The Coal Hard Truth

Concerns about climate change and regional economics collide in Entergy's bid to refit an upriver power plant to burn coal.

Despite calls for more environmentally sound practices across Louisiana, the state Public Service Commission last month unanimously approved Entergy Louisiana's plan to convert a natural gas-burning plant in the St. Charles Parish community of Montz to one that environmentalists say will increase local contributions to global warming.

The refitted version of the Little Gypsy power plant is expected to replace the current "peak load" plant ' one that generates energy during high-demand hours only ' with a "base load" plant, which will produce a continuous supply of electricity by burning petroleum coke and coal.

The amount of CO2, a major contributor to the greenhouse effect, emitted from Little Gypsy is expected to increase significantly once the plant goes on line, which could take up to five years. Entergy's vice president of regulatory affairs, Mike Twomey says the company's customers are short of base load supply in the plant's service area, and that gap is expected to increase.

PSC Chairman Jay Blossman agrees that the utility should become less dependent on natural gas. "We've been asking Entergy to diversify the fuel mix," says Blossman.

Environmentalists and consumer advocates opposed Entergy's plan to convert Little Gypsy and the commission's unanimous approval of the project. "It's taking Louisiana exactly in the wrong direction at exactly the worst possible time," says John Atkeison, director of climate and clean energy programs for the Alliance for Affordable Energy. "The next 10 years are probably the most important period of time to try to deal effectively with climate change. This is our last single solitary chance to avoid the worst of it without fundamental social disorder."

Blossman disagrees. "I'm not a big believer," he says. "Global warming is nothing but media."

Ironically, Entergy's view of climate change contrasts sharply with Blossman's. In responding to a questionnaire from the Carbon Disclosure Project in May 2006, Entergy states: "We believe the impacts from increased greenhouse gas concentrations in the atmosphere will melt polar ice, raise sea levels, erode coastal lands, increase the intensity of storms, flood regions of the Mississippi delta, reduce crop production, increase storm damage, endanger water supply, increase disease and eliminate certain species of animals. The economic impacts of climate change on regions like the delta (states of Arkansas, Mississippi and Louisiana) will adversely impact those least able to bear the burden. As a company serving the Gulf Coast, billions of dollars of investment, our customer base, the welfare of our employees, their families and our communities are all in peril."

At a Nov. 8 hearing in Baton Rouge, at which the PSC voted to allow Entergy to refit Little Gypsy, economic concerns carried the day. Commissioners expressed a shared fear that countries such as China and India will continue to burn massive amounts of coal no matter what happens in Louisiana ' because it's readily available to them at cheap prices, despite its adverse environmental impacts.

"In the long term, we will cripple our economy if we go overboard with these emissions standards. We're going to fall behind China and India," said Commissioner Jimmy Field.

Atkeison later framed the issue from a different perspective: "If your neighbor commits suicide, do you?"

The Alliance has joined other environmental, conservation and consumer advocacy groups to form the Consumer Protection and Environmental Movement in opposition to Entergy's plans. The group expressed concerns about Little Gypsy's potential economic and environmental impacts "here at ground zero" in Louisiana.

In a letter to the commission, the Movement predicted a profound shift in the political arena that would affect the cost of electricity generated by burning "dirty fuels" such as coal and petroleum coke. The letter warned that the accelerated pace of global warming is leading to new policies such as carbon tax bills and "cap and trade" bills. Congressional action could significantly raise the price for Entergy and its customers ' by up to $10 a month ' "at a conservative rate," according to the Movement.

Indeed, Entergy's own response to the Carbon Disclosure Project questionnaire states the company's belief that "the U.S. government should implement a national mandatory program that will make decisive cuts in greenhouse gas emissions in the coming decades." However, the company's move to refit Little Gypsy goes in exactly the opposite direction.

