1. LOUISIANA ENERGY USERS GROUP
LEUG May 2017
LOUISIANA PUBLIC SERVICE COMMISSION DOCKET NO. S-34426
ex parte
In re: STATUS OF ELECTRIC RATES IN
LOUISIANA: WHERE ARE WE AND WHERE
ARE WE GOING?
LOUISIANA ENERGY USERS GROUP
May 11, 2017
Katherine W. King
Randy Young
Carrie R. Tournillon
KEAN MILLER LLP Attorneys for
Louisiana Energy Users Group
Post Office Box 3513
Baton Rouge, LA 70821
(225)
Maurice Brubaker
James R. Dauphinais
BRUBAKER & ASSOCIATES, INC.
Consultants for
Louisiana Energy Users Group
P.O. Box
St. Louis, MO
(636)

2. Overview Part I: Concern for Competitiveness of Future Rates
replacement of aging infrastructure
capital spend outlook
impact on rates
LEUG Proposals
Status of Industrial Electric Rates in Louisiana
Part II:
Part III:

3. Part I Concern for Competitiveness of Future Rates
Replacement of aging infrastructure
Capital spend outlook
Impact on rates

4. Table 19: Final Reference Resource Plan – Load & Capability 2015-2034 (All values in MW)
Source: ELL 2015 IRP Page, 41

5. Source: Exhibit WCJ-1 and ELL’s Response to Staff 2-37 in Docket No
Source: Exhibit WCJ-1 and ELL’s Response to Staff 2-37 in Docket No. U-34283

6. Load & Capability 2017 – 2035 (All values in MW)
Source: ELL Response to Staff Data Request 2-38 in U (BP-17 Updates)

8. Entergy Legacy Generation Units

9. Entergy Legacy Generation Units
Willow Glen Units 2/4 (662 MW) changed from 2027 to 2016.
Source: ELL Plant Retirement Schedule

10. Near Term Potential ELL Capacity Additions
Size (MW)
Estimated Base Rate Impact ($ Millions/Year)
Year
Addition
2018
2019
2020
2021
2022
TOTAL
Renewables (3)
OXY PPA Renewal (1)
St. Charles (1)
Lake Charles (2)
Washington Parish CT’s (3)
Carville Extension and Increase in capacity (2)
100
480
923
924
363
Unknown
Confidential
130
$260 Million +
(1) Approved by LPSC
(2) Request pending
(3) Application not filed

11. ELL to Retire Almost 6,000 MW of Capacity by 2035 and Replace with CCGT’s

13. Costs Will Increase Much Faster Than Sales, Which will Cause Dramatic Increases in Rates
From 2017 to 2035:
Peak demand is projected to increase only 8%
Base revenue requirements are projected to increase about 50%
As a result of the large expenditures to replace retiring capacity, Base Rates could increase 40% or more*
*It is expected that reductions in net variable costs (fuel cost minus market revenue) will partially offset these increases.

14. Part II LEUG Proposals

15. New Industrial Customer Options To Reduce Replacement Capacity Needs And Maintain Competitive Electric Rates 15

16. Overview Purpose Industrial Customer Market Option
Includes ability to access off-site Combined Heat and Power (CHP) Generation
Industrial Customer Interruptible Service Rider Option
Industrial Customer Real-Time Pricing Rider Option
Industrial Customer Market-Based Standby Service Rate Option
Proposed Implementation Steps

17. Purpose
Maintain competitive electric rates for all customers in Entergy Louisiana, LLC’s service territory by providing several new electric service options for Industrial Customers
The new options would reduce the need to replace capacity from Entergy Louisiana, LLC’s aging generation fleet
They would also allow both ELL and Industrial Customers an opportunity to better optimize their need for assets

18. Industrial Customer Market Option
Benefits
Participating Customers
Provides access to off-site CHP generation, the bilateral wholesale power market and the MISO capacity, energy and operating reserve markets
 Non-Participating Customers
It reduces the need for ELL to replace capacity from its aging generation fleet since ELL no longer responsible for providing capacity and energy to the participating customers – it only has a delivery obligation to those customers

19. Industrial Customer Market Option
(cont’d)
Characteristics
Customer would self-supply or purchase all of its capacity, energy, operating reserve and transmission requirements through a combination of bilateral contracts, the MISO market and CHP generation via a LPSC certified retail supplier
Customer would have the option to be certified by the LPSC as its own retail supplier
ELL would still be responsible for providing the ultimate delivery of the power to the participating customers under a LPSC-jurisdictional delivery service tariff (customer charges, metering charges and distribution service) 
The availability of the MISO day-ahead and real-time markets greatly simplifies the implementation of this option versus in the past

