If merchant power plants are the key to Louisiana’s economic future, will we board on time? Or is this even a trip we want to take?
December 12, 2001
There’s a new breed of industry putting its roots down in Louisiana. Some are talking about the fruit it will bear and the hunger it will feed. Others are talking about the leaves it will shed and the mess it will leave behind.
Whether these new power plants are called “merchant” or “independent,” the exotic new birds are migrating to Louisiana in hopes of bedding down for more than just the winter.
The state and the energy industry are preparing the nest and welcoming the newcomers. Others warn that the nest is already overcrowded and that what we’re really welcoming is more of the same old problems.
The Times examines the issues in the second of a two-part series.
While David Dismukes has been studying the development of merchant power plants, Paul Templet also has been looking into the burgeoning industry. Dismukes has been busy at Louisiana State University’s Center for Energy Studies, while Templet has been at work on the other side of campus at the Institute for Environmental Studies where he’s been a professor since 1985.
Templet, who was the secretary of the Louisiana Department of Environmental Quality during the Roemer administration, says that Louisiana does not need the merchant power plants that are planning to develop here. “Our energy capacity per capita is the highest in the United States,” he says. Louisiana not only produces more energy per person than any other state, it’s also the most inefficient consumer of energy. Templet says Louisiana needs to use wisely what it already has. The greatest contributors to the state’s inefficient use of energy are located within the industry sector, where energy is the cheapest in all of the nation.
Templet says the main problem with Dismukes’ study – just examining the economic impact of developing merchant power plants – is that it does not consider the total costs of bringing merchant power plants into Louisiana. There are other costs aside from the financial ones – including pollution, subsidies cutting into possible tax revenue and the use of roads and schools.
He says most of the corporations looking to develop the new plants are from out of state and that the profits will go to their shareholders and their management, who also reside outside of Louisiana. He says that one-third of the wealth generated in Louisiana, the gross state product, leaves the state. “Giving more subsidies means that they ship out more money,” he says. “Louisiana doesn’t need the energy, so why are they siting them here? We don’t demand anything from them, and that’s the way to remain economically poor. We’re not under-producing, we’re just letting the wealth slip away from us.”
According to Templet, 60 percent of the businesses in Louisiana are small businesses. Yet the large corporations are the ones allowed to declare enterprise zones and get subsidies to avoid paying taxes. Meanwhile citizens and small businesses continue to pay taxes. “It’s the wrong policy,” he says, “but it’s entrenched. It’s about perks and about squeezing Louisiana for everything they can get. It’s why we stay poor.”
Templet predicts the new merchant power plants will pursue and acquire all of the subsidies they can get their hands on. It’s big business as usual in Louisiana, Templet says. “It’s a way to ensure that people will remain poor.”
Templet acknowledges that Louisiana should bolster its economy, but says the old ways aren’t producing the results that have always been promised. “The economy and the environment are complementary,” he says. “Creating more pollution and energy are not going to do anything for our economy. There are much better ways to go about economic development. We’re going down the wrong path. If you want to develop the economy, put your money in education.”
Plugging the Leak
Gary Groesch says when it comes to energy, Louisiana is one big leaky bathtub. Instead of fixing the leak, the state is constantly refilling the tub. Developing merchant power plants will only add more water to the permeable problem.
Groesch is one of the co-founders and the executive director of the Alliance for Affordable Energy, based in New Orleans. His organization advocates an affordable, environmental energy policy for Louisiana. He agrees with Templet that the issue at hand is not about a lack of electricity, but about implementing more efficient ways of handling energy.
He says if Louisiana does need more energy, it “needs to be proven by public officials” and not by corporations. “That’s why (corporations) come here,” he continues, “because we have free resources. But who’s put them in charge of building these plants? This is a regulated system in this state. There is no proof at all that somehow (merchant power plants are) needed for economic development. I’ve been doing this for 20 years. The more they get out the pom-poms and make these grandiose claims, the more likely it’s a scam. This is another level of rah-rah economic development that is, in fact, not in the public interest. And if it is in the public interest, let them make a filing with the Public Service Commission.”
