Entergy Arkansas (EAI) still doesn’t have a firm handle on the futures of its coal-fired White Bluff and Independence coal plants, and is in the meantime moving forward with various capacity additions, designed in part to meet its likely membership needs late next year in the Midwest ISO.
The utility, a unit of Entergy (NYSE: ETR), on Oct. 31 filed its 2014-2023 integrated resource plan with the Arkansas Public Service Commission. This is the first IRP prepared for EAI operations outside of the Entergy System Agreement.
“EAI’s process for preparing this IRP reflects the changes to EAI’s planning processes resulting from its planning outside of the Entergy System Agreement,” the plan noted. “Whereas planning under the System Agreement was conducted with a view to the needs of all of the Entergy Operating Companies as a whole, EAI’s development of the 2012 IRP focuses solely on the needs of EAI and its customers.”
EAI has identified membership in MISO as its preferred path to post-System Agreement operations, noting also that EAI was preparing a separate implementation path for operating as a standalone entity taking transmission service under the Entergy Open Access Transmission Tariff (OATT). As ordered by the APSC, EAI continues to preserve the stand-alone option, an option that will require a much greater amount of capacity to meet the same level of reliability.
If EAI must prepare for the stand-alone option or is unable to join MISO by Dec. 19, 2013, EAI’s planning reserve assumption is 20%. Nonetheless, the 2012 IRP is premised on the planning assumption that EAI will be required to maintain a 12% planning reserve margin based on its annual peak load. The actual planning reserve margin that MISO will require as part of its Resource Adequacy Construct will be determined annually by MISO based on a loss of load expectation (LOLE) analysis performed by MISO, the plan pointed out. The requirements may vary from year to year.
EAI’s 2009 request for proposals (RFP) described EAI’s capacity deficit as one of the key challenges that EAI needed to resolve for post-System Agreement operations, stating that EAI’s current portfolio of long-term resources is short of its reserve planning margin by about 589 MW, based on a 20% reserve margin. This deficit is growing with load. Absent the addition of resources, by 2014 – the time that EAI will terminate its participation in the current System Agreement – EAI’s portfolio of long-term resources is expected to be 1,545 MW short of its planning reserve requirement, based on a 20% reserve margin.
EAI has made a series of moves to meet capacity needs
EAI has been working for several years to address this current and future capacity deficit. EAI either has or is presenting the APSC with several requests associated with potential EAI capacity additions, the outcome of which will influence EAI’s resource portfolio for its post-System Agreement operations. These include:
- Acquisition of the gas-fired Hot Spring plant, which has been approved by the APSC. However, the closing of this transaction has been postponed while the U.S. Department of Justice continues its review of this transaction.
- EAI has asked for the available wholesale baseload (WBL) resources (Available WBL Capacity) to be assigned to serve EAI’s customers. “The Available WBL Capacity represents a unique opportunity for EAI to acquire 286 MW of existing solid fuel capacity (about 2/3 nuclear capacity and 1/3 coal capacity) to serve EAI’s customers,” the plan said. “EAI has sought a decision from the APSC as to whether, on a life-of-unit basis, EAI can use those resources to serve its customers.”
- EAI has been negotiating two limited-term power purchase agreements (PPAs), for a total of 795 MW of capacity, that are scheduled to commence on Dec. 19, 2013, corresponding with EAI’s transition to post-System Agreement operations. These resources were identified through a request for proposals (RFP) conducted by EAI in 2011. Currently, one PPA has been executed and the other PPA is still being negotiated. The PPAs are contingent upon approval by the APSC of cost recovery. EAI has requested that the APSC determine whether the PPAs should be part of EAI’s post-System Agreement resource plan and, if so, allow cost recovery by EAI for the two PPAs in a manner to be determined later.
- EAI has approximately 10 MW of generating capacity from the Remmel Dam facility and the Carpenter Dam facility that is not in rate base. EAI plans to pursue APSC approval in a 2013 general rate case to use this capacity to service its customers.
Much of Entergy’s capacity showing signs of age
Currently, EAI controls by ownership or long-term purchase contract approximately 5,100 MW of generating capacity. The generation mix includes approximately 2,285 MW of nuclear, 1,209 MW of coal capacity, 1,528 MW of natural gas/oil capacity, and 94 MW of hydroelectric capacity.
This generation varies greatly in age and efficiency. EAI’s coal and nuclear generation was brought on line in the 1970s and 1980s and represents a supply of baseload energy at traditionally stable costs. The construction of two coal units each at the White Bluff and Independence plants and two nuclear units at Arkansas Nuclear One (ANO) was part of a strategy developed in the 1960s and 1970s to diversify the reliance on natural gas and fuel oil for generation. That effort was successful for EAI, with a significant amount of the electricity EAI supplies to its customers coming predominately from nuclear and coal generation.
With the exception of the two Ouachita plant combined cycle gas turbine (CCGT) units EAI purchased in 2008, all of EAI’s natural gas capacity is at least 42 years old. The oldest unit has been in service for over 62 years.
