BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE … · 2017-10-17 · before the . arkansas...
Transcript of BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE … · 2017-10-17 · before the . arkansas...
BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE PETITION OF ENTERGY ARKANSAS, INC. FOR A DECLARATORY ORDER REGARDING A POWER PURCHASE AGREEMENT FOR A RENEWABLE RESOURCE AND FOR RECOVERY OF AN ADDITIONAL AMOUNT
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DOCKET NO. 17-041-U
DIRECT TESTIMONY
OF
KURTIS W. CASTLEBERRY
DIRECTOR, RESOURCE PLANNING AND MARKET OPERATIONS
ENTERGY ARKANSAS, INC.
ON BEHALF OF
ENTERGY ARKANSAS, INC.
OCTOBER 17, 2017
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I. INTRODUCTION AND BACKGROUND 1
Q. PLEASE STATE YOUR NAME, TITLE, AND BUSINESS ADDRESS. 2
A. My name is Kurtis W. Castleberry. I am employed by Entergy Arkansas, 3
Inc. (“EAI” or the “Company”) as Director, Resource Planning and Market 4
Operations. My business address is 425 West Capitol Avenue, Little 5
Rock, Arkansas 72201. 6
7
Q. ON WHOSE BEHALF ARE YOU TESTIFYING? 8
A. I am testifying on behalf of EAI. 9
10
Q. PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND 11
PROFESSIONAL EXPERIENCE. 12
A. In 1982, I was awarded a Bachelor of Science Degree in General 13
Engineering from Arkansas Tech University. I also earned a Master’s 14
Degree in International Business from Webster University in 1995. I have 15
completed additional studies at Columbia University Business School, the 16
University of Michigan Business School, the University of Pennsylvania 17
Wharton School of Business, and the Southeastern Electric Exchange 18
Middle Management School. 19
I joined Arkansas Power & Light Company, now EAI, in 1983 as a 20
Customer Service Engineer, where I was responsible for dealing with 21
EAI’s largest commercial and industrial customers in areas of tariff 22
application, special pricing, energy management and distribution service. 23
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Since that time, I have held a variety of positions in customer service, 1
major account management, substation management, distribution and 2
transmission performance management and wholesale power marketing. 3
In 1986, I was selected to be an Account Executive for EAI with 4
responsibilities for marketing capacity and energy to EAI’s largest 5
industrial customers through the application of new electro-technologies 6
and incentive pricing to encourage production expansion. I also managed 7
EAI’s response to cogeneration and self-generation projects. 8
From 1989 to 1991, I held the position of Manager, District 9
Customer Service in Magnolia, Arkansas, where I was responsible for 10
EAI’s customer service activities in the Magnolia area. I was named in 11
1991 to be Manager, Major Accounts in Pine Bluff, Arkansas. In this 12
position, I managed the customer service and marketing functions related 13
to EAI’s largest customers in South Arkansas. 14
From 1993 to 1994, I was Manager, Major Accounts for Entergy 15
Louisiana, Inc. (now Entergy Louisiana, LLC or “ELL”) and Entergy New 16
Orleans, Inc. (“ENOI”) and was based in New Orleans, Louisiana. The 17
responsibilities for this position included managing the customer service 18
and marketing functions for the largest industrial and commercial 19
customers located in the southern part of ELL’s service territory and all of 20
ENOI’s service territory. 21
From 1994 to 1995, I held the position of Manager, Substation 22
Maintenance for ELL and ENOI. I was responsible for managing the 23
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resources and activities associated with operating and maintaining 1
substations located in ELL's and ENOI’s service territories. From 1995 to 2
1996, I was Manager, System Performance and Analysis for Entergy 3
Services, Inc. (“ESI”)1 in Little Rock, Arkansas. In this position, I was 4
responsible for the development of the Entergy Operating Companies’2 5
distribution and transmission performance measures and for performance 6
reporting and analysis. 7
In 1996, I rejoined EAI and served from 1996 to 1997 as Director, 8
Custom Accounts. In this role, I was responsible for marketing and 9
customer satisfaction levels for EAI’s 300 largest retail customers. 10
In 1997, I became part of Entergy Corporation’s non-utility 11
wholesale group, where I held the position of Senior Regional Marketing 12
Director for Entergy Wholesale Operations (“EWO”) located in The 13
Woodlands, Texas until 2001. I was responsible for EWO’s marketing 14
activities to wholesale customers in the Southeast Region of the U.S. 15
I rejoined EAI again in 2001, serving as EAI’s Director, Generation 16
Supply and Contracts. In that position, I was responsible for managing 17
EAI’s generation-related issues and its wholesale contracts. In 2003, I 18
was named Director, Wholesale Business for ESI, where I was 19
1 ESI is a subsidiary of Entergy Corporation that provides technical and administrative services to all the Operating Companies. 2 The Entergy Operating Companies include EAI; ELL; Entergy Mississippi, Inc. (“EMI”); ENOI; and Entergy Texas, Inc.
