Entergy proposes its customers cover cost of backup generators for businesses

Entergy has proposed a new project to give backup generators to grocery stores and other commercial customers across the state to form micro-grids that can be used during outages and peak demand times, but the utility company wants the rest of its customers to pay for them .

Entergy would also be able to run the generators during normal conditions, allowing the selected corporate customers to get a share of the profits on any excess electricity generated. The proposal to the state’s Public Service Commission is from the Entergy Louisiana subsidiary, which serves customers through most of the state excluding New Orleans.

Dubbed the Power Through project, Entergy Louisiana wants to install the natural gas-fired generators on the properties of its corporate “host customers” such as grocery stores, Walmart retail centers and other commercial and industrial sites.

The Public Service Commission’s staff analysis of the plans revealed that Entergy’s cost-allocation formula places most of the burden on Entergy Louisiana customers who aren’t getting backup generators.

“As currently proposed, I do not find the costs and benefits of the program are being allocated in a manner that is just and reasonable to non-host customers,” PSC regulatory expert Lane Sisung said in his recommendation to commissioners not to certify the program .

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The Public Service Commission has not yet made a decision on the proposal.

In its application to the commission, Entergy Louisiana cited hurricanes and severe storms in 2020 and 2021 and subsequent power outages as “harsh reminders” of the need for backup generators across the grid. The generators would provide electricity to selected commercial and industrial customers during a grid outage, allowing them to continue to provide vital goods and services to the community while electric service is being restored to other customers, Entergy said.

Entergy has not said how many generators it wants to install or which companies would receive them, although Walmart has submitted testimony in support of the plan. In its filings with the Public Service Commission, the utility company said it wants enough generators to supply 120 megawatts total.

The sizes of the generators would range from 100 kilowatts to 10 megawatts. Entergy estimates the installation costs for the smallest generators would run up to $50,000 each while the largest generators would cost up to $10 million each. Entergy’s plan is to have its larger customer base pay the entirety of those upfront costs plus a share of the ongoing costs for operation and maintenance, according to Sisung.

It’s precisely unclear how all the costs will be split between the businesses receiving the generators and the rest of Entergy’s customers. Many of the figures in Entergy’s filings with the PSC have been redacted from public view. However, Sisung testified that the larger residential customer base would “at a bare minimum” be responsible for the full cost of the generators while receiving less than 100% of the benefit.

In rebuttal testimony, Entergy disagreed with some of Sisung’s calculations, such as one regarding inflation. Entergy assumed an inflation rate of less than 2% while Sisung said it should be closer to 6%.

Another big part of the proposal would allow Entergy to run the generators during normal conditions and pay the corporate customers for electricity that goes back into the grid. Entergy says this would be done whenever it is cost-effective and for the benefit of all its customers, although the corporate customers would receive about a 36% share of the profits.

This aspect of the proposal was a point of concern for PSC staff as it would give the corporate customers “extremely large discounts” on their electricity bills thanks to generators that the rest of Entergy’s customers paid for in full, Sisung said.

Why not renewable power?

While some experts in the energy industry agreed with Entergy’s general concept of micro-grids, they question the use of generators that rely on an external supply chain of fossil fuel. Louisiana saw disruptions in the gasoline and diesel supply after Hurricane Ida in August and for natural gas following Winter Storm Uri in February 2021.

“A very likely occurrence of backup service will be that when the service is being provided, it will be in times of system-wide stress when natural gas prices will be inordinately high,” Sisung said.

Winter Storm Uri halted nearly half of the natural gas supply in Texas. As a result, the wholesale price of natural gas at the Henry Hub in Louisiana, a major commodity trading post for North America, soared from an average of $3 to $23.86 per unit due to frozen infrastructure in West Texas, according to the US Energy Information Administration.

In response to questions from the illuminator, Entergy spokesperson Brandon Scardigli said natural gas typically remains available during adverse weather events due, in part, to its redundant sources of supply. He also pointed out weaknesses in alternative power sources as a backup for commercial customers.

“One of the main purposes of the Power Through program is to aid in community resilience in the event of long-term outages,” Scardigli said in an email. “Notwithstanding cost or other considerations, currently available solar plus battery systems are unlikely to be able to fully power a non-residential facility over a longer outage, thereby eliminating a key benefit of Power.”

He said Entergy successfully runs a similar 1.2-megawatt program in Texas where natural gas generators supplied backup power at a large grocery store during Hurricane Laura in 2020 and later during Winter Storm Uri.

Testifying on behalf of the Alliance for Affordable Energy, consultant Edward Burgess said a major flaw in Entergy’s proposal is the narrow and exclusive focus on natural gas generators. He provided an analysis he compiled in 2019 on backup power for Entergy’s proposed New Orleans Power Station. It showed a battery storage configuration outperforming a natural gas generator for the power plant the utility company ended up not building.

Burgess provided a similar analysis that showed how a solar configuration coupled with battery storage could provide continuous power for 98% of the required load for four days at the New Orleans International Airport.

“Unfortunately, [Entergy] appears to have dismissed the possibility of using solar plus storage without doing any supporting analysis,” Burgess said.

Entergy’s spokesperson pointed out that the utility is not opposed to renewable energy, as it currently has more than 530 megawatts of solar resources in operation or pending approval before the Public Service Commission.

In a phone interview, the Alliance for Affordable Energy’s Logan Burke said she agrees with the concept of micro-grids but thinks Entergy’s cost-allocation is unfair to the rest of the customers in Louisiana.

“Generally, how rates are structured is the capital costs are spread among everybody who uses them with each paying a percentage based on how much they use,” Burke said. “What Entergy is proposing here is very different from a typical ratemaking setup in that it enormously benefits the host customers.”

Entergy established a similar project in Mississippi, but it differed in that the businesses given backup power paid a majority of the capital costs and operating costs, Burke said.

“To think that some of the largest most powerful companies in the state would be benefiting from something when the residents and everyone else are already paying exorbitant rates is just absurd to me,” Burke said.

Burke also pointed out that only the selected corporate customers would be able to use the generators during outages, so the project wouldn’t exactly form micro-grids in the sense of powering several facilities or a small patch of customers during an outage.

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