Law student Mary Negal of the Tulane Environmental Law Center told the PSC on Nov. 8 that, in switching from gas to coke and coal, Entergy would be "doubling" its CO2 emissions, a move that could impact the entire state. "We stand to lose, as soon as 10 years from now, many coastal cities," Nagel warned. "Other states and industries are making great strides to reduce greenhouse gas emissions. If we fail to cooperate now, how can we ask for assistance 10, 20, 50, 100 years from now, when global warming is knocking on our door?"

Nagel argued that in the past, Entergy reduced its CO2 emissions output by 2.6 million tons. The company currently produces below 1990 emissions level. Refitting Little Gypsy, Nagel said, could wipe away Entergy's past good work and "void one-third of actions taken by seven other states."

"Entergy understands environmental concerns," says Michael Twomey. "You have to look at the whole range of issues in front of us."

In addition to the environment, a publicly traded company such as Entergy also has to keep its eye on the bottom line ' and on a sustainable economic base among its customers. Reports from Entergy conclude that a refitted Little Gypsy could provide significant savings to its customers as soon as 2021, whereas a natural gas-fired plant leaves both the utility and its customers vulnerable to the fluctuating cost of gas.

"The price of natural gas has increased tremendously, and it is very volatile," says Kerry Zimmerman, an Entergy spokesperson. "Fuel costs make up 50 percent of the customer bill. It's a cost that's directly passed through with no profit to the company. We don't want to be dependent on natural gas."

So, will customers ultimately see their bills go down as a result of the Little Gypsy conversion?

"Not today," says Melissa Watson, staff attorney for the PSC, who hired an expert to do the commission's number crunching. While Entergy estimates that customers will save $4 billion over the 30- to 35-year life of Little Gypsy, it is unlikely that they will see the actual dollar amount of their bills go down. The greater likelihood is that future increases won't be as large, depending on the future cost of natural gas.

Petroleum coke is a byproduct of the oil refining process and is cheaper than natural gas. It typically costs even less than coal, making it one of the most affordable fuels available to electric utilities. Particularly in Louisiana, coke is plentiful and readily accessible.

Twomey says that Entergy sought bids for purchasing gas at a fixed price, with no success. "Not a single bid," he says. "Other than Florida Power and Light, Entergy has the worst profile, with 70 percent dependency on gas and oil," says Twomey. Presently, Entergy is only 3 percent dependent on coal. That figure is expected to rise. Environmentalists and consumer advocates say they'd like to see Entergy and the state focus more on environmental issues, not just on economic concerns.

Noting that the cost of converting Little Gypsy exceeds $1.5 billion, Forest Bradley-Wright of the Alliance asks, "When do we make the decision on a $1.55 billion energy-efficiency bill? That would be much more prudent." Bradley-Wright is the Alliance's sustainable rebuild coordinator. He notes that the $1.55 billion figure reflects just the conversion cost. "On top of that, you still have to pay for the energy," he says. "When you make the energy-efficiency improvements, you don't have to pay for anything else."

Bradley-Wright serves as a resource for homeowners and renters who want to save energy and money. His suggestions include everything from compact fluorescent light bulbs, which use only 25 percent of the energy required to run an incandescent light bulb, to a heat-control window film that reflects 55 percent of summer heat and 99 percent of ultraviolet light, to solar-powered water heaters.

Bradley-Wright says that consumers expect Entergy to meet their needs in the most cost-effective and environmentally sensitive manner.

This year alone, numerous advocates for a cleaner atmosphere visited New Orleans. Last month, the presidents of Iceland and Bangladesh offered their countries as models for climate change study to a convention of agronomists and soil scientists visiting the city. In an address to the 2007 GovEnergy conference in New Orleans in August, Energy Secretary Samuel W. Bodman said that the "largest source of immediately available, cost-effective 'new' energy is the energy we waste every day. It is our duty to maximize this resource for the federal government and for the nation."

