Regulators tell Entergy to suspend pet-coke plant

HOUSTON (Reuters) - The Louisiana Public Service Commission on Wednesday directed ENTERGY (ETR.NY)Corpto temporarily suspend work on its $1.8 billion Little Gypsy repowering project in Louisiana.

The commission wants Entergy 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 in light of lower gas prices, climate change concerns and rising project expenses, said LPSC Chairman Lambert Boissiere III.

Boissiere said the panel wants Entergy to reduce spending on Little Gypsy as much as possible "while they revisit the viability of the project."

"It may or may not be viable," Boissiere said. "So much has changed in a short period of time. What's going to happen in another year?"

The commission approved the repowering project in late 2007 and a final air permit was issued last month by another state agency. However, environmental and consumer groups have filed a lawsuit to stop the project.

"Little Gypsy may not have the same positive impact for Louisiana ratepayers today as it did when presented to the LPSC," Boissiere said before Wednesday's meeting.

Entergy said 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 has jumped 75 percent since first proposed and natural gas prices have slumped 60 percent since last summer.

Recent Entergy filings show that Entergy customers would not see any savings from Little Gypsy until 2026, 13 years after the new unit is expected to begin operation.

Last fall, 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 viability data assumptions.

Boissiere said Entergy officials have already notified some contractors of the move to suspend the project.

"Clearly, the project is in trouble," said David Cruthirds, author of the Cruthirds Report on the utility industry who attended Wednesday's meeting. "The nature of the problem is unclear."

Boissiere said the commission wants Entergy to respond next month on whether they intend to formally delay the project or move forward.

Entergy spokesman Philip Allison said an economic analysis is part of an ongoing monitoring process required under the PSC's 2007 approval of Little Gypsy. "Today, was an expected part of the process," Allison said.

Utilities 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.

(Editing by Carol Bishopric)