Development of the 2012 IRP required EAI to make assumptions about the future operating lives of generating units currently in its portfolio, the plan noted. Two key issues in this determination are the cost and effective date of future environmental compliance requirements and whether the investments needed to keep EAI’s older gas-fired units operating are economical compared to alternative capacity sources.
Key environmental uncertainties include the requirements of rules still under development, their effective dates for compliance, the outcome of current litigation, congressional activity, and the possibility of extensions of the compliance deadlines. Another key uncertainty is any long-term U.S. carbon policy. For purposes of its 2012 IRP, EAI’s planning assumption is that investments will be made to install appropriate equipment at White Bluff Units 1 and 2 and at Independence Unit 1 to comply with the applicable environmental regulations and thus enable those units to continue to operate until the end of their anticipated life.
White Bluff Unit 1 has a total of 815 MW of capacity (465 MW owned by EAI) and Unit 2 has 844 MW (481 MW owned by EAI). Independence Unit 1 has 836 MW (263 MW owned by EAI).
As for the continued operation of certain other units, EAI has approximately 1,000 MW of active gas/oil/diesel fired units which are all at least 40 years old. Earlier in 2012, EAI conducted an assessment of this capacity, which was provided to the APSC in May. Based on this assessment, EAI assumed in the 2012 IRP base case that all of its older natural gas-fired generation will be deactivated before the 2016 summer peak, although actual decisions to deactivate units will be made on a unit-by-unit basis based upon the needs of customers and the economics of the units relative to available options at the time of the decision. This assessment also concluded that the Lake Catherine 4 unit should be evaluated for continued operation in this 2012 IRP. A portfolio which includes the continued operation of the 533-MW Lake Catherine 4 was developed.
Utility looks to execute 11 action plan items
The eleven Action Plan activities, some of which were initiated prior to this IRP, are:
- MISO Transition – EAI will continue to transition to the MISO Resource Adequacy Construct as EAI integrates into MISO. EAI is already monitoring key MISO working groups and committees related to resource planning. During 2013, EAI will develop a Fixed Resource Adequacy Plan for the period between Dec, 19, 2013, and May 31, 2014, and will participate in the MISO Loss of Load Expectation study for the 2014/2015 planning year. Another key planning process during and after transition will be participation in the MISO Transmission Planning Expansion Process. If the MISO transition cannot be completed or the stand-alone option cannot be terminated, EAI will need approximately 400 MW of additional capacity to meet minimum planning reserves.
- Coal Unit Environmental Compliance – The challenge utilities face with regards to environmental compliance is unprecedented in terms of the numbers of rules coming due simultaneously, the compressed time frame for compliance, and the continuing ratcheting down of compliance needs, the plan noted. EAI said it will continue to monitor changes in environmental law at the state and federal level and evaluate options for environmental compliance for the EAI coal units.
- Hot Spring Plant Acquisition – EAI stands ready to complete the acquisition of the Hot Spring plant pending final approvals by the DOJ. The plant would add about 620 MW to EAI’s fleet.
- Purchase Power Agreements from EAI’s 2011 RFP – EAI has executed one limited-term PPA and will continue to negotiate the second contract. Both contracts will be contingent upon regulatory approval on cost recovery and will add about 795 MW for the period between December 2013 and May 2017. EAI will also work to secure all of the required transmission service for these two transactions prior to June 30, 2013.
- Available Wholesale Base Load Capacity to Retail – An APSC decision that would allow EAI to use Available WBL Capacity to serve its customers is pending. The capacity would add approximately 286 MW for the entire IRP study period.
- Hydro Peaking Capacity to Retail – EAI will pursue APSC approval in the 2013 general rate case to use the wholesale capacity of EAI’s owned hydro units to serve its customers. This represents about 10 MW of added capacity to EAI’s portfolio.
- DSM and Energy Efficiency Expansion – EAI said it will continue with a suite of comprehensive programs, including ongoing Independent Evaluation, Measurement and Verification, and capturing any lessons learned to improve the next phase of implementation. EAI will closely monitor the results from the DSM/EE programs and adjust its load forecast and resource plans as warranted. EAI will also continue to research options for DSM in the MISO market.
- Lake Catherine 4 Reliability/Sustainability – Based on the IRP analysis, EAI is pursuing a reliability/sustainability program for Lake Catherine 4 and will request in the 2013 rate case that all of its capacity be allocated to rate base. This action item adds 74 MW in 2014 and 533 MW in 2015 through 2023.
- Older Natural Gas Fired Unit Deactivation Decisions – The current planning assumption is that about 422 MW of legacy generation will be deactivated by the beginning of 2014. A follow-up review of this generation will be conducted in 2013 to determine tactical plans for this capacity. Actual decisions to deactivate generation will be made on a unit-by-unit basis at the time when action is needed.
- Renewable Energy Assessment – EAI will consider economically attractive renewable generation, taking into account evolving mandates and an on-going assessment of cost and availability.
- Short- and Intermediate-Term RFPs – EAI will continuously monitor progress in the IRP Action Plan and issue short- and intermediate-term (1-3 year) RFPs for additional resources if needed to maintain adequate reserves.