Entergy New Orleans wants to sell its gas business. What could it mean for your gas bill?

A high-stakes proposal by Entergy New Orleans to sell its gas business to a private equity firm that manages power companies is igniting debate over whether such a step would bring monthly rate increases to city residents.

Utility advisers to the City Council suggest the plan could result in monthly gas bills that are $12 higher. But the firm disputes that, saying rates could rise by less than $2 a month, if at all.

The prospect of higher rates is a pivotal question as the City Council, which regulates Entergy New Orleans, prepares to vote on the proposal in the months ahead. Council members declined to comment on it last week.

The $285 million proposed deal, first announced last year as part of a broader shift in Entergy Corp.’s operations, would see Entergy sell its gas enterprise to an affiliate of Bernhard Capital Partners, a Baton Rouge private equity firm that buys and manages power companies. Entergy officials have said the sale will ensure better service for the city’s ratepayers.

But the council’s utility consultants recently criticized the plan, warning that monthly gas bills in the city could spike $12 or more, with additional increases in electricity rates. They also point out that Bernhard’s affiliate, Delta States Utilities, has not committed to capping its startup costs, creating further uncertainty for ratepayers.

The proposed deal “imposes quantifiable harm on both future gas customers and ENO electric customers,” advisers with Colorado-based Legend Consulting Group wrote in a brief last month. Advisers with Dentons, the City Council’s Washington, D.C.-based law firm, wrote that if the council approves the deal, it should require Delta and Entergy to “eliminate or substantially mitigate” the harm to ratepayers.

Mayor LaToya Cantrell’s office and other critics have also cast the idea as out of step with the city’s plan to transition away from natural gas and other fossil fuels.

“The growth of a natural gas market is intrinsic to the success of (Bernhard),” said Greg Nichols, director of Cantrell’s Office of Resilience and Sustainability.

Delta States disputed the advisers’ take, and the firm’s consultant said customer bills could instead rise by less than $2 per month, if they rise at all. If increases are needed, Delta wouldn’t collect higher rates until nearly a year and a half after the sale, money that could help it recoup startup costs related to an information technology upgrade and the launch of a new corporate office.

“New Orleans ratepayers will be getting something in return for the financial support they provide for the investments,” Delta officials said in a filing to the council last month.

Entergy New Orleans CEO Deanna Rodriguez defended the sale in a statement and said she was sure of a speedy approval.

“This transaction delivers clear benefits to gas and electric customers while supporting the New Orleans community,” Rodriguez said. “It creates jobs, improves service and ensures no added burden on ratepayers. We are confident the council will approve this proposal by year-end, enabling these advantages to take effect.”

A fossilized future?

New Orleans is just one piece of Bernhard’s strategy to corner Louisiana’s commercial gas market. The private equity firm has a similar deal with Entergy Louisiana, which serves customers outside of New Orleans, and with a third gas utility, Centerpoint, which serves customers in north Louisiana and part of Mississippi.

The state Public Service Commission approved the Entergy Louisiana deal in August and appears poised to approve the Centerpoint deal later this month. If all three deals go through, Bernhard would become one of the largest natural gas providers in the southeast, with about 600,000 customers, mostly in Louisiana.

Entergy and Bernhard’s Delta argue the sale will give Entergy an infusion of cash to pay down debt, that splitting the gas and electric utilities will allow each to run more efficiently, and that Delta plans to modernize Entergy’s IT systems to the benefit of its customers.

Delta also promises to create 100 high-paying jobs based in New Orleans, along with a new corporate headquarters to anchor its statewide gas business.

But the council’s advisers said Entergy would need to replace $11.4 million in lost gas revenue under the deal, which could mean hikes in customers’ electric bills. Entergy is also asking the council to allow it to recover $29 million in one-time transaction costs stemming from things like investment banking and legal fees. And there’s no proof Entergy’s existing IT system is inadequate, they said.

Byron Watson, of Legend, advised the council to force Bernhard to keep rates steady if they approve the deal. He also said the council should reject Entergy’s $29 million request.

Nichols, from Cantrell’s office, said the council has already imposed a net-zero carbon emission standard for Entergy’s electricity service by 2040, but the mandate would not apply to a new gas utility. If the council approves the deal, Nichols said, it will ensure fossil fuel dependency for decades to come.

Clean-energy advocacy nonprofit The Alliance for Affordable Energy also opposes the deal.

Gas “is a dying business,” said Jesse George, New Orleans policy director for the group. “The only way it makes sense is if you’re planning to rack up these enormous capital investments and recover them on the backs of a captive customer base.”

Private equity takeover

Former Shaw Group executives, including prominent former Democratic Party chair Jim Bernhard, founded Bernhard Capital in 2013 and have amassed $3.4 billion in assets. The company has 65 companies under its portfolio.

Bernhard and other private-equity firms take money from big investors and use it to buy up companies, delivering profits to the investors and taking a management fee for itself. The sector has boomed in recent decades, but has also drawn scrutiny for driving companies bankrupt and shedding jobs.

A key part of Bernhard’s strategy is finding government-controlled utilities and convincing cities to sell them. The company has deployed a familiar pitch: It offers a cash infusion up front and sometimes promises to set up a headquarters and create jobs.

It has not always been successful.

In Lafayette, Bernhard waged a lengthy campaign to convince the city to sell its utility but failed after residents and local officials raised concerns the firm was trying to squeeze profits from residents. Similar deals in North Carolina, Florida and New Jersey have also fallen through.

The firm did, however, convince former Democratic Gov. John Bel Edwards to ink a complicated deal allowing it to privatize some state energy systems. Its deals with Entergy Louisiana and Emera, another utility in New Mexico, were also announced within the past year, part of a strategy, Bernhard has said, to buy up gas businesses that utilities are increasingly shedding and to secure a steady, safe profit stream from them.

Delta CEO Tim Poche said in a statement that the Entergy New Orleans deal is a key piece of its vision. He said the deal is different from the failed Lafayette transaction, where Bernhard sought to buy a utility owned by the city.

“As a core-focused natural gas utility, we are focused on doing one thing and doing it well,” Poche said. “Delta Utilities is solely focused on delivering natural gas service to customers, allowing Entergy to concentrate on its core electric business. This core-focused approach ensures both utilities can invest in and manage their respective resources more effectively, ultimately benefiting both electric and gas customers.”