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responsible for managing the wholesale power contracting activities for 1
the Operating Companies. 2
From 2006 to July 2009, I served as Director, Operating Committee 3
Support - EAI. In this role, I was responsible for providing EAI’s then 4
President and Chief Executive Officer (“CEO”), Hugh T. McDonald, 5
support with respect to his decision-making as a member of the Operating 6
Committee. I provided input and analysis to Mr. McDonald to assist him in 7
carrying out his responsibilities as an Operating Committee member, 8
including those responsibilities related to decisions involving resource 9
planning and resource acquisition. 10
I was named to my current position as EAI’s Director, Resource 11
Planning in August 2009, which position was modified to Director, 12
Resource Planning and Market Operations in 2013. 13
14
Q. PLEASE DESCRIBE YOUR CURRENT RESPONSIBILITIES. 15
A. As Director, Resource Planning and Market Operations, I lead EAI’s 16
Resource Planning and Market Operations team, which is responsible for 17
the management and administration of EAI’s resource planning and 18
operations activities for its operations in the Mid-Continent Independent 19
System Operator (“MISO”) Regional Transmission Organization (“RTO”). 20
My team’s duties include conducting resource planning activities for EAI, 21
including developing and implementing EAI’s integrated resource plan 22
(“IRP”) for meeting the load and energy requirements of EAI’s customers. 23
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As part of this role, I was the lead on the project that successfully 1
implemented EAI’s transition plans for operations after EAI’s participation 2
in the System Agreement terminated, testifying before the Arkansas Public 3
Service Commission (“APSC” or the “Commission”) in a number of 4
proceedings regarding EAI’s resource needs for operating in a 5
post-System Agreement environment. In my position, I also serve as the 6
Chairman of EAI’s Resource Planning and Operations Committee 7
(“RPOC”), a committee that reviews and provides advisory input and 8
recommendations on a number of planning and operational issues for EAI 9
to the EAI President and CEO. 10
11
Q. IN WHAT PROCEEDINGS HAVE YOU PREVIOUSLY TESTIFIED 12
BEFORE A REGULATORY COMMISSION? 13
A. I have submitted testimony before the Commission on resource planning 14
and operational issues in Docket Nos. 06-152-U, 06-101-U, 07-085-TF, 15
09-024-U, 09-084-U, 10-011-U, 11-069-U, 12-038-U, 12-069-U, 13-028-U, 16
14-118-U, 15-014-U, 15-015-U, and 16-036-FR. I also have presented 17
testimony before the Federal Energy Regulatory Commission (“FERC”) in 18
Docket Nos. EL05-15-000 and EL04 134-000. 19
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Q. WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY? 1
A. The Company executed a proposed 20-year power purchase agreement 2
(the solar “PPA” or “Agreement”) with Chicot Solar, LLC (“Chicot Solar”)3 3
on June 19, 2017, for a renewable energy resource. The Chicot Solar 4
Project (“Project”), which will be located near Lake Village, Arkansas, is 5
planned to be a 100 MW solar photovoltaic project interconnecting to the 6
existing Lake Village Bagby to Reed 115 kV transmission line, #971. 7
As was the case with the Stuttgart Solar proceeding, my direct 8
testimony supports the Company’s request for a finding that the long-term4 9
100 MW solar PPA is unique and in the public interest and that the 10
Company’s Application should be approved by the Commission. In this 11
support, the Company asserts, consistent with Act 1088 of 2015 (“Act 12
1088”), that 1) the cost of the PPA is reasonable and prudent; 2) the PPA 13
will provide savings for retail customers as compared to other generation 14
and power supply options over the term of the PPA; 3) the PPA is required 15
by public convenience and necessity; 4) the PPA is necessary to 16
supplement or replace the utility’s existing generation sources; and 5) 17
approval of the PPA is in the public interest.5 In addition, my testimony 18
supports the Company’s proposal that the costs incurred under the solar 19
PPA, together with an additional sum to be determined in this proceeding 20
3 Chicot Solar, LLC is an affiliate of NextEra Energy Resources Acquisitions, LLC, an indirect wholly-owned subsidiary of NextEra Energy Resources, LLC (“NEER”). 4 The Company considers a PPA greater than 5 years to be long-term. 5 Act 1088, new Ark. Code Ann. §23-18-109(c) (1)-(5).
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pursuant to Act 1088, would be properly recovered through EAI’s Rate 1
Schedule No. 38, Energy Cost Recovery Rider (“Rider ECR”). 2
In my direct testimony, I: 3
• provide an overview of EAI’s planning processes, including the 4
role of EAI’s RPOC and its President and CEO in that process; 5
• describe the need for renewable resources within EAI’s portfolio 6
of generating resources and some of the benefits of the Project, 7
including the basis for the determination that this solar PPA 8
provides an attractive renewable energy resource to meet those 9
needs; 10
• explain various risks associated with this solar PPA and EAI’s 11
efforts to mitigate those risks; and 12
• explain that, pursuant to Act 1088, EAI is eligible to recover an 13
additional sum as determined in this proceeding and calculated 14
as an equitable sharing of savings between EAI and its retail 15
customers. 16
In addition, I explain that the Company executed an amendment to 17
the Stuttgart Solar, LLC (“Stuttgart Solar”) 20-year PPA on June 19, 2017, 18
with modifications that are beneficial to EAI customers. 19
20
Q. WHAT OTHER WITNESSES ARE FILING TESTIMONY IN SUPPORT OF 21
EAI’S APPLICATION? 22
A. The following individuals are providing testimony on these topics: 23
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1. Kandice Fielder, Manager, Resource Planning, who discusses the 1
following issues: 2
• the 2016 Request for Proposals for Long-Term Renewable 3
Generation Resources for Entergy Arkansas, Inc. (“2016 EAI 4
RFP”), including the role of the Independent Monitor (“IM”), and 5
