With natural gas prices significantly higher than they were a decade ago, Entergy Louisiana is looking to cut its utility customers a break by transforming one of its gas-fired power plants near New Orleans into a coal-fired unit. While coal-fired plants create more emissions, the cheaper fuel could end up saving the utility’s customers $150 million in fuel costs during the first year of operation, Entergy Louisiana said.

In what could turn out to be a landmark decision during a time when emissions reduction is a highlighted topic throughout the energy industry, the Louisiana Public Service Commission (LPSC) on Thursday voted 5-0 to allow Entergy Louisiana LLC to repower and reconfigure an aging natural gas-fired generating unit at its Little Gypsy site in Montz, LA, into a 538 MW baseload generation plant that can burn a variety of petroleum coke and coals.

Over the last few years the LPSC has urged Entergy to reduce its over-reliance on natural gas as prices for the fuel have spiked from $2-3/MMBtu during the 1990s to $6-8/MMBtu currently.

The estimated $1.55 billion unit will use a circulating fluidized bed technology developed under the Department of Energy’s Clean Coal Technology program and will have the capability of using petroleum coke, a byproduct of the oil refining process, as well as a range of coals to produce electricity. Louisiana-based Shaw Group Inc. is the engineering, procurement and construction services contractor for the project at the plant, located just west of New Orleans. The repowered Little Gypsy unit is expected to be online in the 2011 to 2012 timeframe.

In its July pitch to the commission, Entergy Louisiana focused on the trickle-down cost benefits for its customers. “Once online, this unit will allow us to rely less on natural gas as a fuel source to generate electricity,” said Entergy Louisiana CEO Renae Conley. “Power generated with petroleum coke is significantly cheaper than baseload power generated by natural gas. At today’s price of natural gas, this project has the potential to provide our customers with substantial savings in fuel costs over the next 30 years.”

Based on July 2007 estimates of natural gas prices and the fuel costs associated with a repowered Little Gypsy, Entergy Louisiana customers are expected to save approximately $150 million in fuel costs during the first year that the plant is online, the company said. Even with the increase in the construction cost of the project, it is expected to save customers about $2 billion over the life of the project. Actual savings from the project would depend upon the price of natural gas and other factors.

While unanimously green-lighting the plant, the LPSC did not reach a consensus on whether to allow the company to recover a portion of the costs of the project during construction. Entergy Louisiana said the provision would reduce the overall project cost for customers by reducing the interest that customers would have to pay after the unit is completed. Approving the recovery of construction financing costs would also support Entergy Louisiana’s ability to obtain favorable financing, the company said. Entergy Louisiana noted that the LPSC recently allowed CLECO to recover a portion of its construction financing costs associated with the construction of a petroleum coke plant.

The LPSC postponed the controversial cost recovery decision until July 2008.

Entergy Louisiana serves about one million Louisiana customers through operating companies Entergy Louisiana LLC and Entergy Gulf States-Louisiana, which together form the largest electricity provider in the state. With operations in southern, central and northeastern Louisiana, the companies are part of Entergy Corp.’s electric system serving 2.6 million customers in Louisiana, Arkansas, Mississippi and Texas.

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