Twomey says Entergy alone can't reduce demand or increase efficiency. "We would love to see consumers help reduce peak needs, especially from 3 to 5 [o'clock] in the afternoon," he says. "That would reduce our costs and, with widespread participation, we could reduce the cost for customers."

Other matters of public concern are the cost of the plant's conversion and the contractor selection process. Construction and financing costs, combined, started at roughly $1 billion but have increased to $1.55 billion since the original estimate given to the PSC only eight months ago, in April. Consumer advocates say there is no way to guarantee construction costs won't continue to increase. Entergy does not dispute that point.

Consumer advocates are calling for a review of the bidding process. They argue that what should have been public information and subject to third party review was kept under wraps in the case of Little Gypsy. Entergy chose The Shaw Group to be the engineering and construction contractor for the project.

Commissioner Foster Campbell says the PSC has the right to review the bidding process. He says he doesn't know why Entergy chose Shaw over other bidders. "I imagine it's because they're doing the job for Cleco in north Louisiana, and they're doing a good job. They're ahead of schedule, and they're coming in for less than they thought."

Entergy also has asked the PSC to allow the company to refit Little Gypsy at ratepayers' expense ' before the plant goes on line. If that request is approved, it could set a precedent for building a new nuclear power plant. The proposal, known as Construction Work In Progress (CWIP), is designed to pay potentially delayed construction costs in a time of need, such as after a storm.

Karen Wimpelberg of the Alliance disagrees with that strategy. "Entergy is really pushing it ' to get customers to pay for design and building at no risk to the stockholder," she says.

PSC Chairman Blossman says he supports Entergy's request. "It saves the customer money," Blossman says. "I would be shocked if any economist says [to Entergy], 'Pay for the plant.'"

The PSC voted last month to let Entergy refit Little Gypsy. A decision on Entergy's request to charge ratepayers up front for the conversion is scheduled for July 2008.

Commissioner Campbell amended the motion in support of Entergy's request so that the PSC next July will decide what percentage of the total cost ' if any ' customers will be charged to refit Little Gypsy. "I'm troubled," Campbell says, "because Entergy, their stock has doubled. We did it for Cleco, but Cleco is not as strong as Entergy."

Twomey says the cost to ratepayers will be minimal. "If we were to get any percentage of the request we've made customers might pay an extra dollar or two a month," he says. The charge wouldn't appear until after the commission votes on the request next July. The request is subject to further review from the PSC.

Meanwhile, in other states, anti-coal coalitions have taken a legal stand against the resurgence of coal-fired power plants ' and won. Florida, for example, halted new coal- and coke-fired plants after determining that it is not in that state's best interest to support new industrial producers of carbon dioxide. Like Louisiana, Florida is susceptible to the detrimental effects of rising sea levels, increasing storm intensity and coastal land loss. Twomey points out that other states already have coal in their fuel mix at significantly higher levels than Louisiana.

Jim Schott, manager of environmental services for Entergy, adds that the utility is funding research into the technology needed to capture and store carbons underground. "We have agreed to study the feasibility of doing it at Little Gypsy, but the technology isn't here yet," Schott says.

Policymakers such as the PSC may also consider alternative ways to keep Louisiana's electric grid reliable. Efficient energy sources such as wind, solar, geothermal, hydroelectric, biofuels and biomass are all potential alternatives to conventional power. According to a recent Louisiana Mid-Continent Oil and Gas Association report, Louisiana ranks first in the nation for crude oil production, second in natural gas production, and holds an estimated one billion tons of identified coal (lignite) reserves. Louisiana produces an estimated 10 million tons of petroleum coke annually.

According to U.S. Department of Energy projections, coal-fired plants are expected to provide a growing share of the nation's electricity through 2030. As that trend continues, emissions of carbon dioxide will increase ' although the coal industry touts recent technological improvements that it claims have made coal "cleaner." Federal projections suggest that coal, which today provides more than half of the nation's electricity and a quarter of its total energy, will continue to dominate America's energy supply, despite environmental concerns.