After two years of discussions, Entergy Services, Inc. did terminate negotiations with Lake Charles Cogeneration in October, 2008. During the course of the two-year negotiation period, ESI attempted numerous times to explain to Lake Charles Cogeneration the need to address certain key operational and pricing elements in any contract. ESI even developed a proposed structure for a contract that would account for these items, but this proposal was rejected by LCC. It was LCC’s unwillingness to address these basic issues, after two years of negotiations, that caused ESI to terminate the negotiations.
Additionally, we were not the only company to end negotiations with Lake Charles Cogeneration – Atmos, CenterPoint and Cleco each also declined to enter into a contract with LCC.
We believe that the proposed $400 million in savings is not an accurate projection, and that the pricing offered by LCC would have actually cost Entergy customers in Louisiana millions of dollars. For example, had Entergy Louisiana entered into the proposed purchase contract at LCC’s terms, for the month of January 2009 alone, the additional cost of the LCC synthetic gas would have raised Entergy Louisiana’s fuel adjustment by approximately $13 million or 17 percent.
A careful reading of LCC’s own letter reveals that the claimed savings were not tied to the cost of natural gas but, instead, were tied to “incremental revenues through the sale of CO2, hydrogen, argon and other high value gases.” If, however, the LCC were unable to sell these gases on the open market, it would be under no obligation to deliver the savings to the Entergy companies.
Additionally, the LCC proposal failed to account for the additional costs that the participating Entergy operating companies, and by extension customers in Louisiana, would incur for the storage and transportation of the synthetic gas. These costs are real costs to our customers and have to be accounted for in any assessment of the costs and benefits of a potential contract.
In short, ESI concluded that there are no meaningful savings provided by LCC’s proposed contract and that Louisiana customers would face higher costs than those under Entergy’s current purchasing contracts.