other protocols EAI utilized for the 2016 EAI RFP; 6
• the analyses conducted for proposals submitted in response to 7
the 2016 EAI RFP and the Chicot Solar renewable proposal as 8
compared to other proposals in the 2016 EAI RFP, supporting 9
the conclusion that the Chicot Solar proposal is an attractive 10
renewable resource for EAI’s customers; 11
• a brief overview of the proposed solar PPA, including a review 12
of certain key provisions of the Chicot Solar PPA; and 13
• a discussion of the key similarities and differences between the 14
Chicot Solar PPA and the Stuttgart Solar PPA approved by the 15
Commission in Docket No. 15-014-U. 16
2. Scott M. Celino, Manager, Fuel and Special Riders, ESI, who 17
describes the following issues: 18
• an overview of Rider ECR; 19
• an overview of the existing provision of Rider ECR that allows 20
for recovery of the variable costs of the solar PPAs; 21
• modifications to Rider ECR necessary to accommodate the 22
recovery of the costs of the Chicot Solar renewable PPA; and 23
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• the manner in which the solar PPAs’ costs will be collected. 1
2
II. EAI’S RESOURCE PLANNING PROCESS 3
Q. PLEASE DESCRIBE EAI’S RESOURCE PLANNING ACTIVITIES. 4
A. EAI’s Resource Planning and Market Operations team is responsible for 5
identifying and addressing the Company’s resource needs. The core 6
elements of EAI’s resource planning are: 1) a determination of the 7
capability of the Company’s current resources; 2) a forecast of the peak 8
load and energy that the Company expects to serve over the planning 9
horizon; and 3) a determination of the amount of additional resources that 10
will be needed to meet the Company’s load and energy requirements both 11
reliably and cost-effectively. EAI’s planning activities are also conducted 12
consistent with the Commission’s Resource Planning Guidelines for 13
Electric Utilities (“Planning Guidelines”).6 These Planning Guidelines 14
require APSC-jurisdictional utilities to file an IRP at least every three 15
years. Accordingly, EAI’s most recent IRP was filed in 2015 (“2015 IRP”).7 16
EAI’s development of the 2015 IRP focused solely on the needs of EAI 17
and its customers and was 1) developed by EAI’s Resource Planning and 18
Operations Staff, 2) reviewed by EAI’s RPOC, and 3) approved by EAI’s 19
then President and CEO, Hugh T. McDonald. The Company is currently 20
6 Docket No. 06-028-R, Order No. 6, Attachment 1. 7 See, Docket No. 07-016-U, EAI 2015 IRP (October 30, 2015).
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in the process of developing its 2018 IRP and expects to file it with the 1
Commission in the 4th quarter of next year. 2
Given the uncertainty inherent in long-term resource planning, 3
EAI’s IRP provides the framework within which the Company will operate 4
over the next few years. The IRP, however, does not serve as a definitive 5
plan for identifying EAI’s long-term generation needs and options for 6
meeting those needs. Rather, the IRP provides a snapshot of current 7
conditions and future expectations, both of which must routinely be 8
reevaluated to account for changing facts and circumstances and to 9
account for any new market opportunities. Nevertheless, EAI’s proposed 10
addition of the Chicot PPA to its portfolio of generation resources remains 11
consistent with EAI’s 2015 IRP Action Plan. 12
13
Q. WHAT ARE THE ROLES OF THE RPOC AND EAI’S PRESIDENT AND 14
CEO IN EAI’S PLANNING PROCESSES? 15
A. The RPOC is an advisory body that provides input and recommendations 16
on EAI planning and operations issues to EAI’s President and CEO. The 17
RPOC conducts meetings, typically each month, that cover a variety of 18
topics affecting the planning and operation of EAI’s generating assets, as 19
well as various MISO transmission planning and market issues. 20
The RPOC has played an integral role in planning and operations 21
activities for EAI, including EAI’s participation in the MISO markets, the 22
development of its annual transmission plan as part of the MISO 23
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Transmission Expansion Plan (“MTEP”) process, its congestion costs 1
hedging strategy in MISO, development of the Company’s energy 2
efficiency and demand-side management programs, and its strategy for 3
market solicitations for the acquisition of supply-side and demand-side 4
resources. 5
6
Q. AS PART OF THESE PLANNING ACTIVITIES, HAS EAI EVALUATED 7
LONG-TERM RENEWABLE RESOURCES? 8
A. Yes. EAI evaluated market opportunities to add long-term renewable 9
resources to the Company’s generation portfolio through the 2016 EAI 10
RFP. Issuance of the 2016 EAI RFP was consistent with the action plan 11
in EAI’s 2015 IRP, which indicated that the Company would consider 12
economically-attractive renewable generation, taking into account evolving 13
mandates and an on-going assessment of costs and availability. 14
15
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III. RENEWABLE RESOURCES AS PART OF EAI’S PORTFOLIO AND 1
BENEFITS OF THE SOLAR PROJECT 2
Q. HAS THE GENERAL ASSEMBLY SET FORTH REQUIREMENTS TO 3
CONSIDER IN EVALUATING LONG-TERM PPAS? 4
A. Yes. Act 1088 states that, for a utility to enter into a PPA for more than 5
five years, the Commission must find: 6
(1) The cost of the power purchase agreement is reasonable and 7
prudent; 8
(2) The power purchase agreement will provide savings for retail 9
customers as compared to other generation and power supply 10
options over the term of the power purchase agreement; 11
(3) The power purchase agreement is required by public 12
convenience and necessity; 13
(4) The power purchase agreement is necessary to supplement or 14
replace the utility's existing generation sources; and 15
(5) Approval of the power purchase agreement is in the public 16
interest. 17
While Ms. Fielder and I both discuss a variety of ways that this 18
solar PPA complies with the requirements in Act 1088, including that it is 19
in the public interest, my testimony primarily supports findings 3-5 above, 20
and Ms. Fielder’s testimony primarily supports findings 1-2. 21