Groesch says he filed a public records request for the documents that support the Public Service Commission’s statement in October 2000 that it is “in the public interest at this time for such economic, efficient, ‘unregulated’ generation capacity to be built within the state of Louisiana in order to satisfy the electrical demands and reliability needs of Louisiana both now and in the future.” Groesch says the PSC informed him that the documents did not exist.
Groesch also has a few problems with Dismukes’ study.
First, he says, he does not believe the report used the most prudent and conservative techniques available to produce reliable numbers. Since the energy industry, in essence, funded the study, Groesch says, “This appears to be a report that has been done in order to generate the largest numbers possible.”
One portion of the study indicates that the new merchant power plants will produce some 13,578 megawatts of electricity, which Dismukes says is roughly 38 percent of the state’s current generating capacity. By those numbers, Louisiana should have an existing generating capacity of 35,732 megawatts. Groesch says that Dismukes’ numbers are inaccurate and the numbers from the Energy Information Administration state that in 1999 Louisiana had a total electrical capacity of 20,202 megawatts.
If indeed, 13,578 megawatts of merchant power capacity will be added to the existing capacity, Louisiana will see not a 38 percent increase, but an additional 67 percent increase to the state’s current generating capacity. Groesch says the new power plants are not just “nibbling at the margins” of the existing generating capacity. The new construction will double the amount of power plants in the state, and it won’t be for keeping the lights on for Louisiana-based customers.
So if Louisiana already has enough energy and is constructing more plants, Groesch says, the aim must be to turn Louisiana into the wholesale generation capital of the South. He says it is “a typical rush-to-the-bottom Louisiana goal that has made us what we are today, a declining economy with legions of poor, illiterate people awash in pollution that has been recently eclipsed in all categories by Mississippi, yesterday’s doormat state.”
The PSC stated it was “in the public interest” to develop merchant power plants in Louisiana. Even the state Legislature has encouraged the development of the new plants “in an effort to meet and serve the future electrical power needs of the state and the citizens of the state.” Recently, though, when Gov. Mike Foster created the Comprehensive Energy Policy Advisory Commission, one of its charges was to “help maximize the use of Louisiana’s natural resources and help alleviate the national shortage of energy.” Has the focus then shifted recently from providing Louisiana with reliable energy – the original claim – to providing the entire South with energy? And if that is the case, will Louisiana’s citizens end up footing the bill?
Even though the newer plants are more efficient than the ones currently in use, Groesch says, “there’s no evidence that these inefficient power plants are going to be retired. Where is the evidence that Entergy or CLECO will retire their old power plants? These new plants are simply an additional burden on the air and the water.”
Groesch wants to improve the state’s economy, and he also wants to improve the quality of life for Louisiana’s citizens, but he says merchant power plants are not the answer. “Economic development for this state is going to happen,” he says, “when we become more efficient, clean up our politics and educate our children.”
Same Ol’ Thing?
The Corporation for Enterprise Development is a nonprofit organization based in Washington, D.C. One of its goals is to be an “advocate for economic development policies and practices that build an inclusive and dynamic economy.” The group recently released its annual Development Report Card for the States. It analyzes every state’s economy and asks whether each state is providing a better life for its citizens, if the current businesses are healthy and whether a state has the infrastructure to cultivate future economic development.
Louisiana’s report card wasn’t much different from that of its students. The overall grade average was an F. The only other state to carry such a distinction was West Virginia. In the performance index, Louisiana scored an F. In the business vitality index, Louisiana scored a D and in the development capacity index, the state scored another F. The comments on the report card read in part, “… Louisiana continues to neglect its development capacity when compared to other states as evidenced by its fifth consecutive F in this index …” The CFED also says that “successful economies do not result from any quick fix, but from long-term investments in human, technical, financial, physical and environmental infrastructure to support the people and communities that are at the core of economic development.”
