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High Resistance and Poor Transmission

Inflamed by plans for a new power plant, activists say that Lafayette’s publicly-owned power company is stuck in the 20th century.

 

Clearing up some confusing reports to the contrary, Lafayette’s municipal power company announced in late August that it had not scrapped plans to build a new natural gas-fired power plant. Officials are instead opting for a wait and see approach to constructing the plant — which opponents argue is a boondoggle in the making — due to changes in environmental regulation.

 

The Trump administration’s impending lift of Obama’s Clean Power Plan removed the urgency of building a new power to compensate for the presumptive loss of a coal plant that had been threatened by the Obama restrictions. Rate hikes approved last year to help pay for the $120 million plant will go to other capital projects, including the cleanup of a 60-year-old plant that the new generator will one day replace.

 

For the time being, the decision pauses the festering hostilities between Lafayette Utilities System (LUS), led by longtime Director Terry Huval, Lafayette’s highest paid public official, and a loose confederation of citizen activists championed by Simon Mahan, a Lafayette-area resident who works for the Southern Alliance for Clean Energy as the group’s renewable energy manager. At least as far as the site cleanup is concerned, there is agreement between the two camps.

 

“That’s the right thing to do; that site does desperately need to be cleaned up,” Mahan said after the August announcement. “Lord knows what’s there. That facility was installed in the 1950s or 1960s. It’s older than science.”

 

For the past few years, Mahan has harried  LUS for what he believes is a resistance to green energy, consistently arguing that LUS should be doing more to embrace solar and wind power, foster efficiency programs that would encourage customers to use less energy and, perhaps more to the point, engage the public on the utility’s major decisions and defined priorities. As Mahan sees it, LUS operates with too little public scrutiny, considering the utility is by far Lafayette Consolidated Government’s biggest budget item, accounting for roughly 40 percent of local government’s annual appropriations.

 

The conflict reflects a vintage argument about public policy, i.e. whether and to what extent should public agencies engineer change and lead communities toward new ideas. Writ into policy issues around Lafayette’s electricity, the conflict is a live wire.

 

LUS introduced the plant in a five-year capital improvement plan in 2016 as a means of shoring up a 70-megawatt shortfall in capacity — essentially, the amount of wattage LUS can produce at any one time to power area homes and businesses. Obama-era regulations on energy production, formulated in the now-disappearing Clean Power Plan, were set to put a financial squeeze on utilities that operated coal-fired power plants, potentially forcing many plants across the country to shutter. Market forces had caused LUS to retire its oldest natural gas plant, called Doc Bonin, creating the existing capacity deficit. The Clean Power Plan threatened to widen the gap.

 

About half of Lafayette’s power generation comes from a 35-year-old, coal-fired power plant, Rodemacher II, located outside of Alexandria. LUS shares ownership of the plant with CLECO and the Louisiana Energy and Power Authority. Trump’s EPA, led by the litigiously pro-industry Scott Pruitt, is widely expected to strike the Obama-era regulations, in effect relieving the pressure that put LUS on the new power plant track in the first place.

 

For the time being, LUS intends to purchase capacity at auction via the MISO energy market, a massive transmission grid connecting Lafayette with power plants dotting America’s midriff from the Gulf of Mexico to the Canadian border. Lafayette joined the market in 2013, and saw a precipitous drop in costs ­— conditions that made running the Doc Bonin plant, in industry parlance, “uneconomic.” Most of the electricity that consumers buy in Lafayette comes from the market, not the city’s three active power plants. In his critiques of the power plant, Mahan argues that LUS ought to lean on the capacity market to avoid costly capital expenditures. With the decision to stave off construction, Mahan and Huval once more found common ground.

 

Mahan has become a constant, chiding force around Huval’s policy decisions in recent years, particularly when they touch on clean energy issues. Hostilities came to a head last year when LUS announced two phases of rate hikes, which included a new $15.95 fee imposed on LUS customers with solar panels. Ultimately, the move will bump the average residential bill from around $82 to around $88 by November of this year. And, at the time, LUS argued that the solar fee would more accurately reflect the cost of service to solar customers. Surprised and irritated by what he called a “solar tax” in the media and in public meetings, Mahan initiated a series of public requests to sort out why, exactly, LUS had decided to raise rates. The trail led him to the capital improvement plan, which included a line item for “new power generation.” (LUS later nixed the solar fee in the face of Mahan’s activism on the issue, saying the money raised wasn’t worth the headache.)

