Orleans was decimated, not just by the hurricanes, but the levee failure and flooding for which the federal government ultimately is going to have to take a lot of responsibility. They have really done too little too late in my estimation. We actually got opposition from the White House when we were seeking funds to rebuild the electric and gas system. The White House was not willing to allocate anything to the Entergy unit in New Orleans because it was a private company. Even though, after 9/11, funds were allocated to Con Ed in the New York City area, because clearly the utility in that area was decimated.
Brian Stempeck: Is that something you think needs to be changed? I mean is that an example of something that could be, you know, clearly waived in these kinds of situations?
Clint Vince: It's got to be changed. In this situation Entergy New Orleans originally lost 100 percent of their customer base. Now they're serving only 65,000 customers out of an original 190,000. People have to look at that situation and realize that external help is needed. The ratepayers cannot, in any jurisdiction would not be able to bear that cost. I mean people are coming back to New Orleans and they've lost everything they have. They can't see a doubling in their utility bills. That will be a disincentive for people to come back.
Brian Stempeck: Now historically the relationship between the city of New Orleans and Entergy has not been good over the past few decades. Is that going to change at all? I mean are we seeing that relationship mend some bridges here?
Clint Vince: I think the relationship's been very close now. I have personally won about 65 cases against Entergy. I've had a long history of being involved in litigation against them. But for the past several years there has been a seed change in that with Entergy's new management. They settled a major case with us that gave the ratepayers about $125 million in savings just before Katrina hit. And we have been working very closely with them to get the federal assistance. We've worked with them to get into the White House and also on Capitol Hill. We've had the president of the City Council and other members of the council up supporting Entergy. And we have publicly taken a position that they need, they really need, federal help.
Brian Stempeck: A lot of people, you know, as people talk about rebuilding New Orleans, have looked at it almost as a blank slate, urban planners, architects, people talking about all the innovative things that they can do. From an energy point of view what can you do differently now that, you do, in a sense, have so much to rebuild and kind of a blank slate to do it on, what should the priorities be?
Clint Vince: I think the priority right now has to be just rebuilding substations and getting the backbone system in shape for the electric system. And so much of the gas system is just completely destroyed. Once water enters those gas pipes it's very hard to restore them in that situation. So that's the very highest priority. Then trying to take a look at what the revenue projections are and figure out a way to have that utility economically serve a customer base that might be as much as half the original customer base. That will be our next challenge. We also have to make sure they can get some protection in the event that there's future storm damage.
Brian Stempeck: Is there anything innovative that can be done? I mean some of the gulf people have been talking about, say, building more energy-efficient buildings, things of that nature. Is that something that you've been looking at as well?
Clint Vince: Yeah, we've been looking first of all at the building codes. The City Council is trying to put through building codes in coordination with the state that will require much more energy efficiency on the front end as the homes are being built, which will allow savings. Instead of having to retrofit it will allow savings right away. We're also going to try to put in some guidelines for homes that are being retrofitted. But we have to balance the cost of energy efficiency against the needs of homeowners that have very little money and have to come in and completely gut their homes and rebuild.
Brian Stempeck: Beyond just New Orleans, you also track a lot of the energy issues that occur on Capitol Hill with energy policy and FERC as well. What are you looking to see in the coming year besides just rebuilding New Orleans? What are some of the other things you're going to be expecting to see from the Hill this year?
Clint Vince: I think on a broad scale basically the Hill was very active with the passage of the Energy Policy Act. I think they'll look at a much more reduced effort in terms of tweaking that act a little bit. I understand that Senator Domenici and some of the other leaders on the Republican side will be looking at some drilling and refinery measures. And whether they will ultimately get enough support to have those pass I'm not sure, but I think that will be the main focus, tweaking EPACT and drilling and refining.
Brian Stempeck: All right, Clint, we're out of time. Thanks so much for stopping by today.
Clint Vince: Thank you Brian.
Brian Stempeck: I'm Brian Stempeck. This is OnPoint. Thanks for watching.
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