Ernie Niemi is an economist and vice president of ECONorthwest in Eugene, Ore., an economic consulting firm. In a 1998 report titled Getting Smarter: Common Ground Between Environmental Protection and Small Business Development in Louisiana, Niemi states that Louisiana has two primary ways of attracting big businesses – give them tax breaks and relieve them of any environmental burdens. He says Louisiana’s policymakers are using an “early industrial revolution way of thinking” when it comes to economic development. “This is a different type of economy,” he says, “and somehow the policymakers in Louisiana haven’t figured that out yet.”
Niemi says, “The wisest and most prudent thing for Louisiana to do is to recognize that in today’s economy wealth and prosperity will come to those places that attract and hold skilled and talented people. There is a growing body of evidence that people are very mobile. They look around and say, ‘Where do I want to live?’ and they’ll go there based on some quality of life they like. Much of the rest of the United States has seen that environmental quality is a necessary ingredient for economic growth.”
Niemi says there is a grave danger in focusing on electricity as the main focal point for economic development. “If your policy people are focusing on energy, then they’re not taking a look at people.” He says it’s also true that the industrial consumers who use a great deal of energy are by definition not high labor employers and that they are not growth sectors for employment. These industries also tend to produce and consume tremendous amounts of energy, which have adverse impacts on the environment and the quality of life in Louisiana.
While there are organizations, even a couple of politicians, that oppose the development of these new merchant power plants for various reasons, there does not appear to be a unified front capable of wrestling with the power interests. The powerful energy lobbying organizations are armed to the teeth and are managing to bend the state’s ear on their behalf. The smaller factions opposed to building merchant power plants work just as diligently, if not more so, than their larger adversaries, but they lack the deep pockets that allow their voices to be heard louder and longer than those of the energy industry.
This doesn’t bother Mary Lee Orr, a community activist and executive director of the Louisiana Environmental Action Network. She isn’t fazed in the least when asked how her organization can possibly win this battle, much less the war, against the energy interests. She says the similarities in LEAN’s plight can be traced back to the Bible and found in the story of David and Goliath. “For a lot of us, God put us here for a reason,” she says. “We’re a small part of a larger picture. That’s a motivating factor in getting people to fight for their community. They have a lot of faith, and they persevere because they want a better future for their children.”
By LEAN’s calculation, merchant power plants will bring with them more of the same problems of pollution already found in Cancer Alley. According to its newsletter, Environmental Watch, on an annual basis, one power plant generating 100 kilowatts of electricity will emit into the air 36 tons of sulfur dioxide, 1,200 tons of nitrogen oxide, 1,800 tons of carbon monoxide, 25 tons of formaldehyde and 450 tons of ammonia. The respective effects of each of these pollutants are acid rain, smog, greenhouse gases, known cancer-causing agents and respiratory irritants.
Jack Burson, an attorney in Eunice, says the LDEQ is “rubber-stamping” the applications for unregulated power plants and that Louisiana is “going to be a colony for the most industrially developed parts of this country, using our resources, while we get to breathe in the air pollution.”
Burson has been concerned and involved with the development of the Acadia Power Partners plant, being built just south of town. The 1,000 MW facility is expected to be operational within a year.
Burson’s organization, the Acadia-Eunice Citizens for a Healthy Future, is currently engaged in negotiations with Acadia Power Partners to reduce the amount of nitrous oxide the plant will produce. There’s also hope that the plant will reduce the 7.9 million gallons of groundwater drawn every day from the Chicot Aquifer to 5.9 million gallons a day. “It’s not exactly what we set out to do,” Burson says, “but it’s a darn sight better than what we had. We’ve achieved something. We’ve proven that citizens’ groups can achieve these projects.”
Sen. James David Cain, D-Dry Creek, says of the merchant power plants, “I’m not anti-business or anti-electricity. I just want it done right.” His main concern is with the use of groundwater in the facilities. Cain admits he voted for the creation of the Louisiana Ground Water Management Commission – a commission created by Foster to look into the issue of groundwater use in the state, which will present its findings to the legislature in 2003 – but that it doesn’t go far enough. “They’re just treading water,” he says. “We’re just fiddling while Rome burns. But then again, it’s better than nothing.”