22
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Q. WILL THE CHICOT SOLAR PPA HELP MEET THE LONG-TERM NEEDS 1
DESCRIBED IN THE 2015 IRP? 2
A. Yes. The Chicot Solar PPA will help the Company meet the long-term 3
needs of its customers consistent with the Company’s Resource Planning 4
Principles and the 2015 IRP. 5
6
Q. IS THE CHICOT SOLAR PPA AN APPROPRIATE RESOURCE TO 7
SUPPLEMENT EAI’S EXISTING GENERATION IN ORDER TO 8
ADDRESS EAI CUSTOMERS’ LONG-TERM RESOURCE NEEDS? 9
A. Yes. Consistent with the requirements in new Ark. Code Ann. §23-18-10
109(c)(3) through (5), the Chicot Solar PPA adds diversity to EAI’s 11
generation portfolio and is an economically attractive, emission-free 12
resource. It provides EAI with a geographically well-suited resource for 13
meeting its customers’ long-term energy needs and represents another 14
large-scale solar project constructed in Arkansas. In addition, the Project 15
is expected to provide additional societal and economic development 16
benefits. 17
18
Q. PLEASE EXPLAIN HOW THIS RESOURCE WOULD PROVIDE 19
ADDITIONAL DIVERSITY TO EAI’S GENERATION PORTFOLIO. 20
A. Cost and performance parameters for generation technologies differ. 21
Diversity means utilizing a mix of generating technologies and fuel 22
sources within the generation portfolio. A diverse generation portfolio 23
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mitigates risk by helping protect customers from fluctuations in the cost 1
and availability of the fuel needed to produce electricity. For example, a 2
diverse generation portfolio protects customers from supply disruptions 3
associated with particular fuel sources or delivery channels because 4
alternative fuels are available within the portfolio. Similarly, fluctuations in 5
the price of particular fuels are less likely to affect total supply cost. The 6
effect of changes in the price of any one fuel is less significant because a 7
diverse generation portfolio relies on a variety of fuels and resource types, 8
the prices of which are not likely to move in perfect unison. Increases in 9
the price of one fuel may be offset or mitigated by other fuels that exhibit 10
declining or stable costs. 11
In recent years, economic options for increasing diversity have 12
been limited. Among conventional resource alternatives, natural gas-fired 13
combined cycle gas turbine (“CCGT”) and combustion turbine (“CT”) 14
technologies have been the most attractive. Based upon production cost 15
modeling, these highly-efficient technologies are economically attractive 16
across a wide range of fuel and environmental assumptions. New nuclear 17
and advanced coal technologies do provide fuel price stability relative to 18
the price of natural gas that is used to fuel CCGTs and CTs. However, 19
new nuclear and advanced coal technologies are not attractive options 20
relative to natural gas-fired technology because of the current 21
assumptions for the level of required capital expenditures and on-going 22
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operating costs, primarily driven by uncertainty around existing and 1
pending environmental and other regulatory requirements. 2
The remaining technology alternatives that can provide such 3
diversity are renewable energy resources. The Chicot Solar PPA offers 4
an opportunity to further diversify EAI’s generation portfolio with the 5
addition of a resource that offers stable pricing while avoiding exposure to 6
volatile fuel prices as well as anticipated CO2 and other environmental 7
emission-based costs. Significantly, the 2016 EAI RFP economic 8
evaluation for the solar PPA indicates that these diversification benefits 9
(the value of which is not included in the economic analysis) can be 10
achieved while lowering customer costs, which also supports the 11
requirement in new Ark. Code Ann. §23-18-109(c)(2) that the PPA provide 12
savings for retail customers as compared to other power supply options 13
over the term of the agreement. 14
15
Q. WOULD YOU EXPLAIN THE SIGNIFICANCE OF AVOIDING 16
EXPOSURE TO POTENTIAL CO2 AND OTHER ENVIRONMENTAL 17
EMISSION-BASED COSTS? 18
A. Yes. As I mentioned above, new nuclear and coal resources provide 19
greater fuel-price stability relative to natural gas resources, given the high 20
variability that natural gas prices have shown over the past two decades. 21
There are, however, future cost uncertainties associated with nuclear and 22
coal resources. For example, the environmental impacts of emissions 23
16
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associated with coal-fired generation and the costs required to address 1
those impacts present issues that will need to be dealt with as additional 2
environmental regulations (e.g., CO2 and other emission regulations), 3
may be imposed upon such facilities. With respect to new nuclear 4
resources, numerous recent examples reflect a host of uncertainties 5
associated with such projects, particularly associated with the cost of 6
construction, raising questions about the viability of such resources in the 7
future. Thus, as EAI’s ANO units approach the end of their license period 8
(which already has been extended by the Nuclear Regulatory 9
Commission), new nuclear resources, with their limited emissions, still 10
may not be a viable option for meeting customers’ future energy needs. 11
The Chicot Solar PPA provides EAI’s portfolio with a generating 12
resource that will not release emissions, will not require significant 13
volumes of water, and will not require pipelines or railways to be 14
constructed to bring fuel to the plant. From an environmental cost risk, as 15
well as an environmental impact standpoint, this solar PPA sourced from 16
the Project has a much lower risk profile than nuclear and coal resources. 17
18
Q. YOU ALSO MENTIONED THAT THE DIVERSIFICATION BENEFITS OF 19
THE SOLAR PPA CAN BE ACHIEVED WHILE ALSO LOWERING 20
CUSTOMER COSTS. HAS EAI IDENTIFIED ECONOMIC BENEFITS 21
ASSOCIATED WITH THE SOLAR PPA? 22
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A. Yes. Through the 2016 EAI RFP, the Company sought to identify 1
