JACKSON, Miss. (AP) — Someday, Entergy Corp. may own power plants in Jackson, Miss., and Malvern, Ark. But no one’s sure when, or even if, the New Orleans-based utility will complete its $469 million purchase of two natural gas-fired plants from KGen Power Corp.
That’s because the U.S. Justice Department may halt the deals.
In 2010, the Justice Department told Entergy it was investigating whether the company had unfairly favored use of its own power plants, controlled transmission lines to strangle independent power generators, and then swooped in to buy their modern plants on the cheap. Entergy found out about the inquiry as it was buying a Louisiana generator, the fifth in a series of purchases. Now antitrust approval to buy two more has been delayed.
“We don’t know really what’s going on at DOJ,” Entergy CEO Wayne Leonard told investors on an April 26 conference call. Entergy spokespersons said the situation is little changed since then.
Justice Department officials didn’t respond to requests for comment.
State regulators in Arkansas and Mississippi, as well as the Federal Energy Regulatory Commission, have approved the purchases. Because closing was delayed past Aug. 1, Entergy owes an extra $5 million per plant to Houston-based KGen, raising the price from $459 million. The delay is not ideal for KGen, which is losing money and plans to dissolve once it sells its last two plants. KGen could not be reached for comment. CEO Thomas White told investors in May that KGen had provided all information requested by the Justice Department.
A Mississippi residence using 1,000 kilowatt hours per month would pay an additional $1.65 a month to finance what’s called the Hinds Energy Center, Entergy told regulators. In Arkansas, a 1,000 kilowatt-hours-per-month residence would pay $1.86 a month for the Hot Spring Energy Center. Most residents in those states use more than 1,000 kilowatt hours per month, according to federal data.
Independent generators swarmed into the South in the late 1990s at the prospect of power deregulation. The idea was to tap natural gas to make electricity, selling it to utilities or even end-users. But the collapse of Enron Corp. in 2001 led officials to rethink ending traditional state regulation of prices. Natural gas prices spiked for a time, then fell as electricity demand plummeted at the beginning of the recession.
Some power plants in Arkansas, Louisiana, Mississippi and Texas, the four states where Entergy operates, were dismantled. Others struggled to make debt payments.
With such distress, Entergy moved in, buying five plants built by independents and signing the deal for two more from KGen.
Critics say Entergy helped create the difficulties by manipulating its transmission system to make it hard for independents to sell power profitably, and by keeping Entergy’s expensive older plants running when it could have contracted more cheaply with independents.
“Entergy just didn’t want any competition on the generation side,” said David Cruthirds, a Texas lawyer. He formerly worked for an independent generator and now publishes a utility regulation newsletter.
Cruthirds said independents faced high costs to upgrade power lines needed for profitable long-term contracts and said Entergy resisted signing long-term deals with outsiders.
Eric Smith, associate director of Tulane University’s Energy Institute, said no one has ever proved Entergy has done anything wrong.
“I think Entergy would say they’re not in the business of building transmission lines for people they see as free riders,” Smith said.
Entergy says it bears no legal fault for independent generators’ bad business decisions.
However, the company did structure two purchases to avoid FERC scrutiny because it did not include power lines, though that loophole was closed by federal law in 2005. Entergy agreed to buy long-term power from a Louisiana refinery that claimed its power was cheaper than that obtained in one of the purchases, settling a lawsuit.
KGen offered to sell its money-losing plants in 2009, when Entergy sought proposals to provide more power. Entergy says demand is increasing. Plus, buying modern plants could allow Entergy to curtail or retire older generators. The company plans to use KGen’s Hinds plant to replace an older gas-fired plant three miles away that burns gas only half as efficiently, saving at least $3 million a year in fuel costs.
Entergy says it sometimes runs that older plant to meet high local demand in Jackson and reserves transmission lines for that relatively expensive power, even though cheaper electricity might be for sale from more efficient independent generators. That blocking of transmission lines is exactly the kind of scenario that has drawn complaints from independents.
However, Entergy has agreed to buy electricity from independents beyond what can be produced by the plants it has bought. The company has agreed to buy power from Calpine Corp. for customers in Louisiana and Texas.
Entergy also began building a $500 million gas-fired plant this spring near New Orleans. Though Entergy would pay more per kilowatt of capacity for the Hinds and Hot Spring purchases than what it paid for the first four plants, the KGen units remain half as expensive as the new plant.
“By any measure, the plant is being sold well below replacement cost,” Samuel Van Vactor, an energy economist consulting for Mississippi regulators, testified of the Hinds deal.
Other utilities including Louisiana’s Cleco Corp., the Tennessee Valley Authority and the South Mississippi Electric Power Association have also bought independent power plants. But while that’s a deal for them, Mississippi Public Service Commissioner Brandon Presley said it scares off investment.
“I think it sends a bad signal every time an independent decides to invest hundreds of millions of dollars in Mississippi and they just get shut out,” he said.