 

The $120 million project is divided into two phases: $26 million to demolish the Doc Bonin natural gas plant and prepare that site for a new facility, and $94 million for the new plant, a 72-megawatt combustion engine that can be built in modules. LUS says that the facility’s combustion engine design provides the system with reliable, quick-start power. The modular design allows LUS to build generating units as it needs them, while it continues to watch and buy capacity on the market.

 

Anticipating a rubber stamp from the city council, Mahan circulated a 27-page primer on the power plant proposal, outlining why he deems it to be “unnecessary, uneconomic, [and] unwanted.” In the document, which he distributed widely, Mahan contends that LUS sneaked plans for the new plant into the budget, conducting two studies outside of public view that he says ignore renewable energy options and reach flawed conclusions based on flawed data.

 

Huval and LUS rebuff the entire account and deride Mahan’s intentions as bent

 

“Simon is only introducing the stuff that’s being fed to him by others, to say, ‘Here’s what you should say.’ We fight these environmental battles in other places. And it creates confusion,” Huval says. “What’s Simon’s record on operating a utility system? None.”

 

Huval’s operating philosophy is conservative by definition. His mission as he sees it is, first and foremost, to guard the public purse and the electrical system’s reliability. Huval has run LUS since 1994, overseeing major capital improvement projects and steering the company, as beloved by Lafayette citizens as a power company can be, toward its crowning achievement: launching LUS Fiber, a publicly owned fiber optic network that earned Lafayette accolades as a tech-forward community. A gifted fiddler and native French speaker, Huval has been a fixture on the Cajun music circuit for decades with his group, the Jambalaya Cajun Band. At his behest, the LUS automated teller service plays Cajun standards and greets customers with a salutatory “bonjour!”

 

“Lafayette is not hesitating with new technologies; the LUS Fiber system is an example of that,” Huval says, responding to Mahan’s accusations that LUS did not study renewable energy. “When we built the fiber system, we didn’t take the first idea that somebody had and say, ‘We’re gonna do that in Lafayette.’ We waited till the prices got low enough and we could see some successful business models in other small towns before we went ahead and built our own.”

 

For the most part, Huval has operated LUS with a wide berth. He is an appointed director who’s currently serving his fourth mayor, and few have the technical acumen to challenge Huval’s leadership and judgments. Given the highly specialized and arcane nature of his work, and the complicated expanse of LUS’s operations, the part-time city council members who oversee the utility have been content to heed Huval’s advice with little pushback. Some current and former LCG employees say that Huval is a more than capable administrator, the kind often in short supply in city government.

 

Indeed, LUS is by and large a successful public operation if measured by Huval’s mission to deliver low cost, reliable power. Residential rates will remain among the lowest in the country, even after the 8 percent hike that attracted Mahan’s curiosity is complete. The system rarely sees outages and hasn’t suffered a major loss of power in years.

 

The utility is not without its detractors. A Lafayette restaurateur filed a class action lawsuit earlier this year, potentially worth more than $400 million, against LCG, claiming that LUS’s annual contribution to the city’s general fund, made in lieu of paying taxes, is illegal.

 

Environmental groups have hounded LUS for playing conservative with its power generation choices when faced with similar economic and regulatory conditions to those surrounding the new power plant. Back in 2011, new regulations on the horizon were set to hit the Rodemacher II coal-fired plant, requiring costly upgrades to clean up the plant’s emissions. Huval was faced with essentially two options: retrofit the generator to run on cleaner-burning natural gas, a $40 million conversion, or upgrade pollution controls to better control the coal’s toxic belch.

