New Frontiers in Lemon Socialism

Smith, Rebecca. 2006. “New Orleans Power Play Spurs Role Reversal: Entergy, in About-Face, Wants To Turn Over Electricity Assets to City as Repair Costs Loom.” Wall Street Journal (15 August): p. A 14.

“The perplexing issue of how to pay for expensive repairs to this city’s damaged electric system is forcing city leaders and officials at utility Entergy Corp. into strange new roles.  At issue: Entergy wants to hand over its assets in New Orleans to the city.  The brewing fight is an example of the extreme steps utilities can be forced to take as they look for ways to pay for damages from last year’s hurricanes — as well as prepare for the next big one — in a time of customer apprehension over how this will affect their electricity bills.”

“Nearly a year after Hurricane Katrina flooded the city, Entergy says the best way to bring its New Orleans unit out of bankruptcy-law protection is by handing ownership of utility assets over to the city.  The investor-owned utility argues such a move would enable the tiny unit to qualify for federal disaster-relief funds and regain solid financial footing, avoiding rate increases that threaten to more than double electricity rates in New Orleans.”

“One city-council member, Shelley Midura, says she has no intention of allowing Entergy to saddle the city with a partly rebuilt system and then “drop the keys on the table and say, ‘We’re out of here.'”  The dispute marks a turnabout from years past, when New Orleans officials agitated to create a municipally owned utility on several occasions — efforts that were opposed by Entergy.”

“Entergy wants the city to own the system of power lines and substations but sign a contract with Entergy so that its workers will continue to furnish the utility with electricity and make repairs.  Mr. Leonard [Entergy Chief Executive J. Wayne Leonard] says the city could set service-quality standards to ensure reliable service — something that has been criticized since the storm, since, even now, there are frequent local power outages.  “We’ll put it in a contract,” he says, adding that he believes rates might even fall 10% to 15% if the city owned the system, because of lower financing options available to customer-owned utilities such as exist in Los Angeles, Seattle and Austin, Texas.”

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