BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION ) ) ) ) ) ) ) ) PHASE II REBUTTAL TESTIMONY KURTIS W. CASTLEBERRY DIRECTOR, RESOURCE PLANNING

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1 BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF ENTERGY ARKANSAS, INC. S REQUEST FOR APPROVAL OF CERTAIN WHOLESALE BASE LOAD CAPACITY TO SERVE EAI CUSTOMERS AND A PROPOSED RIDER RECOVERY MECHANISM FOR THESE AND OTHER CAPACITY COSTS DOCKET NO. -0-U PHASE II REBUTTAL TESTIMONY OF KURTIS W. CASTLEBERRY DIRECTOR, RESOURCE PLANNING ON BEHALF OF ENTERGY ARKANSAS, INC. MARCH, 0

2 Docket No. -0-U I. INTRODUCTION Q. PLEASE STATE YOUR NAME. A. My name is Kurtis W. Castleberry. Q. ARE YOU THE SAME KURTIS W. CASTLEBERRY WHO FILED A. Yes. TESTIMONY PREVIOUSLY IN THIS DOCKET? 0 Q. ON WHOSE BEHALF ARE YOU TESTIFYING? A. I am submitting this rebuttal testimony on behalf of ( EAI or the Company. Q. WHAT IS THE PURPOSE OF YOUR REBUTTAL TESTIMONY? A. In his direct testimony filed on March, 0, Arkansas Public Service Commission ( APSC or the Commission General Staff ( Staff witness John Athas assesses the reasonableness of EAI s three-year purchased power agreement ( PPA with a third-party. This PPA was secured for EAI s post-entergy System Agreement operations through a Request for The System Agreement is a rate schedule approved by the Federal Energy Regulatory Commission and contract entered into among Entergy Services Inc. ( ESI and the Operating Companies, which requires the Operating Companies to plan, construct and operate their generation and bulk transmission facilities as a single, integrated electric system. On December, 00, EAI gave notice that it will terminate its participation in the System Agreement effective December, 0. The Entergy Operating Companies include EAI; Entergy Gulf States Louisiana, L.L.C.; ELL; Entergy Mississippi, Inc.; ENOI; and Entergy Texas, Inc. - -

3 Docket No. -0-U 0 Proposals conducted in 0 (the EAI 0 RFP. Mr. Athas concludes that this PPA is a reasonable addition to EAI s post-system Agreement resource portfolio. In addition, Mr. Athas makes three recommendations that he believes will improve EAI s resource procurement process when it becomes a member of the Midwest Independent Transmission System Operation, Inc. ( MISO Regional Transmission Organization ( RTO : ( full evaluation of the use of the MISO markets to address shortterm resource needs and analysis of all market benefits of potential new resources; ( evaluation of planned deactivations of EAI s own resources; and ( inclusion of an Independent Monitor ( IM in all future solicitations. My rebuttal testimony responds to each of these three recommendations, reflecting EAI s belief that they are reasonable. Athas Phase II Direct Testimony at. - -

4 Docket No. -0-U II. RESPONSE TO MR. ATHAS RECOMMENDATIONS 0 A. Consideration of the MISO Market Q. DESCRIBE MR. ATHAS RECOMMEDATIONS WITH REGARD TO THE MISO MARKET. A. Mr. Athas recommends EAI:. update its future resource plan to reflect MISO s methodology for setting resource requirements;. consider the MISO capacity market as a potential resource;. use the MISO capacity market as a point of comparison for all resources; and. consider the market benefits of any potential new resource in the evaluation of that resource. 0 Q. DO YOU AGREE WITH THESE RECOMMENDATIONS? A. Yes. As Mr. Athas notes, when the EAI 0 RFP was issued, it was not known whether EAI would be a member of an RTO or a stand alone utility when it exits the Entergy System Agreement on December, 0. Given EAI s current path towards integration with MISO, Mr. Athas recommendations are reasonable and consistent with how EAI presented its post-system Agreement resource planning process in the 0 update to EAI s Integrated Resource Plan ( IRP. Athas Phase II Direct Testimony at. See generally, Docket No. 0-0-U, EAI 0 Integrated Resource Plan (October,

