Imitation is the sincerest form of flattery
February 14, 2018
LSU HOOPS GETS A BIG WIN
February 15, 2018
Terrebonne Parish’s stake in a high-efficiency electrical power plant that went online in 2016 is evidence of a bad business decision, maintains Parish President Gordon Dove, who wants a consultant hired to examine how costs of the obligation can be managed or deflected.
“It’s not a very good deal, we’ve lost money in 2016 and 2017.” Dove said at last Wednesday’s parish council meeting, during a presentation of options for coping with the obligation at a time of fiscal austerity. “This is the worst agreement I’ve ever seen in my 40 years as a businessman.”
At issue is the parish’s partial ownership of the 65-megawatt LEPA-l plant in Morgan City, which went online in 2016. It is managed by the Louisiana Electrical Power Authority, an agency created by the Legislature in 1979. Terrebonne is one of 17 Louisiana government entities that are part of LEPA; each LEPA community, like Houma. maintains its own independent municipal electrical system. LEPA’s mission is to provide its member communities with firm, stable sources of electrical power for their systems at the lowest possible cost. The $120.7 million dollar plant is the first constructed in south Louisiana within a 40 year timespan and it is LEPA’s first ever.
There is puzzlement within LEPA management as to the
reasons for an attack on the deal, inked in 2013. which indebts Terrebonne for a 30-year period.
Dove says the figures speak for themselves, and that the LEPA deal obligated the parish to a no-win drain of dollars from which it currently receives neither income nor energy.
The parish’s 2018 cost estimate for its share of the LEPA 1 plant is $4,242,684: the 2017 Terrebonne cost was $3,945,704 and in 2016 $3,926,069. according to parish records used in the presentation.
$90 MILLION OVER 30 YEARS
Recapping the deal the parish made. Dove noted that to build LEPA-1, LEPA issued $120,770,000 worth of power project revenue bonds, valued with interest at $247583.200 over 30 years. Terrebonne, by agreement, is responsible for approximately $50 million – 40.9 percent or $10L261,528 – over 30 years. The parish’s utility fund revenues, the money it makes from its electricity sales, are pledged to pay for that bond debt.
As Terrebonne has paid its LEPA share. Dove maintains, the money generated by the parish’s utilities, once a tidy set-aside, has been shrinking. Other municipalities have had to raise their rates to consumers in order to meet their LEPA obligation, something Dove says he opposes.
“We will do everything possible not to raise the rates in Terrebonne, and I do not support raising rates. People of Terrebonne should not pay for a bad investment or a bad decision by government in 2013.” he said.
Dove, along with Parish Attorney Julius Hebert and CFO Kandace Maul den. have been crunching numbers and looking at alternatives.
They would support selling Terrebonne’s 40.9 percent share in LEPA l, but are convinced after investigating the market that there would be no takers. A streamlining of LEPA l’s operations was also discussed, although that is something over which the parish has little control.
Ultimately. Dove maintains, a 15-mw peak generating unit could be added to Houma’s own energy infrastructure, something he says should have been done instead of buying into LEPA.
Dove said he has not raised issues about LEPA 1 until now because with the plant only began operating since 2016 he did not wish to jump the gun.
LEPA-l can provide Houma with 25 megawatts of power when needed, boosting the parish’s draw from a shared coal power plant and its own hydroelectric plant on Barrow Street
DIVERSITY AND PROTECTION
The Morgan City plant’s purpose, former parish manager Al Levron said when it opened in 2016. was to diversify Terrebonne’s utility portfolio and protect itself from rising prices from any one energy source. The plant uses both a natural gas combustion turbine and a steam turbine to generate power if needed for Houma. Morgan City. Jonesville. Plaquemine. Rayne and Vidalia.
LEPA General Manager Cordell Grand said the new plant has twice the efficiency of older plants built in the 1960s and 1970s. He also says that the high-efficiency turbine plant’s operations and fiscal context are more complex than the picture Dove has painted.
According to Grand, both Morgan City and Houma were candidates for the LEPA-1 site. The board chose the 10-acre lot In Morgan City for its proximity to the munidpalty’s wastewater treatment facility, giving the power plant the opportunity to use the treatment center’s discharge as cooling water.
At the time the project was envisioned. Grand said, the energy trading and utilization landscape was far different from what it is today.
“We work at the pleasure of the members and when we do something it’s because that’s what they want us to do. ultimately we follow their direction.” Grand said.
From his perspective – and that expressed by other sources in the energy industry not connected to the parish or LEPA – the perception that LEPA-1 was built to become a revenue source or as a cash investment is erroneous.
“That would be like buying a car to make money from it as an investment, but you use it every day to go to work and then complain that you are losing money on a car” Grand said.
The purpose of the automobile, the analogy would indicate, is transportation. Insurance, repairs, gasoline, and other expenses along with interest and the cost of purchase all add to the money involved with keeping the vehicle on the road.
At the time the plant deal was struck. Grand said. Terrebonne officials consulted with their own experts and determined they would like access to 25 megawatts if power if it should ever be needed.
“These are the costs of that and you have to weigh that out in the future,” Grand said. “We are right where we forecast the cost to be as we called them.”
Dove would not disagree with those points. But he says he is flummoxed as to why such decisions would have been made to begin with.
A DIFFERENT WORLD
Interviews with former and current Terrebonne Parish officials – most notably Michel Claudet himself – energy experts and LEPA officials indicate a stark contrast between what would have made sense when the LEPA-1 deal was signed in 2013 and today.
The LEPA-1 plant was designed and its financing factored during a time when the ravages to the energy grid from Hurricane Katrina and subsequently, closer to home. Hurricane Gustav. were fresh and indelible memories.
In both instances, cities and communities found themselves knocked off the grid with minimal options for rapid recovery.
The grid itself was also managed and maintained differently.
Energy giants like Entergy were determined, municipal maintainers say. to knock the little guys off the block. With their control of transmission lines, the big companies could deny small operators access to sell their power or receive it if purchased, or at the very least severely restrict their abilities.
Of major importance, however, was the price of fuel for electric plants, and the effects of the Obama administrations carbon restrictions. With the Houma plant as relatively inefficient as it was. the price its electricity could draw in credits, according to experts, would be low. The cost of electricity purchased from Entergy. Cleco or other firms would be high.
Terrebonne relied then as now on the Rodemacher 2 power plant using its own hydro plant only when peak use demanded.
The coal-fired Rodemacher. partially owned by CLECO, required a LEPA bond issue of more than $28 million in 2013 to pay for upgrades required by Obama-era regulations. This, according to Dove, was one more reason why the parish should not have seen a need to indebt itself for the LEPA-1 plant.
Michel Claudet who made the LEPA-1 deal with the help of Levron and his utilities manager, Tom Bourg. has no regrets.
‘This was absolutely the right thing to do at that time.” Claudet said. “We can look back and say some things should have been handled differently. But at that time there was no question. And it may very well still have been the right decision.”
POLITICAL TONE
At the time the decision was made nobody, proponents of LEPA-1 maintain, could have foreseen the dive Terrebonne’s economy would take in the later years. Claudet and other proponents of the LEPA deal point to the volatility of energy markets as one reason why a Terrebonne buy-in made sense, and why they say it likely still makes sense.
Complicating the questions that arise is the complex issue of capacity credits and entitlements, the currency that makes the energy world move.
So far no mention has been made of which consulting firms might be under consideration
