HOUSTON, April 2 (Reuters) - Entergy Corp’s (ETR.N) Louisiana utility said Thursday it has agreed with the state regulator to delay the $1.8 billion Little Gypsy repowering project for at least three years as cheaper natural gas and uncertainties surrounding coal-fired plants have hurt the project.
Last month, the Louisiana Public Service Commission directed Entergy Louisiana to temporarily suspend work on project and to review the economics of replacing an aging natural gas-fired unit at the Little Gypsy plant with a 538-megawatt, solid-fuel unit that can burn petroleum coke, a refinery byproduct, and coal.
Entergy said in a report to the LPSC that its actual spending on Little Gypsy and the cost to cancel contracts will total $300 million.
It said it would seek a delay of at least three years in its repowering plan, “based on significant uncertainties in the economics of the project” and whether it would benefit consumers with lower rates.
Lower gas prices, climate change concerns and rising project expenses were cited last month by LPSC Chairman Lambert Boissiere III, who called on Entergy to suspend work on the project.
Utilities across the country have canceled plans to build about 90 coal-fired plants in the past few years, according to the Sierra Club. Companies cite rising construction costs, regulatory uncertainty over carbon dioxide emissions, cost-recovery and tightening credit markets.
The Louisiana commission approved the Little Gypsy repowering project in late 2007 and a final air permit was issued in February by another state agency. However, environmental and consumer groups have filed a lawsuit to stop the project.
Entergy had argued that converting a gas unit into a unit able to burn solid fuel was needed to help diversify the utility’s fuel base, reducing its reliance on costly natural gas to help stabilize power prices.
However, the project’s price tag jumped 75 percent since first proposed and natural gas prices have slumped 60 percent since last summer.
“The longer-term delay will allow the company to gain clarity regarding these uncertainties and ensure that the project will benefit customers,” said Entergy spokesman Philip Allison.
Entergy filings show that customers would not see any savings from Little Gypsy until 2026, 13 years after the new unit was expected to begin operation.
Last autumn, Entergy asked regulators to shift one-third of the project’s cost from customers of Entergy’s Louisiana unit to its Gulf States utility, a request that prompted a group of industrial electric users to ask for more information on Entergy’s economic assumptions. (Reporting by Eileen O’Grady; Editing by Marguerita Choy)