renewable energy proposals that are economically attractive for 2
customers. As discussed by Ms. Fielder and consistent with new Ark. 3
Code Ann. §23-18-109(c)(1) and (2), the solar PPA was the most 4
attractive solar proposal submitted in the 2016 EAI RFP, and EAI’s 5
analysis of that resource indicates that it will provide economic benefits to 6
customers over the term of the PPA. 7
8
Q. DO RENEWABLE ENERGY RESOURCES HAVE BENEFITS BEYOND 9
THE ECONOMIC VALUE TYPICALLY DETERMINED BY PRODUCTION 10
COST MODELING? 11
A. Yes. As set forth in greater detail in EAI’s Application, the Arkansas 12
General Assembly has issued various legislative findings recognizing that 13
the value of renewable energy resources can extend beyond the specific 14
economic value that the resource provides to customers in the form of 15
lower fuel and purchased energy costs.”8 Consequently, the statutes 16
impose an obligation on electric utilities subject to APSC jurisdiction to 17
consider renewable resources as part of their resource plans. This solar 18
PPA is for a renewable resource and is consistent with that obligation. 19
Further, as EAI noted in its action plan in the 2015 IRP regarding 20
renewable resources, “EAI will monitor its load and capability position and 21
8 Ark. Code Ann. § 23-18-701 et.seq. and § 23-18-502 (c)(1).
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take steps to add supply-side resources for both traditional and/or 1
renewable resources as warranted.”9 This solar PPA is consistent with 2
this goal. 3
4
Q. WHY IS THE PROJECT’S GEOGRAPHIC LOCATION BENEFICIAL? 5
A. The geographic location of this facility is beneficial because it is physically 6
sited within Arkansas and will be interconnected to the Company’s 7
transmission facilities, making it close to the customers that EAI serves. 8
In addition, its reliance on solar energy enhances this resource’s fit within 9
the Company’s generation portfolio, as a connection can be drawn 10
between the energy needs of EAI’s customers and the energy that this 11
solar PPA will provide. At a high level, customers’ energy needs are 12
highly influenced by the weather, which encompasses the amount of 13
sunlight in the Company’s service territory. The peak energy usage 14
periods arise in the summer months and typically are higher because 15
weather conditions prompt customers to use more energy (e.g., higher air 16
conditioner use). With a resource that generates energy from the same 17
source that is causing those higher loads (i.e., the sun), this solar PPA is 18
expected to provide energy at the times when EAI’s customers’ energy 19
needs are higher, and when one would expect power prices to be higher 20
as well. 21
9 Docket No. 07-016-U, EAI 2015 IRP at 5, 7 (October 30, 2015).
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In this respect, note that a similar assertion by me in Docket No. 1
15-014-U was addressed by the Attorney General’s witness Kevin 2
Woodruff. His testimony clarified that my statement should not be 3
misinterpreted as a direct correlation between the output of this facility and 4
EAI’s daily peak load.10 To be clear, I do not intend to convey the direct 5
correlation of production and intra-day peak demand that Mr. Woodruff 6
explains. Yet, it is also important to recognize that this solar resource will 7
produce energy in on peak periods, and its location in Arkansas will mean 8
better correlation with EAI’s customers’ energy consumption than a 9
remotely located renewable resource. I also would note that the Chicot 10
facility will utilize solar tracking, which is a technology that Mr. Woodruff 11
previously noted would improve the intra-day production of the resource 12
and presumably mitigate his concerns in this respect. 13
14
Q. WHAT IS YOUR UNDERSTANDING OF THE ECONOMIC 15
DEVELOPMENT BENEFITS THAT THE CHICOT SOLAR PROJECT 16
MAY PROVIDE? 17
A. The Project is designed to qualify for the 30 percent federal investment tax 18
credit (“ITC”) that will be used by the provider to offset its cost of 19
construction. From my conversations with Chicot Solar, I understand that 20
the Project is expected to have a positive economic impact on the local 21
10 Woodruff Direct at 15.
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economy. Specifically, Chicot Solar or its affiliate(s) have represented to 1
EAI that they expect to employ approximately 150 to 200 workers during 2
the construction phase; generally, workers and vendors employed by 3
contractors are sourced locally. During the operational life of the project, 4
Chicot Solar expects to expend approximately $600,000 annually in 5
outside services for project site maintenance such as land management 6
and vegetation control, operations office rent, operations team payroll, and 7
other items that will have a local impact. EAI further understands that 8
Chicot Solar estimates that the sales and use tax contributions to the 9
State of Arkansas during the construction phase of the Project will be 10
approximately $1.8 million. I would think it is reasonable to conclude that 11
local businesses such as stores and hotels may also benefit indirectly 12
from the infusion of construction workers and activity during this time 13
period. Further, Chicot Solar has represented to EAI that during the 14
20-year operational life of the Project, it will staff the facility with two to 15
three full-time employees who will be responsible for day-to-day 16
operations and anticipates additional opportunities for local businesses to 17
contract to provide specialized services on-site. In addition, the property 18
taxes during the first year of operation of the Project are estimated to 19
provide approximately $384,000. 20
21
Q. GIVEN THE BENEFITS YOU DESCRIBE ABOVE, IS THE CHICOT 22
SOLAR PPA IN THE PUBLIC INTEREST? 23
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A. Yes, I believe it is. As previously mentioned, the General Assembly has 1
