Entergy wants to sell gas business. Can the gas bill increase? | News

A high-stakes proposal by Entergy New Orleans to sell its gas business to a private equity firm that manages electric utilities is fueling debate over whether such a move would result in monthly rate increases for city residents.

Utility advisers to the city council suggest the plan could result in monthly gas bills that are $12 higher. But the company disputes that, saying prices could increase by less than $2 a month, if at all.

The prospect of higher rates is a central issue as the City Council, which regulates Entergy New Orleans, prepares to vote on the proposal in the coming months. Council members declined to comment last week.

The proposed $285 million deal, first announced last year as part of a broader shift in Entergy Corp.’s operations, would have Entergy sell its gas business to an affiliate of Bernhard Capital Partners, a Baton Rouge private equity – company that buys and manages power companies. Entergy officials have said the sale will ensure better service for city taxpayers.

But the city’s utility consultants recently criticized the plan, warning that monthly gas bills in the city could rise $12 or more with further increases in electricity rates. They also point out that Bernhard’s subsidiary, Delta States Utilities, has not committed to curbing its start-up costs, creating further uncertainty for taxpayers.

The proposed deal “imposes quantifiable harm on both future gas customers and ENO electric customers,” advisers with Colorado-based Legend Consulting Group wrote in a brief last month. Advisors with Dentons, the city council’s Washington, DC-based law firm, wrote that if the council approves the deal, it would require Delta and Entergy to “eliminate or substantially mitigate” the harm to taxpayers.

Mayor LaToya Cantrell’s office and other critics have also touted the idea as out of step with the city’s plan to transition away from natural gas and other fossil fuels.

“The growth of a natural gas market is intrinsic to (Bernhard’s) success,” said Greg Nichols, director of Cantrell’s Office of Resilience and Sustainability.

Delta States contested the advisers’ position, and the firm’s consultant said customer bills could instead increase by less than $2 a month, if at all. If increases are needed, Delta would not collect higher fares until nearly a year and a half after the sale, money that could help it recover start-up costs related to an information technology upgrade and the launch of a new corporate office.

“New Orleans taxpayers will get something in return for the financial support they provide for the investments,” Delta officials said in a filing with the council last month.

Entergy New Orleans CEO Deanna Rodriguez defended the sale in a statement, saying she was confident of a quick approval.

“This transaction provides clear benefits to gas and electric customers while supporting the New Orleans community,” Rodriguez said. “It creates jobs, improves the service and ensures no extra burden for taxpayers. We are confident that the council will approve this proposal before the end of the year, enabling these benefits to take effect.”

A petrified future?

New Orleans is just part of Bernhard’s strategy to corner Louisiana’s commercial gas market. The private equity firm has a similar agreement with Entergy Louisiana, which serves customers outside New Orleans, and with a third gas utility, Centerpoint, which serves customers in northern Louisiana and part of Mississippi.

The state’s Public Service Commission approved the Entergy Louisiana deal in August and appears poised to approve the Centerpoint deal later this month. If all three deals go through, Bernhard would become one of the largest natural gas providers in the Southeast, with about 600,000 customers, mostly in Louisiana.

Entergy and Bernhard’s Delta argue that the sale will provide Entergy with an infusion of cash to pay down debt, that splitting the gas and electric utilities will allow them to run more efficiently, and that Delta plans to modernize Entergy’s IT systems to benefit for its customers.

Delta also promises to create 100 high-paying jobs based in New Orleans, along with a new headquarters to anchor its statewide gas business.

But council advisers said Entergy would have to replace $11.4 million in lost gas revenue under the deal, which could mean increases in customers’ electric bills. Entergy is also asking the council to allow it to recover $29 million in one-time transaction costs stemming from things like investment banking and legal fees. And there is no evidence that Entergy’s existing IT system is inadequate, they said.

Byron Watson of Legend advised the council to force Bernhard to hold prices steady if they approve the deal. He also said the council should reject Entergy’s $29 million request.

Nichols, of Cantrell’s office, said the council has already mandated a net-zero carbon emissions standard for Entergy’s electricity service by 2040, but the mandate would not apply to a new gas plant. If the council approves the deal, Nichols said, it will ensure dependence on fossil fuels for decades to come.

Clean energy advocacy group the Alliance for Affordable Energy also opposes the deal.

Gas “is a dying business,” said Jesse George, New Orleans political director for the group. “The only way it makes sense is if you plan to pool these huge capital investments and recoup them on the back of a captive customer base.”

Private equity takeover

Former Shaw Group executives, including prominent former Democratic Party chairman Jim Bernhard, founded Bernhard Capital in 2013 and has amassed $3.4 billion in assets. The company has 65 companies under its portfolio.

Bernhard and other private equity firms take money from large investors and use it to buy up companies, deliver profits to the investors and take a management fee for themselves. The sector has boomed in recent decades, but has also received attention for driving companies out of business and losing jobs.

A key part of Bernhard’s strategy is to find government-controlled utilities and convince cities to sell them. The company has used a well-known pitch: It offers a cash infusion upfront and sometimes promises to set up a headquarters and create jobs.

It has not always been a success.

In Lafayette, Bernhard led a long-running campaign to convince the city to sell its utility, but failed after residents and local officials raised concerns that the company was trying to squeeze profits from residents. Similar deals in North Carolina, Florida and New Jersey have also fallen through.

However, the company convinced former Democratic Gov. John Bel Edwards to enter into a complicated deal that allows it to privatize some state energy systems. Its deals with Entergy Louisiana and Emera, another New Mexico utility, were also announced within the past year as part of a strategy, Bernhard has said, to buy gas businesses that utilities are increasingly divesting and to secure a steady, secure stream of profits from them.

Delta CEO Tim Poche said in a statement that the Entergy New Orleans deal is an important part of its vision. He said the deal is different from the failed Lafayette transaction in which Bernhard sought to buy a city-owned utility.

“As a core-focused natural gas utility, we’re focused on doing one thing and doing it well,” Poche said. “Delta Utilities is solely focused on providing natural gas service to customers, allowing Entergy to concentrate on its core electric business. This core-focused approach ensures that both utilities can invest in and manage their respective resources more effectively, ultimately benefiting both electricity and gas customers.”