Expanding Options Within Louisiana’s Electricity Market: Could Lower Electricity Bills Be on the Way?
Louisiana has struggled to keep people and businesses from leaving the state. Between July 2021 and July 2022, about 30,000 more people left than entered the state for the third most net outbound as a percentage in the country. The Pelican Institute recently released a bold tax reform plan that, combined with our full Comeback Agenda, will help Louisiana be more competitive with other states so people and businesses stay and thrive. But another thing that stresses Louisianans—families and businesses alike—is the cost of electricity. Fortunately, the Louisiana Public Service Commission (LPSC) is studying how changes to state policy could fuel potential lower bills for ratepayers and bring new generation to the grid, paid for by the private sector, rather than by utility customers.
Louisiana has a robust energy sector. Compared with other states, Louisiana has the third most natural gas production, fifth most proved natural gas reserves, and about 10% of the total marketed natural gas production. The state also has 15 oil refineries, about one-sixth of the nation’s refining capacity, processing about 2.9 million barrels of oil daily. Louisiana’s abundant sunshine has also attracted significant investment from renewable energy developers. In short, Louisiana, from the supply side, is an “all of the above” state.
On the demand side, Louisianans consume the third most energy in the country and have the highest energy consumption per person. From its energy-intensive and job rich chemical, petroleum, and natural gas industries to its homes and small businesses, Louisianians are uniquely exposed to energy price risk compared to the rest of the country.
In response to continued high electricity bills and concerns about future price increases associated with utilities’ plans to build new generation, the LPSC has launched a comprehensive, multi-phase study to evaluate a wide variety of policy options that would benefit all electric customers. It is the first comprehensive review of the rules governing the state’s electricity market in over 20 years. The time is ripe.
LPSC staff is evaluating a broad range of policy options that would ensure long-term resources are brought online in the most economical way possible, build a healthy, competitive system, and keep prices affordable for all. Given the projected need for new renewable and gas generation, one option they’re considering is allowing industrial customers that are willing to take the financial risk to contract directly with private generation developers. This “optionality” of power supply for industrial customers, which simply means that industrial customers would be given more choices in how they access power, would mitigate the need for the investor-owned utilities like Entergy to charge their customers for the costs of building new power plants. Residential customers save money by their rates not going up to finance new utility plants while industrial customers take on the financial risks of building new generation and gain the ability to manage their energy risks proactively. The Louisiana economy wins by opening the door for private investment in renewable and gas power plants, financed by private capital, not utility ratepayers.
This LPSC initiative initially focuses on five topics in Phase 1 that will help the LPSC evaluate whether to transition Louisiana’s energy market to more of a competitive one. Staff is exploring ways to modernize and increase transparency in the process electric utilities use to file requests before the Commission; improve the current Request for Proposals (RFP) and Demand Response processes; provide electric service to electric vehicles through charging stations; and access renewable generation by end-use electric customers. Each of those are complex issues, but the charge to consider bold new ideas and additional options that could benefit Louisiana consumers is a breath of fresh air.
Phase 2 of the LPSC initiative, which will likely come to a head in the first 6 months of 2024, is focused on how Louisiana could leverage the state’s industrial landscape to maximize co-generation opportunities and thereby minimize the number of power plants that utility ratepayers would have to pay for in rates. Co-generation, or combined heat and power, is an energy system whereby excess heat from an industrial process is captured and used to produce power and steam. Current LPSC rules regarding co-generation are 30+ years old. The LPSC is evaluating whether changes to those rules are needed to create opportunities for additional investment in co-generation that would mitigate the need for utility customers to underwrite the construction of new power plants.
Finding ways to improve these processes and expand cost-effective options could bring about positive change for current Louisiana ratepayers as well as increased economic development opportunities.
Phase 3 of the LPSC initiative, which is slated for the end of 2024, calls for an evaluation of a fully competitive retail energy market in Louisiana.
Thirteen states and Washington, D.C., which comprise nearly one third of all electricity production and consumption in the United States, allow industrial customers to choose a retail energy supplier and partner with them in expanded ways, unlike Louisiana, which operates essentially a monopoly system. Several other states operate hybrid systems where limited portions of their total power load can be served competitively at retail. The U.S. Energy Information Administration reported that prices among monopoly states increased by 22% from 2008 to 2021, while “competitive retail market” states experienced a 2% decrease.
Twenty years of data and real-world performance from other states show that electrical retail power competition and having more options drive down costs for ratepayers and increase benefits, all while maintaining important regulatory safeguards.
The bottom line is that LPSC’s 3-phase study has the potential to help Louisianans enjoy more affordable, reliable energy. The LPSC wisely designed this process in a manner that allows them to evaluate multiple potential policy changes that introduce different levels of competition into Louisiana’s electricity rules and regulations. This process will take some time, and we should all be engaging the LPSC, its Commissioners, and staff throughout this important process. Increased options and competition drive economic innovation and prosperity in so many markets, and it’s time to reap those benefits in Louisiana’s electricity market. With it, there will be more opportunities for Louisianans to flourish and more reasons for people to stay and move here.
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