 

The local chapter of the Sierra Club and its sympathizers took to city-parish council meetings to argue against reinvesting in coal. Even then, opponents argued that LUS was moving against public wishes. Believing the long-term fuel cost of coal to be cheaper and more stable, Huval moved the company and the city council to adopt the latter option. On a unanimous council vote, Lafayette issued an $88 million bond to pay for the pollution controls, a bill that taxpayers are still paying.

 

Coal, Huval argued in an op-ed published around that time, was then a more dependable fuel source that’s proven to be more or less immune to market fluctuations. More to the point, the upgrades would put Rodemacher II on the right side of any foreseeable environmental regulations.

 

Published alongside Huval’s explication was a letter by Simon Mahan:

 

“It should be obvious that over the next four years, more federal regulations on burning coal are coming. We have no idea what those regulations will require and if we can even meet (or afford) those regulations. But instead of planning to move off this financially risky source of electricity, Lafayette Utilities System has plans to retain this coal-fired power plant for the next 20 years — or maybe longer…LUS is arguably the most powerful tool we have to drive economic development within the parish. By modernizing and diversifying our electricity resources, Lafayette could protect itself from costly coal regulations, potentially save hundreds of millions of dollars and create hundreds of jobs locally…We need to form a citizens’ task force to look at alternatives — and soon.”

 

In the interim, the price of natural gas has continued to decline, and efficiency technologies have made natural gas cost competitive with coal, with fewer environmental restrictions. A conversion to natural gas at Rodemacher II arguably would have made both better environmental and economic sense. In any case, the Clean Power Plan, rolled out by the Obama administration in 2014, may have pushed the company to make the natural gas conversion in short order. The 2016 study justifying the new power plant notes that the Obama rules would have required LUS to invest up to $50 million at Rodemacher II to comply with new regulations concerning airborne mercury. In other words, had the Clean Power Plan remained in 2017, the air quality upgrades made in 2012 to keep the plant on coal would have been for naught.

 

“The investment we made there is an investment that we think gave that plant a long life,” Huval explains. “The Clean Power Plan could have knocked out all of that. At that time there was no Clean Power Plan on the table, just discussions that something might be coming. How can you make a good judgment on that?”

 

For decades, federal regulations have vacillated dramatically, leaving power entities to make, at best, educated guesses as to how federal winds will blow on environmental restrictions. As Huval noted in a lengthy conversation about LUS’s history, responding to environmental standards has long moved the agency’s major infrastructure decisions, dating back to Carter-era regulations that shifted LUS toward more natural gas generation in the 1970s. Congress lifted the one-term Democrat’s regulations under the watch of the Reagan administration. In 1982, LUS built the coal-fired Rodemacher II.

 

Beyond changes in regulation, utilities have to make risky projections about how much demand their systems will see in the future. Demand is flattening across the board as consumers naturally acquire more efficient appliances; there’s good reason to believe these economic conditions will remain. In the Midwest, large-scale wind power is coming online and beating natural gas and coal-fired energy at market. SWEPCO, a private power company that serves the Shreveport area, recently announced its investment in Oklahoma’s Wind Catcher Energy Connection project, which it boasts will save SWEPCO customers $5 billion in energy costs over a 25-year span. The Energy Information Agency, the federal agency that tracks energy trends and prices, predicts that 36.6 gigawatts of new, more efficient natural gas power will come online by 2018. Meanwhile, grid markets like MISO have put lots of excess energy up for sale. It’s much cheaper, for the time being, to buy capacity than it is to build it.

 

Josh Rhodes, a doctoral fellow with Weber Energy Group at the University of Texas, says it’s hard to fault the decision LUS made to stick with coal back in 2012, given that the seemingly bottomless decline of natural gas prices took many analysts by surprise. Still, the historic lows for natural gas, which has recently become the nation’s favored energy source for the first time, puts power companies on uneasy ground when it comes to building new generators.

 

“Building new plants is a risky endeavor; when [demand] growth is gangbusters you can hide mistakes,” Rhodes says. “When growth is flat-lined, you’ll get eaten alive.”

