Fact vs. Fiction

Power Restoration in Hurricane Gustav — and the Next Storm

“The real story.” We all like to think we are getting the real story, the secret truth behind the cover-up. The Times-Picayune’s front page on October 5 provided an excellent example of this phenomenon. A prominently displayed article described how some are arguing that the electrical outages caused by Hurricane Gustav should be blamed not on the storm and its 110 mile-per-hour winds but on theoretical flaws in the design and maintenance of Entergy’s transmission system.

It made for an interesting headline, I suppose. But there’s one big problem. “The real story” has to rest on facts, not fiction. And many of the sources in this article (in some cases cited as “authorities,” although in my view they are not) were talking fiction.

I understand that the last place many would look for facts on this issue is the local utility “monopoly.” However, it is precisely because of our status as a highly regulated, quasi-public entity, one with the legal obligation to serve, that we are held to the highest standards for competence and credibility. It’s a standard far greater than that required by law of others or their businesses.

Let’s review the facts...

FACT: Entergy’s transmission system operates under strict reliability standards. These are set by federal regulators. Entergy has passed all these reviews.

FACT: Entergy’s transmission investment is comparable to other utilities. In fact, it is above peer group utility company average in terms of dollars invested per customer.

FACT: Entergy’s transmission reliability is better than the majority of peer group utility companies even given the challenges of our extreme weather events; by a utility territory dead-ended on the south by the Gulf of Mexico and on the west by the closed circuit, Texas-only power grid; and by a topography that forces us oftentimes to build in sand or water while other utilities enjoy a foundation of rock or clay.

FACT: Hurricanes cause electrical outages wherever they “land,” not just in Entergy’s system. Hurricane Ike, which came ashore in Galveston, Texas, two weeks after Gustav, kept roaring northeastward, even after it was downgraded to a mere tropical depression. It caused hundreds of thousands of outages in the Midwest and even in Canada – some 1,700 miles from where it made landfall. Are all those transmission systems from Texas to Quebec under-built? Of course not.

FACT: Entergy prepared for Gustav and did an incredible job of restoring power in its wake. We assembled the largest team of restoration workers in Entergy’s history from our own ranks and those of other utilities and contractors nationwide. The logistics for housing, feeding, transporting and organizing this massive effort were on the same scale as required for an army going into battle.

FACT: Entergy is recognized every year as “Best in Class” at storm recovery. We are the only utility in the nation to win the Edison Electric Institute’s restoration or assistance award every year since they were established in 1998. Simply stated, when it comes to power restoration, we are the best in the business.

FACT: Entergy has no financial incentive to under-invest in its system. Utilities make more money on investment (i.e. as part of their rate base). In other words, additional investments in transmission would cost our customers more and make Entergy a bigger, more profitable company. Instead of throwing money at the issue for our own gain, however, we have invested in the best people and systems to maximize what we have, to keep customers’ rates down and reliability up.

FACT: Entergy’s transmission investment plans are carefully reviewed by an Independent Coordinator of Transmission. This is an expert agency that not only evaluates our plans but can make its own recommendations about transmission upgrades to our regulators. Entergy does not make these decisions in a vacuum.

FACT: Entergy’s transmission system is robust and allows us to buy a large portion of our power from independent power producers, including some of the same ones that were complaining in The Times-Picayune article. Last year Entergy saved its customers approximately $1 billion by buying power in the overbuilt wholesale market at substantial discounts rather than run our own plants. None of those savings go to Entergy’s bottom line, but to our customers.

