Entergy fields offers for coal and nuclear capacity

The total Available WBL Capacity portfolio with a mix of nuclear and coal-fired capacity, is a unique opportunity to add 286 MW that mirrors Entergy Arkansas Inc.’s (EAI) existing baseload generation and is a known resource with established transmission service.

Entergy official Kurtis Castleberry made that point in Oct. 31 testimony filed at the Arkansas Public Service Commission in a case that began on June 13 and has gone through several rounds of testimony from various parties. His sur-surrebuttal testimony responded to various arguments submitted by the APSC General Staff, the Arkansas Attorney General (AG) and the Association of Electric Energy Consumers (AEEC) regarding EAI’s proposal to have the Available WBL Capacity serve EAI’s customers.

The Available WBL Capacity is a mix of Entergy (NYSE: ETR)-controlled capacity – at the Arkansas Nuclear One (ANO) and Grand Gulf nculear facilities and the Independence and White Bluff coal plants – that is currently dedicated to wholesale service, This power at the moment is sold on a short-term basis to various Entergy companies, and would under this proposal be transferred to EAI retail service.

“The value of the portfolio to EAI’s customers will be highly dependent on natural gas prices over time, as illustrated in EAI witness Charles DeGeorge’s analysis in his rebuttal testimony,” Castleberry noted. “This analysis included low, reference and high natural gas price forecasts, and the results showed that EAI’s customers are better off adding the Available WBL Capacity in the reference and high gas price scenarios. Simply put, the Commission must determine what its view of the future in assessing whether it should grant EAI’s request.”

Castleberry said he agrees with the other parties that the two ANO units represent the source of highest economic value to EAI’s customers. Based on expressions of interest in purchasing the other generation, EAI has presented a revised offer to add the 154 MW represented by the ANO units to its portfolio.”

Castleberry said he continues to believe that the package of resources that makes up the Available WBL Capacity, including coal, as a whole provides benefits to EAI’s customers. “[T]he Available WBL Capacity provides a unique opportunity for EAI to acquire solid fuel capacity for its customers from existing EAI resources on a long-term basis,” he noted. “With the exception of Demand-Side Management (‘DSM’), none of the other alternatives identified by the other parties provide the hedge against the potential for natural gas price fluctuations that the Available WBL Capacity provides. All parties to this docket should appreciate EAI’s desire to plan for the long-term volatility inherent in the natural gas market, given the experience over the last ten years with the rough production cost equalization payments which EAI and ultimately its customers have paid.”

McDonald says Entergy getting outside offers for some of this capacity

Hugh McDonald, EAI President and CEO, said in companion Oct. 31 testimony: “The Company has provided information about its need for capacity and the economic impact of the Available WBL Capacity on its customers. EAI’s load requirements and available capacity to meet that load will be impacted by EAI’s integration with the Midwest Independent Transmission System Operator (‘MISO’) Regional Transmission Organization (‘RTO’), which would allow for a lower reserve requirement than stand-alone operation. While the APSC has approved EAI’s joining MISO, the Commission has not, nor has the Company requested at this time, to drop the stand-alone alternative for the Company’s post-System Agreement operation.”

He added: “There also are uncertainties associated with generation supply, including the pending acquisition of [the Hot Spring] 620 MW Combined Cycle Gas Turbine (‘CCGT’) plant and two intermediate-term purchase power agreements totaling 795 MW. In its direct case, and in response to other parties’ direct testimony, EAI presented analyses that show the Available Wholesale Capacity is an economical source of generation compared to new construction of coal, nuclear, and natural gas fired plants. Production cost model results also presented by the Company demonstrate that the Available Wholesale Capacity also represents a modestly beneficial source of capacity for EAI’s customers assuming EAI is operating in the MISO Day 2 Market and assuming EAI’s reference forecast of natural gas prices. In addition, the production cost model results show that there is a significant benefit to customers if natural gas prices are high, and a cost if natural gas prices are low. The portfolio of coal and nuclear generation combined with EAI’s CCGT natural gas plants provides an actual hedge against fluctuations in the natural gas market.”

In the alternative, McDonald added, based on recent discussions and expressions of interest from third parties to buy portions of the Available WBL Capacity, EAI is now in a position to offer only the 154 MW portion of ANO Unit 1 (70 MW) and ANO Unit 2 (84 MW) to be used to serve retail customers and included in the company’s rates when those units become available Jan, 1, 2013, and Dec, 19, 2013, respectively. Under this alternative proposal, the APSC would authorize EAI to sell the remaining 132 MW of the Available WBL Capacity made up of portions of White Bluff Units 1 and 2, the Independence Unit 1, and the non-retained share of EAI’s allocation of Grand Gulf purchased power, McDonald added. EAI has previously received APSC authorization to sell the right to its allocated share of the retained share of Grand Gulf, he noted.

Due to various factors, the Available WBL Capacity is available to EAI in two segments – ANO Unit 1 and the non-retained share of Grand Gulf beginning Jan. 1, 2013, and the remaining generation beginning Dec. 19, 2013. EAI has purposefully restricted its offers to the other Entergy operating companies in 2013 so that the term of any purchased power does not extend beyond EAI’s participation in the Entergy System Agreement, McDonald wrote.

In responding to the contention of parties to this case that the ANO capacity is the only worthwhile capacity for EAI customers, McDonald conceded this capacity is the cheapest. “Despite these facts, there is no equitable basis to justify requiring EAI to use only the most valuable assets to serve retail customers when EAI believes that it could best protect its shareholders by selling the total portfolio, as Mr. Castleberry explains in more detail,” he added. “However, recent events have made this issue irrelevant. Since the start of this proceeding,  EAI has had inquiries from other parties about purchasing on a life-of-unit basis portions of the Available WBL Capacity that I believe provides sufficient confidence that EAI can sell on a life-of-unit basis all of the Available WBL Capacity excluding the ANO units. EAI has also secured a life-of-unit buyer for the 59 MW Available WBL Capacity portion of the retained share of Grand Gulf. As a result, EAI can now offer only ANO Units 1 and 2 to serve retail customers.”

Under this revised offer, he said, EAI would request that the APSC:

  • approve recovery of the non-fuel costs of ANO Unit 1 through a tariff beginning Jan. 1, 2013, until these costs are reflected in EAI’s base rates pursuant to a planned rate case to be filed in 2013, and the non-fuel costs of ANO Unit 2 beginning Dec. 19, 2013, under the same 2013 rate case;
  • approve the life-of-unit sale to third parties of the portion of the Available WBL Capacity represented by the Grand Gulf non-retained share, White Bluff Units 1 and 2 and Independence Unit 1; and
  • issue an order granting these company requests by Nov. 30, 2012, so that EAI can complete the life-of-unit sale of its allocation of purchased power from the non-retained portion of Grand Gulf in the Available WBL Capacity that becomes available Jan. 1, 2013.
About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.