found that renewable resources in general are in the public interest.11 In 2
addition to the economic benefits that Ms. Fielder addresses in her 3
testimony, this solar PPA addresses a long-term resource need for EAI’s 4
customers and supplements the Company’s existing generation portfolio 5
by providing locational and fuel diversity benefits and is, therefore, in the 6
public interest. 7
8
IV. RISKS ASSOCIATED WITH THE CHICOT SOLAR PPA 9
Q. ARE THERE RISKS ASSOCIATED WITH THIS AGREEMENT? 10
A. Yes, as there are with any commercial arrangement. As the Commission 11
has recognized previously, there are always risks with respect to resource 12
planning decisions, because the outcomes are always dependent upon 13
future facts and circumstances.12 However, in this instance, the Chicot 14
Solar PPA would be the second long-term PPA that EAI has executed in 15
recent years, and as was the case with the Stuttgart Solar PPA, the 16
manner in which those risks are allocated and borne by the seller on one 17
hand and the Company and its customers on the other must be 18
considered in the evaluation of whether the terms of this solar PPA are in 19
the public interest. 20
11 See, e.g., Ark. Code Ann. §23-18-701 et. seq. 12 Docket No. 03-028-U, Order No. 9 at (May 30, 2003).
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To understand the distinction, first consider a situation where EAI is 1
acquiring a generating facility, such as the Ouachita, Hot Spring, and 2
Union facilities that were acquired relatively recently. In those cases, EAI 3
owns the resources, and consistent with the utility business model, the 4
Company is provided the opportunity to recover its costs of operating and 5
maintaining the unit and earn a fair and reasonable return of and on its 6
capital investments. 7
8
Q. HOW IS THE ARRANGEMENT DIFFERENT WITH THIS SOLAR PPA? 9
A. With this solar PPA, EAI is not earning a return of and on its invested 10
capital commensurate with the prudence relationship I mentioned above 11
with respect to the Company’s owned generating assets. While Act 1088 12
does provide for recovery of an additional sum in the form of a 13
corresponding return on the PPA as would be allowed for an equivalent 14
investment in a power plant, EAI is not seeking an additional sum 15
calculated in that manner for this PPA. In contrast, the contractual 16
obligations of Chicot Solar are established in the contract, including 17
damages for failing to comply with its obligations. EAI’s corresponding 18
rights and obligations (and therefore those of its customers) against Chicot 19
Solar for any failure to perform are as set forth under the contract. 20
Notably, any damages potentially owed by Chicot Solar under the solar 21
PPA may not be based upon the difference between the solar PPA costs 22
and the actual costs incurred for Chicot Solar’s failure to perform its 23
23
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obligations under the contract. Instead, the Company has negotiated the 1
most advantageous contractual terms that it could in order to address 2
such issues. Again, EAI is not seeking recovery of an additional sum in 3
this instance commensurate with the returns it would receive as an owner 4
of the facilities, so it does not bear the same risks for any such potential 5
failures by Chicot Solar to perform as it would with an owned facility. 6
Chicot Solar would be responsible to customers only insofar as the 7
applicable contractual provisions of the solar PPA would require. 8
Ms. Fielder discusses several of the key contractual terms in her direct 9
testimony. 10
11
Q. WHAT ARE THE PRICING OPTIONS ASSOCIATED WITH THE CHICOT 12
SOLAR PPA? 13
A. The specifics regarding the various pricing options available under the 14
Chicot Solar PPA are competitively sensitive. Ms. Fielder addresses the 15
pricing options for Chicot Solar in her direct testimony and Highly 16
Sensitive EAI Direct Exhibit KF-3. 17
18
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V. COST RECOVERY SOUGHT BY EAI FOR CHICOT SOLAR AND 1
ADDITIONAL SUM 2
Q. WHAT COST RECOVERY IS EAI SEEKING FROM THE COMMISSION 3
IN THIS PROCEEDING? 4
A. EAI is seeking approval to recover all costs of the Chicot solar PPA as 5
well as an additional sum in recognition of the unique characteristics of the 6
solar PPA, which is in the public interest. 7
This Chicot solar PPA is a long-term commitment that would be 8
undertaken by EAI for its customers. Given the statutory requirements, as 9
well as the financial obligations associated with the solar PPA that the 10
Company would assume, EAI seeks the Commission’s approval for its 11
decision to enter into this agreement. Indeed, it is for this reason that EAI 12
included a provision in the solar PPA that conditions the agreement on the 13
Commission’s approval, including appropriate cost recovery. 14
15
Q. PLEASE DESCRIBE THE COST RECOVERY PROVIDED BY ACT 1088 16
AND THE COMPANY’S PROPOSAL FOR THIS SOLAR PPA? 17
A. Yes. First, Act 1088 authorizes the Commission to approve recovery of 18
costs over the term of a PPA that it finds to be in the public interest. As 19
discussed, the facts of this case support that this solar PPA is in the public 20
interest and, therefore, EAI should be permitted to recover the costs of the 21
PPA over the term of the agreement. 22
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Second, Act 1088 authorizes the Commission to provide a utility 1
recovery of an additional sum recognizing the unique characteristics of a 2
PPA and the benefits that arise from such an agreement if the 3
Commission finds that the additional sum is in the public interest. In 4
determining the additional sum, Act 1088 provides that the Commission 5
may consider an equitable sharing of savings between the utility and 6
customers, with customers receiving no less than 75 percent of any 7
savings. 8
9
Q. IS EAI REQUESTING THAT THE COMMISSION ALLOW IT TO 10
RECOVER SUCH AN ADDITIONAL SUM? 11
A. Yes. Should the Commission approve the solar PPA, EAI requests that 12
the Commission also approve recovery of an additional sum representing 13
an equitable sharing of the savings with customers. By entering into this 14
solar PPA, EAI is taking steps to provide customers with an attractively 15
priced, emission-free renewable energy resource that offers a variety of 16
economic and environmental benefits, including bringing another 17
large-scale solar project to the State of Arkansas as I mentioned 18
previously, and doing so at a time to provide EAI’s customers the benefits 19
of current federal investment tax credits available for such solar resources. 20
Allowing EAI to recover an additional sum for this solar PPA, as the 21
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Commission did in the Stuttgart Solar PPA,13 is not only in the public 1
interest, but it will encourage the further pursuit of transactions of this type, 2