20. Industrial Customer Market Option
(cont’d)
Topics that would need to be addressed:
LPSC Certification of Retail Suppliers
LPSC Reporting Requirements for Retail Suppliers
Metering
Temporary Default Service
Return to Regulated Service
Stranded Costs
Securitization Costs
Changes to Commission Rules

21. Industrial Customer Interruptible Service Rider Option
Benefits
Participating Customers 
Provides customer the ability to reduce its cost for power by committing to curtail its load during emergencies and during high cost periods
Non-Participating Customers
ELL no longer responsible for providing capacity for the interruptible portion of the participating customer’s load
As a result, it reduces the need for ELL to replace capacity from its aging generation fleet

22. Industrial Customer Interruptible Service Rider Option
(cont’d)
Characteristics
Would apply as a Rider to Large Customer Firm Service Rate
With a minimum notice, customer must curtail down to firm service level during system emergencies
There would be daily and annual limits on curtailments
Customer would receive a monthly demand charge credit
Does not replace existing interruptible rates (which are currently closed to new load)

23. Industrial Customer Interruptible Service Rider Option
(cont’d)
Topics that would need to be addressed:
Notice and duration of curtailments
Limits on curtailments
Term of Service
Magnitude of monthly demand charge credit
Note: The percentage of ELL’s peak system demand that is currently interruptible (3%) is very low versus other utilities within the MISO footprint that have large amounts of industrial load (e.g., Northern Indiana Public Service Company, which is 16%))

24. Industrial Customer Real-Time Pricing Rider Option
Benefits
Participating Customers
Provides customer the ability to reduce its cost for power by shifting the timing of its energy consumption
Non-Participating Customers
The shifting of the timing of their energy consumption by participating customers could reduce ELL’s peak demand
As a result, it could reduce the need for ELL to replace capacity from its aging generation fleet

25. Industrial Customer Real-Time Pricing Rider Option
(cont’d)
Characteristics
Would apply as a Rider to Large Customer Firm Service Rate
Non-Fuel tariff charges remain the same
Customer pays fuel adjustment charge for its pre-established baseline of hourly consumption
Customers settles the difference between its actual hourly consumption and its baseline hourly consumption at an hourly energy rate
There would be Day-Ahead, Hour-Ahead and Real-Time pricing options for the hourly rate (based on the forecasted or actual MISO real-time LMP depending on the option selected)

26. Industrial Customer Real-Time Pricing Rider Option
(cont’d)
Topics that would need to be addressed:
Establishing customer baselines
Magnitude of administrative adders

27. Industrial Customer Market-Based Standby Service Rate Option
Benefits 
Participating Customers
Provides customer the option to pay for standby capacity and energy based on MISO market prices for capacity and energy
Non-Participating Customers
ELL no longer responsible for providing capacity and energy from its own generation to provide standby service to the participating customers
As a result, it reduces the need for ELL to replace capacity from its aging generation fleet

28. Industrial Customer Market-Based Standby Service Rate Option
(cont’d)
Characteristics
The utility purchases capacity necessary for service from MISO Planning Resource Auction based on expected standby service demand at the time of the annual MISO system peak 
When drawing standby power, customer pays for capacity at a daily demand charge equal to the daily MISO Auction Clearing Price and for energy at the actual real-time LMP
Customer maintenance outages of its generation would be scheduled outside of the summer period
Additional Standby Service Option
Does not replace existing standby service rates

29. Industrial Customer Market-Based Standby Service Rate Option
(cont’d)
Topics that would need to be addressed:
Specifics of rate design
Maintenance outage provisions

30. Proposed Implementation Steps
90-Day Proceeding for New Rider and Rate Options
Industrial Customer Interruptible Service Rider Option
Industrial Customer Real-Time Price Rider Option
Industrial Customer Market-Based Standby Service Rate Option
9-Month Proceeding for Industrial Customer Market Option

31. ? ? QUESTIONS ? ? 31

32. Part III Status of Industrial Electric Rates in Louisiana

33. Comparison of Regulated Electric Prices in the Southeastern United States
This comparison shows the cost of industrial power offered by major utilities in Southeastern states. For purposes of comparison, a large load (50 MW) with a high load factor (90%) is used. The information is for calendar year 2016 and the annual cost of this power from each utility is determined by averaging the prices in effect for January, April, July and October 2016 (monthly data is also provided.)
Note that:
(1) A number of other utilities have lower rates, particularly as compared to legacy Entergy Louisiana, LLC.
(2) Rates for Entergy Arkansas, Entergy Texas and Entergy Mississippi are all lower than both ELL and EGSL. 33