5 Docket No. -0-U 0 0 As a member of MISO, EAI will have access to markets that include capacity, energy, and ancillary services, and these markets provide a potential short-term source for these products. For example, the MISO capacity market provides a short-term capacity option for EAI to address any shortfalls between EAI s resource capability and its capacity requirements for the upcoming summer and winter peaks. However, EAI s IRP and other resource planning efforts address a longer-term planning period (0 0 years, which requires more lead time and for which the MISO short-term markets have less value as to providing market information. EAI is implementing processes to reflect the MISO RTO, such as MISO s use of unforced capacity ( UCAP when setting resource adequacy requirements and the use of coincident peak loads. As Mr. Athas notes, the reliability of EAI s units could cause the reserve margin requirement to be lower. In short, EAI already is conducting, or planning to conduct, the types of analyses that Mr. Athas contemplates for EAI as a member of MISO. EAI agrees with Mr. Athas conclusion that these types of analyses were not feasible when the EAI 0 RFP was issued, but that they now should be considered as part of EAI s resource planning and procurement process. Athas Phase II Direct Testimony at. - -

6 Docket No. -0-U B. Planned Deactivations Q. DESCRIBE MR. ATHAS RECOMMENDATION WITH REGARD TO HOW EAI SHOULD CONSIDER PLANNED UNIT DEACTIVATIONS. A. Mr. Athas recommends that EAI consider any unit that is not fully committed to a retirement schedule in the planning and procurement process, and, at a minimum, test the uncertainty in a sensitivity analysis to estimate the risk of retiring, or not retiring, the unit. 0 Q. DO YOU AGREE WITH MR. ATHAS RECOMMENDATION? A. Yes. Mr. Athas recommendation is reasonable and is consistent with how EAI plans to assess whether specific generating units should be retired in the future. However, I make one clarifying point with regard to the EAI 0 RFP. Mr. Athas points out that EAI could not offer Lake Catherine Unit as an option in the EAI 0 RFP because it had not, at that time, decided to make the investment required to achieve a year life-span for the unit. To clarify, when EAI issued this RFP, the basis for its capacity need 0 was the 0 projected resource requirements for multiple post-system Agreement scenarios. Each of these scenarios included the retail portion of Lake Catherine Unit as a resource in 0. As I explained at that time in Docket No. 0-0-U, EAI s projected capacity deficit in 0 for Id at. Id. - -

7 Docket No. -0-U all scenarios ranged from 0 MW to,0 MW. Thus, the EAI 0 RFP was intended to solicit limited-term, flexible capacity to meet EAI s generation needs above and beyond the decision to continue to operate Lake Catherine Unit. Additionally, as explained in EAI s response to APSC -(a, which Mr. Athas references in his testimony, the costs for approximately MW of the Lake Catherine Unit capacity was allocated to EAI s wholesale business and thus not available to serve EAI s retail customers. Consequently, this portion of capacity could not be offered into the EAI 0 RFP. 0 C. Independent Monitor Q. DESCRIBE MR. ATHAS RECOMMENDATION WITH REGARD TO THE USE OF AN IM. A. Mr. Athas recommends that EAI tailor use of an IM in all future RFPs to help control costs and expedite Staff s review and evaluation of future purchased power agreements. 0 0 Q. DO YOU AGREE WITH THIS RECOMMENDATION? A. Yes. EAI has previously based its decision on whether or not to utilize an IM solely on the characteristics of the RFP, influenced by EAI s desire to Docket No. 0-0-U, Castleberry Supplemental Direct Testimony at (June, 0. See EAI s response to APSC -(a. 0 Athas Phase II Direct Testimony at

8 Docket No. -0-U control costs on the front-end. As Mr. Athas points out, expenditures on the front-end for an IM could help facilitate Staff s review and evaluation once the RFP process is complete. Additionally, Mr. Athas suggests that, in using an IM, EAI can take steps to help control costs, such as tailoring the scope of the IM s involvement based upon the characteristics of the RFP. EAI agrees that it can balance the costs and benefits of an IM through limiting the scope of review based on the characteristics of the RFP at the time, thus providing Staff the confidence it seeks in the RFP process. 0 Q. DOES THIS CONCLUDE YOUR TESTIMONY? A. Yes. - -

9 CERTIFICATE OF SERVICE I, Steven K. Strickland, 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 th day of March 0. /s/ Steven K. Strickland Steven K. Strickland