Entergy New Orleans (NYSE:ENO) today said it will be left with four paths forward — including a merger or sale of the utility — should the New Orleans City Council force a change in the city’s electric utility structure.

New Orleans City Council President Helena Moreno announced last week that she will propose a study on potential new ownership of electric and gas operations in the city, including the creation of a city-owned utility. The council’s Utility Committee is expected to approve a resolution that would kick off the study at its Wednesday meeting.

Anticipating the resolution, Entergy (NYSE:ETR) said it could either sell its New Orleans unit; merge it with Entergy Louisiana; create a standalone company free of the Entergy name; or step out of the way as New Orleans navigates a municipal utility.

Entergy’s rejoinder comes after the City Council has repeatedly voiced its displeasure with the performance of the greater New Orleans system in the wake of Hurricane Ida. (See Entergy Investigations Certain to Follow Hurricane Ida Restoration and Entergy Touts Restoration; NOLA Leaders Question Lack of Blackstart Service.)

Entergy indicated it prefers a merger of its New Orleans and Louisiana subsidiaries, which would remove the council’s oversight and replace it with that of the Louisiana Public Service Commission.

“A merger would bring lower rates to New Orleans residents, create a larger company with stronger financial strength for investments and spread the risk of storm costs across a larger customer base,” Entergy wrote in a Tuesday press release.

Entergy said creating an independent utility for New Orleans would “likely create significant credit risk, which in turn would raise financing costs and could challenge the ability to fund ongoing business operations and secure funds for storm restoration.”

“Even as part of Entergy Corp., Entergy New Orleans has been downgraded twice in the last 12 months by rating agencies due to its storm risk and weakening financial performance,” the company warned.

It also mulled the sale of Entergy New Orleans to an interested buyer: “If a willing buyer with sufficient financial strength is identified, such a transaction could lead to benefits or drawbacks depending on the specific circumstances regarding the transaction.”

The municipalization of Entergy assets by New Orleans is another risky option, the company said. While the city could exert “maximum control” over rates and business operations and access to disaster relief reimbursement, Entergy said the option “could result in higher financing costs and additional operational expenses.”

Moreno responded to Entergy’s plan on Twitter on Tuesday, revealing that she had mistakenly been sent Entergy’s media strategy and timeline, containing several prepared answers to hypothetical questions.

“When you’re coming at your regulatory body with a media ploy to change up regulators, don’t accidentally send me your whole messaging and media plan with your news release,” she tweeted.

Entergy’s public relations plan apparently included refusals to speculate on what entity might purchase Entergy New Orleans and the sale’s possible effect on shareholder earnings. It also contained explanations emphasizing Ida’s strength and the concept that storm restoration costs will need to be recovered despite a possible change in ownership.

Entergy said that along with its predecessor New Orleans Public Service Inc., it has been part of the “fabric of the New Orleans community for more than 100 years.” It pointed out that its corporate headquarters are located within the city.

Rod West, group president of Entergy Corp.’s utility operations, said it’s “obvious” that Entergy has “reached a critical juncture in [its] relationship with the City Council.”

“While we believe that the actions of Entergy New Orleans have always been in the best interest of our New Orleans customers, some members of the council have publicly expressed a different opinion. Certain proposed actions would prohibit ENO from recovering critical storm restoration costs and freeze funding mechanisms previously approved by the council, thus inflicting further financial decline on ENO and adversely impacting ENO’s ability to provide quality service to its customers,” West said.

West said Entergy and the council “have a long history of working together to find common ground on solutions for customers that solve complex problems and achieve important objectives to a sustainable energy future.”

“Despite a comprehensive and dedicated restoration effort that saw the overwhelming majority of New Orleans customers’ power restored within a week after the strongest hurricane ever to hit our region, several members of the council have expressed their intent to introduce and support a process that could potentially have another entity own and operate electric and gas service in the city,” he said. “We are positioned to support the City Council as they evaluate various options and prepared to move forward with whatever path the council chooses.”

City Implores MISO for Transmission Projects

The City Council this week also accused Entergy of interfering with MISO’s long-term grid planning so that its system remains largely free from competition.

Moreno sent a letter to MISO CEO John Bear and President Clair Moeller on Monday in which she urged the RTO to “fulfill its obligations to plan and build a reliable regional grid,” specifically in New Orleans.

She said she discovered recently that stakeholders believe Entergy is “obstructing progress in MISO at the expense of those who rely on the grid for affordable power.”

She cited former FERC Commissioner John Norris’ allegations of Entergy influence on the MISO planning process at September’s Board Week. Norris said he and fellow commissioners greenlit Entergy’s membership in MISO believing that its connections to the larger grid would be augmented. He said he was dismayed that seven years later, no transmission links have been built. (See MISO Stakeholders Blame Entergy for Long-range Transmission Impasse.)

“Historically, Entergy isolated itself to ensure only Entergy’s generators could supply electricity to its customers,” Moreno wrote. “This parochialism resulted in inflated rates to customers and diminished Entergy’s ability to deliver electricity when Entergy’s generators or transmission grid went down. When Hurricane Ida hit, New Orleans and its people once again suffered the consequences of Entergy’s protectionism. Some even died because of power outages in the city. MISO was supposed to ensure that Entergy could no longer prevent the development of a reliable and interconnected transmission grid in MISO South. The citizens of New Orleans need MISO to fulfill its promise.”

Moreno said the city “embraces” MISO’s long-range transmission and asked that it develop transmission solutions for Greater New Orleans in 2022. She said the city’s battering by Ida and increasingly bad weather means the city cannot afford to wait another year “without a solid plan” in place. She said New Orleans is ready to participate in MISO’s stakeholder process to ensure transmission solutions are analyzed.

“For too long, the region surrounding New Orleans has been served by a grid that was built in a piecemeal manner and without sufficient connections to other geographic areas. Given recent stakeholders comments, I question whether our grid was designed and built by a utility that is more interested in protecting its own interests than those of its customers,” she wrote.

Moreno also sent copies of the letter to the Organization of MISO States Executive Director Marcus Hawkins and President Julie Fedorchak.

Entergy rebutted that it doesn’t dictate MISO transmission planning and will have to shoulder its share of construction costs if the RTO approves projects.

“The transmission projects that are ultimately approved as part of MISO’s long-range transmission plan are not determined by Entergy but rather by MISO, based on the feedback of numerous MISO stakeholders,” the utility said in a statement to RTO Insider. “The initial set of long-range transmission projects proposed by MISO is estimated to cost approximately $30 billion, and Entergy New Orleans would be required to pay its allocated share of these costs. Given these substantial costs, it is important that we work carefully through the MISO stakeholder process to advocate on behalf of our customers’ interests and provide thoughtful input to MISO and our regulators on this important matter in the coming months.”