when these transactions can benefit customers. 3
4
Q. HOW DOES EAI PROPOSE TO CALCULATE THE ADDITIONAL SUM IN 5
THIS CASE? 6
A. EAI proposes to calculate the additional sum for this solar PPA based on 7
an equitable sharing of savings with customers consistent with Act 1088. 8
Consistent with the Commission’s decision on the Stuttgart PPA, EAI 9
would propose to calculate the actual savings associated with the Chicot 10
Solar PPA using the methodology that originally was proposed by the 11
Staff, agreed to by EAI, and ultimately approved by the Commission for 12
Stuttgart. In this case, however, EAI would propose that customers 13
receive 75 percent of the savings and the Company receive 25 percent of 14
the savings, an outcome that is consistent with the Commission’s authority 15
under Act 1088 and, EAI believes, is warranted in this case. 16
17
Q. WHY IS EAI PROPOSING AN ADDITIONAL SUM OF 25 PERCENT IN 18
THIS DOCKET WHEN THE COMMISSION ALLOWED ONLY 20 19
PERCENT IN THE STUTTGART SOLAR PPA DOCKET? 20
13 Docket No. 15-014-U.
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A. In my opinion, each PPA transaction should be evaluated on its own 1
merits, depending on its specific facts and circumstances. In this case, 2
the facts and circumstances presented for the Chicot Solar PPA merit the 3
highest award of sharing allowed for EAI under Act 1088. My opinion is 4
based upon several factors associated with EAI’s efforts in this 5
proceeding, all of which I have mentioned above, but which I will 6
summarize here. 7
With the Chicot Solar PPA, EAI has once again negotiated and 8
executed a PPA for a very valuable renewable resource for its customers 9
on what I believe are very favorable terms, with the benefits of this 10
resource projected to exceed the benefits of the Stuttgart PPA 11
substantially. As explained by Ms. Fielder, the proposed solar PPA has a 12
projected 2017 net present value (“NPV”) savings of approximately $91.4 13
million in the reference case production cost scenario over the term of the 14
agreement, and that figure is based upon the highest priced option 15
available to EAI. In that respect, the development of the pricing options 16
available under the Chicot Solar PPA reflects an innovative approach to 17
structuring such a proposal, as Ms. Fielder discusses in more detail in 18
Highly Sensitive EAI Direct Exhibit KF-3. In addition, EAI has also 19
executed an amendment to the Stuttgart Solar PPA that provides 20
additional benefits to EAI’s customers, as I will discuss later in my 21
testimony and in Highly Sensitive EAI Direct Exhibit KWC-1. 22
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In Order No. 5, in Docket No. 15-014-U, the Commission 1
recognized that the evidence shows that the sharing of actual net benefits 2
will result in EAI receiving less than if it received a commensurate return 3
on an equivalent investment in a power plant.14 In my opinion, the 4
Commission should incent utilities not only to seek out resources such as 5
these through competitive solicitations, but also to strive for innovative 6
approaches and solutions in those cases that ultimately inure to the 7
benefit of customers. EAI has done so in connection with the Chicot Solar 8
PPA and the amendment to the Stuttgart Solar PPA. Its actions and 9
efforts merit the Commission rewarding it to the fullest extent possible 10
allowed by Act 1088. The Commission recognized the importance of the 11
additional sum in Order No. 5 by stating 12
“Through this mechanism the utility is incentivized to 13 seek and negotiate favorable agreements with the 14 lowest possible PPA price and the highest actual 15 benefits.”15 16