FACT: Under the current pricing structure, wholesale customers and independent power producers are constantly offered the opportunity to upgrade transmission lines and provide more “options” (power flows according to the laws of physics, i.e. the path of least resistance) so they can access more markets more of the time. But, to date, most of these entities have declined to fund those upgrades. They have consistently filed plans with regulators (and grievances when turned down) to avoid paying for these investments themselves, and they instead attempt to force Entergy and its customers to shoulder those costs. That would violate a basic principle of cost causation – namely, that the user pays. If regulators went along with such a scheme (and they generally haven’t), it would create a multitude of free riders on the backs of Entergy customers. Doing what these “experts” want by building more redundancy than needed would mean Entergy’s rate base would increase, our customers would pay more and these merchant generators and their customers – not Entergy’s customers – would get the “free” ride they seem to be promising you. We cannot support a principle whereby our customers pay to enrich others.

FACT: There is no panacea for storm hardening. People ask us: Why not bury the lines? Why not build backup lines? The fact is that hardening or burying lines would cost customers five to 10 times the traditional building standards.

Building additional lines that serve as “backup” (but are still subject to the same risks during a hurricane and are idle most of the time) would also be extremely costly. The very people who now argue for doing just that would be the first in line to argue against the cost if we were foolish enough to apply such a standard across the board and expect our customers to pay for it.

FACT: The people of the Gulf Coast have a fundamental problem – one governed by the laws of nature and the expected effects of climate change. The Gulf itself gets closer to us every single hour. Rather than engage any more in this senseless rhetoric on old issues or 20/20 hindsight, let’s think about the real issue here: this is a national problem, not just a regional one. While Entergy has not completed its own study of how much America’s economy and its people endure when hurricanes strike the Gulf Coast, closing its ports and shutting its refineries and factories, the number is likely to be substantial – most likely enough to justify at least selective hardening and adding some more redundancy in Entergy’s transmission system. But the cost should be borne by all those who benefit from the Gulf Coast energy infrastructure, ports and industries, not just our customers. Our customers, many of whom are poor, should not be expected to shoulder alone the burden of securing the nation’s economy against these violent acts of nature.

FACT: We need a Gulf Coast national infrastructure policy, including additional protection for the electricity transmission corridor through southern Louisiana that is vital to the nation’s energy needs. Super-critical storm hardening needs to be evaluated and implemented by the federal government, given the huge benefits from this corridor that are enjoyed by the nation as a whole. The federal government should pay for the upgrades or otherwise, under any of a number of options, keep the cost off our customers’ backs. Entergy would not profit from such a plan. In fact, if selling some of those critical lines to the federal government proved to be needed, Entergy’s investment and profits would actually go down as a result.

So those are the facts. Now, ask yourself if what you read in the “story” on October 5 passed your own common sense test.

Entergy makes more money when it invests in capital projects. Why would it intentionally under-build its transmission system?

Entergy makes more money when it sells its services, not when the lights are off. Wouldn’t it be more likely for a utility to invest in a “gold-plated” infrastructure (at its customers’ expense) that assures the lights always stay on so it can sell its services and make more money? Storms like Gustav or Katrina cost Entergy tens of millions of dollars in revenue every single day while the power is off and restoration is under way.

We understand that when the power is out, regardless of why, it is more than an inconvenience. It is miserable and can be life-threatening for some. People are naturally going to think the worst. Given that, why would Entergy or any utility company deliberately subject its reputation (and its employees’ morale) to one-sided attacks on its credibility and competence at a time when natural disasters like hurricanes threaten its service territory, its customers and its property? It makes no sense. Yet we continue, to this day, to hear irresponsible criticisms and speculations from people who should know better, despite clear evidence that our company’s planning was superior and our recovery performance was record-breaking.

The facts are that Gustav was the second-worst storm in terms of outages in Entergy’s 95-year history, that we mounted a 14,900-person army of power restoration workers (even more than for Hurricane Katrina), and that power was restored more quickly and safely than ever before.

Now you know the real story.

J. Wayne Leonard

(J. Wayne Leonard is chairman and chief executive officer of Entergy Corporation. He has received numerous awards and recognition for his leadership on issues ranging from hurricane response to environmental stewardship to protection of low-income families, including the prestigious Platts Global Energy CEO of the Year Award. He recently was named a finalist for that honor for an unprecedented seventh consecutive year.)