 

Anticipating and calculating risk is a big part of long-term planning in the energy generation business. Electric utilities can spend big money hiring consultants to evaluate, as best they can, what the regulatory and economic horizon may bring. Many companies create 20-year visioning plans, called integrated resource plans (IRPs), which attempt to model and predict those conditions. Based on those assessments, power companies then determine whether and when they need to retire obsolete power facilities, build or acquire new ones, make upgrades to their existing plants, invest in new technologies like utility-scale solar panel arrays, or create demand management programs to reduce power needs at the consumer’s end of the wire.

 

LUS relied on an IRP conducted by well-regarded consulting firm Burns and McDonnell in concluding that it needed a new power plant. Mahan points out that the study overestimates projected demand growth in its calculations, calling into question the long-term forecast of Lafayette’s electricity needs. Burns and McDonnell predicts that electrical demand in the LUS market will grow at 1.1 percent over the next 20 years, despite a half percent decline in demand over the previous five. More broadly, analysts with the MISO market predict a more modest .4 percent growth for the Louisiana region. These are all number crunches performed in Mahan’s 27-page document, the data points that Huval dismisses as minutiae.

 

It’s hard not to see the foregoing as anything more than a judgment call, made on the best possible data. Given the long-term horizon of these studies, almost anything can change. New regulations could derail otherwise sound economic plans. A catastrophic hurricane could wash storage tanks into the sea, topple wind turbines and crack every solar panel from here to kingdom come. While it may be best to leave the detailed fact-finding to the experts, high-altitude discussions about what a community’s options are could bring decisions in line with the community’s values, itself another variable in the equation. To Mahan’s point, these sorts of issues could be sorted out better in full public view, a process that Huval believes would be chaotic.

 

“We have a council and the LPUA [Lafayette Public Utilities Authority] as our governing authority,” Huval says. “If they want to set up something and have public input and this thing go into a wild helter skelter type of thing, then have at it. But I’ll tell you it’s not the way companies run their business.”

 

Mahan eagerly points out that the municipally-owned Lincoln Electric System in Lincoln, Nebraska, has embraced public outreach as a means of integrating a direct conduit for community input into the company’s major decisions. A progressive utility for the Midwest, LES has added significant wind resources to its portfolio, taking advantage of the region’s rich supply of gusty plains. Overseen by an appointed board of directors made up of private citizens, LES has been aggressive in experimenting with and adopting renewable generation and efficiency programs to avoid running afoul of fickle regulations. The company’s energy portfolio, which provides about 800 megawatts to 124,000 customers, is divided roughly into even thirds across coal, natural gas and renewables.

 

For its IRP, completed this year, LES held three public meetings that Scott Benson, LES’s resource planning manager, says were sparsely attended but nevertheless valuable as a part of the utility’s mission. Public input has informed several LES initiatives, including demand-management programs and the construction of a community solar array, the first utility-scale solar facility in Nebraska. Lincoln, like Lafayette, sits at a less than ideal latitude for sunlight, making panels less productive in Lincoln than in sunny places like the Southwest. At about 5 megawatts, the array represents a small foray into solar generation. But Benson says that the company took the step, funded at no capital cost to LES via a power purchase agreement with a third party provider, to gain “internal expertise” on solar energy.

 

It’s worth noting that Lincoln customers do pay higher rates for all that progress than LUS customers do. However, with an average bill of $96, LES customers pay quite a bit less than other ratepayers in their region. LES’s outreach strategy has kept the company on a “balanced” path between competing concerns: keeping costs low and shrinking the company’s carbon footprint.

 

“Neither of those viewpoints is wrong,” Benson told me, explaining that Lincoln is hardly walking lockstep on renewable energy. “We’re just stuck in the middle.”

 

LUS conducted its IRP without outreach, instead informing the public and council representatives of the study results and consequent preferred actions. Both LUS representatives and city councilmen say there’s ample room for public comment in the budget process and at the twice-monthly meetings of the LPUA. For the most part, the city-parish council seems content with that status quo, seeing the information disconnect between elected officials and departmental experts as a commonplace problem in local governance.

