Enabling Energy Resiliency Through a Storm Reserve Fund
A few days ago, Entergy New Orleans announced that its storm reserve fund had reached its full $75 million funding mark for the first time in its eight-year history. This means the next time a major storm impacts the Entergy New Orleans service territory, the utility won’t have to financially burden its customers with storm-recovery costs or ask regulators for approval to recover costs from customers at a later date. In essence, the utility now has a pool of money it can draw from during serious times of need. This is extremely important, as after Hurricane Katrina, Entergy New Orleans went into bankruptcy because of extensive damage from the storm.
The utility reached the full balance by selling securitized bonds, which customers will begin paying down this month.
Only 9 states in the US have approval to create a Storm Reserve Fund. Those 10 states include: Arkansas, Florida, Louisiana, Massachusetts, Mississippi, New Hampshire, New Jersey, New York and Texas. This is surprising considering 25 states are tornado vulnerable.
Energy resiliency has been a topic of concern and investment for many years. After all, there are thousands of people who risk their lives to turn our energy back on immediately following a major weather phenomenon. In March 2014, Edison Electric Institute released a report compiling studies, programs, and policies related to storm hardening and resiliency. In this report, the notion of a Storm Reserve Fund was elaborated.
Storm reserve accounts are a form of self-insurance used by many utilities to “collect in advance” for costs incurred to recover from storms. A storm reserve is an accounting technique that allows utilities to smooth out the earnings impact of storms.11 Traditionally, a utility would credit a fixed amount from its earnings to a storm reserve account. Storm recovery costs, typically when they are incurred, are charged against the balance in the storm reserve account, subject to review by commissions. In this case, the storm reserve account does not provide any cash to pay the storm costs but rather lessens the earnings impact due to the cost impact of the storm. This only works if there have been sufficient accruals to the storm reserve account to pay the incurred costs.
Numerous states are taking serious actions towards storm hardening and resiliency. The Storm Reserve Fund is just one of the ways a utility company can protest itself, and its customers. After all, it’s difficult to imagine that a power company could go into bankruptcy after a storm — they are probably the only entity that can get us back to normal operations. Revolution, anyone?
Entergy New Orleans customers will see their bill increase by about $1.10 per month in order to pay for the cost of the bond sale over the next 10 years.