34. Line Utility Company $ per MWh34

35. Line Utility Company $ per MWh35

36. Line Utility Company $ per MWh36

37. Line Utility Company $ per MWh37

38. Line Utility Company $ per MWh38

39. 39

40. 40

41. Conclusions
Electric rates in the Texas ERCOT region for Industrial customers were approximately 3 – 3.5 cents per kWh in 2016, whereas Industrial rates in Louisiana were in the range of 4.8 – 5.5 cents per kWh in 2016 under the Entergy HLFPS and LIPS rate schedules.
The higher electric rates in Louisiana can add about $5 - $10 million of additional cost for a medium-sized 50 MW Industrial customer, relative to similar operations in Texas, depending on the location of the plant and the schedule under which it takes service. 41

42. State-Wide Average Revenue per kWh from Industrial Customers is Not a Valid Measure of Differences in Rates  
Customer Classification Methodology
Not all utilities use the same criteria for classifying customers between “commercial” and “industrial.”
Size criteria
Rate Schedule options
Standard Industrial code (“SIC”) classification
This general lack of consistency across utilities makes the input data set unsuitable for measuring differences in rates.

43. State-Wide Average Revenue per kWh from Industrial Customers is Not a Valid Measure of Differences in Rates  
Customer Characteristics and Composition
A major factor that simplistic average revenue per kWh (like reported by EIA) ignores is the load characteristics that influence the cost to serve customers. Since the industrial average price is heavily influenced by the nature of the industrial customers, in terms of such important cost-causative factors as:
size
voltage level at which service is received
load factor A simple analysis comparing groups of customers that have widely different cost-causative characteristics can produce extremely distorted results.

44. State-Wide Average Revenue per kWh from Industrial Customers is Not a Valid Measure of Differences in Rates  
Customer Characteristics and Composition
To illustrate, see Slide 46. As shown on lines 4 and 5, Utility A’s revenue per MWh for both small industrial customers and large industrial customers is $10 per MWh lower than the respective average revenue per MWh for Utility B. Line 6 shows the weighted average price per MWh for the total industrial class for Utilities A and B. Note that because of the difference in composition, the class average rate is lower for Utility B than for Utility A even though Utility A’s average rate per MWh for small industrial customers is lower than the average rate per MWh for Utility B’s small industrial customers, and Utility A’s average rate per MWh for large industrial customers is lower than Utility B’s average rate per MWh for large industrial customers.
(cont’d)

45. Illustration of How “Class Average Prices” are a Mis-Leading Indicator of Actual Rate Levels
CONCLUSION
CLASS AVERAGE RATE FOR UTILITY B IS LOWER THAN FOR UTILITY A, EVEN THOUGH UTILITY B’s RATES ARE HIGHER.
CLASS AVERAGE DATA IS NOT A VALID INDICATOR OF ACTUAL RATE LEVELS.

46. State-Wide Average Revenue per kWh from Industrial Customers is Not a Valid Measure of Differences in Rates  
Customer Characteristics and Composition
ELL would more closely approximate the characteristics of Utility B. ELL has an industrial class composition that has an above average percentage of large industrial customers, so it is expected that ELL’s average revenue per MWh, all else equal, would be lower than that of other utilities. Thus, when a comparison is made using class averages, the result is biased, such that ELL is fictitiously made to look like it has lower industrial rates than actually is the case.
(cont’d)

47. State-Wide Average Revenue per kWh from Industrial Customers is Not a Valid Measure of Differences in Rates  
Quality of Service (Firm vs. Interruptible)
Another important factor defining cost of service and explaining relative rate levels is the quality of the service being supplied. Service supplied on an interruptible basis is less costly to the utility than service supplied on a firm basis. Consequently, interruptible rates, and hence revenue per kWh from an interruptible customer, are less than for a firm customer. The percentage of load that is interruptible is not uniform across utilities, and this is yet another defining characteristic that makes the broad averages meaningless from a rate comparison standpoint.

48. State-Wide Average Revenue per kWh from Industrial Customers is Not a Valid Measure of Differences in Rates  
Developing a Valid Basis - Conclusion
A valid basis of comparison only can be made if rates are applied to a uniform or standard load characteristic. This is the only way to create a valid comparison. Any attempted comparisons using revenue per MWh when variables such as customer classification, cost‑causing load causing characteristics, quality of service, mix of customer types and sizes, are present will produce distorted results.

49. ? ? QUESTIONS ? ? 49