 

Until the plant hit the budget process, the issue had largely eluded public discussion beyond cursory meetings of the LPUA, a governing body made up of the five city-parish councilmen whose districts include a majority of residents within the boundaries of the city of Lafayette. LPUA Chairman Bruce Conque, perhaps the councilman most thoroughly versed in city-parish government’s minutiae and foibles, recounted that it was partially due to Mahan’s probing that he first learned of the study conducted to justify the plant — after the plant had been approved.

 

“Where we fell short, and I think we corrected it, is the transparency” admits Conque, adding that the study, an IRP, was later made available on LUS’s website. “It hasn’t been an upfront operation.”

 

Beyond the decision to stick with coal in 2012 — a defensible one in hindsight, even if it nearly came back to haunt LUS via the Clean Power Plan — the arm’s length strategy has not bit Lafayette too hard. With Huval content to let costs stay low, it’s hard to imagine him getting much push-back from the council unless councilmen receive commensurate pressure from their constituents. Liz Webb-Hebert, Conque’s colleague on the LPUA and the representative for Lafayette’s wealthiest district, says that beyond Mahan’s contingent, most people she speaks to want the rates to stay low.

 

Webb-Hebert largely defends LUS, echoing Huval’s suspicions of Mahan and insisting that as a council member, it’s incumbent upon her to trust the opinion of directors like Huval.

 

“I appreciate that Simon is fighting this fight and asking these questions because we’re able to get these answers, but I know he’s fighting this fight not because he’s a concerned citizen and not because he’s concerned about our community; it’s because of what he does for a living,” Webb-Hebert says. “Just like the tobacco industry, just like the oilfield industry, just like any other industry out there, he has a reason for doing this.”

 

It’s worth remembering, of course, that rates have indeed increased, modest as they are. While the plant may not happen soon, the money raised in the recent rate increases will pay for other capital improvements, including cleanup of the Doc Bonin plant, demolishing a retired coal plant within Lafayette city limits, building a new substation, and installing new water plant pressure filters to remedy a harmless but yellow tint in some customers’ water. LUS says the rate increases represent a fraction of the total money necessary to build the new facility, much less scratch the surface on the rest of its needs. Yet, LUS pushed the hikes with a budget presentation last year that suggested the proposed $232 million capital improvement plan would be slashed by $162 million if the rate increases were not approved. The council approved the new hikes unanimously.

 

Huval dismisses the idea that LUS has “buried its head in the sand” when it comes to progress. Whatever Simon Mahan says, Huval believes the bottom line is the bottom line: Cost and reliability will trump the other considerations. While he reaffirms his commitment to hearing his customers out, he dismisses the idea that more public input would necessarily be better, particularly if it takes the form of Mahan’s 27-page polemic.

 

“It’s taking up lots and lots of valuable time for us to go through these documents. You could take one sheet here and one sheet here and pin it all together and try to make sense of it all, and it just takes a long time to get that done,” Huval says. “And I think there’s a much more productive way to do that, and it doesn’t mean having a general citizens group. I’m not sure what would come out of that. And how do I know that’s representative of the whole city.”

 

So what might be a more productive way to go about it?

 

“I dunno,” he retorted, “How we’ve done it for the last 100 years?”

 

**********

 

Postscript: Huval recently addressed many of Mahan’s concerns in a Power Point presentation (Huval’s favorite educational tool) to the LPUA, taking Mahan’s document head on and defending LUS’S position on the power plant. On the last slide, titled “LUS is Listening,” Huval lays out responses to Mahan’s accusations of opacity and formulates a kind of definitive mission statement on the issue of renewable energy and public discourse:

 

  • LUS is owned by the City of Lafayette – Its customers are the citizens and business owners of Lafayette

  • We have a tradition of bringing in the best experts to help us plan for the future

  • Experts who have also been involved in many successful Renewable deployments

  • We understand some concerned citizens want to see more Renewables

  • But, we are also sensitive to other customers who are concerned about reliability and impacts to their utility bills

  • LUS will reach out to the broader community to receive comprehensive input concerning Renewables

  • Even with the project in the approved budget, LUS cannot move forward with the construction of new power plants without multiple additional actions by the LPUA and Council

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