Cain also says the upgrading of the current electrical transmission grid is an issue that’s not being discussed. The grid will have to be upgraded to handle all that extra energy the merchant power plants will produce, whether it’s a 38 percent or a 67 percent increase.
“Who’s going to pay for that?” he asks. “The citizens of Louisiana? To ship electricity to another state?” He doesn’t think it’s right for merchant power plants to develop in Louisiana, use the natural resources and then sell the electricity on the open market to the entire South, if Louisiana’s taxpayers are bearing the brunt of the costs associated with the upgrades to the transmission grid.
When asked what’s the difference between that and the way in which the oil and gas industry extract the state’s natural resources for profit, Cain says, “There’s a big difference when you’re only creating 15 jobs. That’s the difference between a satsuma and an apple. If we need it, let’s build it. But I don’t want to do that for all of the South, and then we have to pay to upgrade the grid as well. That’s bull crap.”
Cain says there is at least one way citizens can take on the new merchant power plants when it comes to their groundwater. A home rule charter, according to the state constitution, will allow parishes to pass ordinances for “the management of its affairs, not denied by general law” or inconsistent with the state’s constitution. Cain points to Tangipahoa Parish as one with a home rule charter (instead of a police jury form of government), which recently passed an ordinance requiring anyone who wishes to extract more than 750,000 gallons of water a day to apply and receive a permit. Currently only 22 of the 64 parishes in Louisiana operate under a home rule charter.
Rep. Melvin “Kip” Holden, D-Baton Rouge, has also taken exception to the red-carpet treatment merchant power plants are beginning to receive in Louisiana. Holden has filed a lawsuit against the state Board of Commerce and Industry, along with Attorney General Richard Ieyoub, for allowing property tax breaks for 10 years to the new facilities.
Holden claims the board has misinterpreted the definition of a “manufacturing establishment.” He cites the state constitution, which defines a manufacturing establishment as “any existing plant or establishment which engages in the business of working raw materials into wares for use …” Proponents argue that the new merchant power plants are manufacturers, that the process they’re engaged in is the manufacturing of power, turning natural gas into electricity. Groesch disagrees with this notion. “Electricity is not a product,” he says. “It is the means to a product. No one wants kilowatt hours. They want lights and heat and motors.”
The Future’s So Bright …
Those individuals who oppose the developing merchant power plant industry say they aren’t against progress or economic prosperity. They are against the ingrained methods that have been used in Louisiana for decades and that have continued to keep the state at the bottom of every list, every year. They say they are tired of hearing that there’s yet another industrial key to the gate guarding the yellow brick road to Louisiana’s economic bliss. They have heard that song and dance too many times before.
They have reason to be concerned. If the recent energy crisis in California wasn’t an indicator of the joys of the unregulated market, then the ongoing demise of Enron Corporation may be an indicator of what’s in store for Louisiana and the nation as a whole.
Carl Wood, a member of California’s Public Utilities Commission, recently told The New York Times that “Enron was the flagship for deregulation” and that the company was “all hat and no cattle – that’s their Texas expression, and it applies here.” The seventh largest corporation in the nation recently filed the largest bankruptcy filing in U.S. history.
Enron went down hard and fast. The company’s ashes are still smoldering after it was revealed that its chief financial officer was involved with several partnerships that allowed the company to keep half a billion dollars off its books. Recently a story from the Associated Press quoted Pat Woods, chairman of the Federal Energy Regulatory Commission, posing the question: “Do we need to look behind the trades and look at the ability of companies on both ends of the trade to follow through on that trade?” His answer to his own question: “It’s probably not a bad idea.”
While Enron’s misfortunes will play out on a national stage, Louisiana is poised to witness another play of its own. It remains to be seen whether or not it will be a comedy, a romance or a tragedy, but if history is any indicator, it should prove to be interesting.
Burson sums up Louisiana’s past performance in dealing with corporations while keeping the public’s interests in mind this way: “If giving large multinational corporations everything they wanted was the key to economic development, we ought to be at the top of the game right now. We’ve been doing that for years and look where it’s got us. Somebody missed the boat on that theory.”