Consistent with the Commission’s stated desire to incent a utility to 17
negotiate for the lowest possible PPA price and the highest actual 18
benefits, EAI should receive the highest possible additional sum. Absent 19
such action in this case, I believe the utilities in Arkansas will be left to 20
wonder whether any circumstances would merit the full award 21
contemplated by the Arkansas Legislature in enacting Act 1088. 22
14 Order No. 5 at 24. 15 Id.
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1
Q. HOW DOES EAI PROPOSE TO RECOVER THE ADDITIONAL SUM? 2
A. After receiving the Commission’s approval of the additional sum in this 3
docket, EAI proposes to recover the cost for the Chicot Solar PPA and the 4
additional sum through Rider ECR. Mr. Celino provides an overview of 5
the existing provision of Rider ECR, approved in Docket No. 15-014-U,16 6
which allows for recovery of the variable costs of the solar PPAs, and the 7
manner in which the solar PPAs’ costs will be collected. 8
9
Q. WHAT ARE THE CHARACTERISTICS OF THE PPA THAT SUPPORT A 10
FINDING BY THE COMMISSION THAT INCLUDING THE ADDITIONAL 11
SUM IS IN THE PUBLIC INTEREST? 12
A. The characteristics of the Chicot Solar PPA are very similar to the 13
Stuttgart Solar PPA. The reasons why it is in the public interest are 14
discussed throughout the testimony filed in support of the Application. I 15
summarize the key points below, any one of which is unique and in the 16
public interest: 17
• The Chicot Solar PPA provides a fixed price resource, subject to 18
annual escalation, with three pricing options that will provide the 19
Company’s customers with additional fuel diversity and a hedge 20
against fuel price fluctuation and inflation; 21
16 Docket No. 15-014-U, Order 7 at 1.
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Entergy Arkansas, Inc. Direct Testimony of Kurtis W. Castleberry Docket No. 17-041-U
• The solar PPA provides EAI with an emission-free resource, 1
which will provide the Company’s customers with a hedge 2
against future environmental regulation uncertainty; 3
• According to Chicot Solar, as another large-scale solar project 4
in Arkansas, the Project is anticipated to provide a positive 5
economic contribution to the local and state economies and to 6
enhance Arkansas’ competitiveness to attract new businesses; 7
and 8
• Critically, the solar PPA provides all of these benefits, while also 9
providing EAI’s customers with an attractive source of energy 10
during the periods where customers’ peak energy needs are the 11
highest, and an economic resource that is forecasted to provide 12
savings to customers over the term of the agreement in MISO’s 13
various markets. 14
15
Q. WHAT IS THE BILL EFFECT ASSOCIATED WITH THE CHICOT SOLAR 16
PPA? 17
A. Ms. Fielder provides the bill effects, including the additional sum, for the 18
Chicot Solar PPA in her direct testimony. 19
20
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Entergy Arkansas, Inc. Direct Testimony of Kurtis W. Castleberry Docket No. 17-041-U
VI. STUTTGART PPA AMENDMENT 1
Q. WOULD YOU DESCRIBE THE CHANGES TO THE STUTTGART SOLAR 2
PPA AS A RESULT OF THE AMENDMENT? 3
A. The specifics regarding the amendment to the Stuttgart Solar PPA are 4
competitively sensitive. Accordingly, I have included a discussion of the 5
Stuttgart PPA Amendment in Highly Sensitive EAI Direct Exhibit KWC-1. 6
The executed Stuttgart PPA Amendment is provided in Highly Sensitive 7
EAI Direct Exhibit KWC-2. 8
9
VII. SUMMARY 10
Q. PLEASE SUMMARIZE THE RELIEF EAI IS SEEKING IN THIS 11
PROCEEDING? 12
A. EAI is hereby requesting that the Commission issue an order granting: 13
a. declaratory relief that the legislative findings set forth in the 14
Arkansas Clean Energy Development Act of 2012 and included 15
in the Utility Facility and Environmental and Economic 16
Protection Act, as well as the economics and efficiencies 17
associated with the agreement, support the conclusion that the 18
Chicot Solar PPA is required by the public convenience and 19
necessity and in the public interest; 20
b. approval of the terms and conditions set forth in the Chicot Solar 21
PPA as being in compliance with the requirements set forth in 22
Act 1088; 23
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c. approval of EAI’s recovery of the costs of the PPA over the term 1
of the PPA through Rider ECR; and 2
d. approval of EAI’s recovery through Rider ECR of an additional 3
sum, as determined as a function of this docket, representing an 4
equitable sharing of the savings to retail customers. 5
6
Q. WHEN IS AN ORDER OF APPROVAL REQUESTED? 7
A. EAI requests an order of approval from the Commission by April 30, 2018 8
to allow time for any challenges to the Commission’s order to be 9
concluded by November 15, 2018 as required by the PPA and to facilitate 10
the construction of the transmission facilities to serve Chicot Solar by the 11
Commercial Operation Date of May 31, 2020, as also is required by the 12
PPA. 13
14
Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? 15
A. Yes. 16
33
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VERIFICATION
STATE OF ARKANSAS
COUNTY OF PULASKI
KURTIS W. CASTLEBERRY
who, after being duly sworn by me, did depose and say:
That the above and foregoing is his sworn Direct Testimony in
APSC Docket No. 17-041-U and that he knows the contents thereof, that the
same are true as stated, except as to matters and things, if any, stated on
information and belief, and that as to those matters and things, he verily believes
them to be true.
%W.astIebe’
NOTARY CERTIFICATION
Subscribed and sworn to before me, a Notary Public, on this day ofchr
2017.
V
and appeared,
NOW BEFORE ME, the undersigned authority, personally came
uimtiv-’ OiLLa
My Commission expires: Lo - I -
34
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CERTIFICATE OF SERVICE I, Laura Landreaux, do hereby certify that a copy of the foregoing has been served upon all parties of record by forwarding the same by electronic mail and/or first class mail, postage prepaid, this 17th day of October 2017. /s/ Laura Landreaux
Laura Landreaux
35
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BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE PETITION OF ENTERGY ARKANSAS, INC. FOR A DECLARATORY ORDER REGARDING A POWER PURCHASE AGREEMENT FOR A RENEWABLE RESOURCE AND FOR RECOVERY OF AN ADDITIONAL AMOUNT
) ) )) ) )
DOCKET NO. 17-041-U
EAI DIRECT EXHIBIT KWC-1
DISCUSSION OF STUTTGART SOLAR PPA AMENDMENT
THIS EXHIBIT CONTAINS HIGHLY SENSITIVE PROTECTED INFORMATION AND IS PROVIDED PURSUANT TO APSC INTERIM PROTECTIVE ORDER
NO. 1, DATED SEPTEMBER 1, 2017
36
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BEFORE THE
ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE PETITION OF ENTERGY ARKANSAS, INC. FOR A DECLARATORY ORDER REGARDING A POWER PURCHASE AGREEMENT FOR A RENEWABLE RESOURCE AND FOR RECOVERY OF AN ADDITIONAL AMOUNT
) ) )) ) )
DOCKET NO. 17-041-U
EAI DIRECT EXHIBIT KWC-2
STUTTGART SOLAR PPA AMENDMENT
THIS EXHIBIT CONTAINS HIGHLY SENSITIVE PROTECTED INFORMATION AND IS PROVIDED PURSUANT TO APSC INTERIM PROTECTIVE ORDER
NO. 1, DATED SEPTEMBER 1, 2017
37
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