ML24107B040
| ML24107B040 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf  |
| Issue date: | 04/16/2024 |
| From: | Gaston R Entergy Operations |
| To: | Office of Nuclear Reactor Regulation, Document Control Desk |
| References | |
| CNRO2024-00010 | |
| Download: ML24107B040 (21) | |
Text
Ronald Gaston Vice President, Regulatory Assurance 601-368-5138
CNRO2024-00010
April 16, 2024
ATTN: Document Control Desk U.S. Nuclear Regulatory Commission Washington, DC 20555-0001
Subject:
Notification by Entergy Operations, Inc., of Proposed Economic Performance Incentive and Reliance on Post-Event Improvements in Plant Procedures and/or Methods of Operation in FERC Docket No. EL21-56-002
Reference:
Possible Safety Impacts of Economic Performance Incentives: Final Policy Statement (July 18, 1991) (1991 Final Policy Statement) 1
Grand Gulf Nuclear Station, Unit 1 NRC Docket No. 50-416 Renewed Facility Operating License No. NPF-29
Pursuant to the above-referenced 1991 Final Policy Statement, the purpose of this letter is for Entergy Operations, Inc., on behalf itself as the licensed operator of the Grand Gulf Nuclear Station (GGNS) and System Energy Resources, Inc. (SERI, which is one of the licensed owners of GGNS), to provide notice to the Commission that, in an administrative complaint proceeding currently set for hearing before the Federal Energy Regulatory Commission (FERC), certain state retail regulatory commissions are (1) proposing that FERC adopt an economic performance incentive in SERIs rate going forward, and (2) urging FERC to rely on improvements made at GGNS following various inc idents to infer that GGNSs prior procedures and methods of operation were imprudent.
Background
The 1991 Final Policy Statement announces the Commissions position that some specific features of economic performance incentive programs imposed on commercial nuclear power plants could adversely affect public health and safety, and it identified features of particular concern. These are (1) Sharp thresholds between rewards and penalties (or between penalties and null zones, or rewards and null zones) and (2) performance measurements that have short time intervals. The 1991 Final Policy Statement also identifies features that could potentially alleviate the Commissions concern that an economic performance incentive not create adverse incentives for a nuclear plant to prioritize output over safety. Such features include (1) capacity factor targets based upon industry's average performance to account for problems throughout
1 Available at 56 Fed. Reg. 33,945 (July 24, 1991).
Entergy Operations, Inc. and Entergy Nuclear Operations, Inc., 1340 Echelon Parkway, Jackson, MS 39213 CNRO2024-00010 Page 2 of 4
the industry, (2) equal opportunities for rewards and penalties, (3) the banking of superior performance to offset lower performance, and (4) using performance measures of the entire system instead of those for a specific unit. Finally, the 1991 Policy Statement requests by generic letter that licensees report whenever these commissions develop or substantially revise
[economic performance incentives]. In addition to addressing economic performance incentives and the perverse incentives they may create for licensees, the 1991 Policy Statement also expressed the Commissions concern that rate regulatory commissions should not penaliz[e] a utility for improving its own procedures or methods of operation. For example, where a State public utility commission observes that a utility has modified its procedures following an incident, infers from the utilitys actions that the original procedures must have been inadequate, and then disallows certain costs on the basis of such assumed inadequacies, the utility will have a strong disincentive voluntarily to enhance or improve its operations and procedures in the future. Such State public utility commission action can discourage utilities from making needed improvements in procedures and operations and, thus, can be detrimental to the long-term safety of operations.
FERC Docket No. EL21-56-002
In March 2021, a complaint against SERI was filed by the three state retail rate regulatory commissions with responsibility for the retail rates charged by the utility customers of SERI to the ultimate end-purchasers of energy and capacity supplied by GGNS. The complaint was assigned FERC Docket No. EL21-56. In the complaint, the complainants argue, inter alia, that GGNSs operational performance in the period 2016-2020 is the result of imprudence, and they seek monetary damages/refunds as to past events and the imposition of an economic performance incentive rate mechanism going forward. In response, SERI filed a motion to dismiss the complaint on multiple grounds.
In November 2022, FERC set the complaint for hearing and settlement procedures. In June 2023, settlement procedures were terminated, and hearing procedures began. In December 2023, the complainants filed their direct case in the form of testimony submitted by four separate witnesses.
The complainant retail regulators are recommending that FERC impose upon SERI an economic performance incentive rate mechanism, and they have identified two proposals:
A witness for the Louisiana Public Service Commission is advocating that SERI be assessed a penalty if its capacity factor drops below 90%; and The witness for the Council of the City of New Orleans is advocating that SERI be assessed a penalty if its capacity factor is more than one standard deviation below the nationwide fleet average, such that SERIs ability to earn a profit (measured by its return on equity) would be progressively reduced below one standard deviation below the nationwide fleet average, and would be reduced all the way to zero if its capacity factor were to drop to 68% or lower.
SERI is enclosing excerpts of the testimonies that discuss the proposals. 2 Neither proposal includes allowance for safety-related derates or outages. For this and other reasons, SERI intends to oppose both of the proposals in the proceedings at FERC, but at this stage SERI cannot say what FERC will do in response to the retail regulators proposals.
2 Enclosures 1 & 2.
CNRO2024-00010 Page 3 of 4
Separately from the economic performance incentive proposals, the complainants are seeking substantial backward-looking damages/refunds by alleging that prior conduct at GGNS was imprudent. In this effort, complainants have relied, inter alia, on improvements in procedures and methods of operation that GGNS has adopted in the wake of certain events, to argue that the prior procedures and methods of operations were imprudent. For example, the complainants claim that GGNSs extended outage that began in the fourth quarter of 2016 and that was taken to address concerns with operator fundamentals, as well as its related programs to improve, are evidence of imprudence. 3 Similarly, they argue that the fact that certain plant procedures were revised after the 2020 refueling outage offers some evidence of mismanagement during the refueling outage. 4
SERI is providing this letter to the Commission for informational purposes. Under the current procedural schedule in the FERC proceeding, an initial decision by the presiding administrative law judge is due in July 2025. If the presiding administrative law judge recommends, or if the FERC orders, that SERI must be subject to one of the proposed economic performance incentive mechanisms or that SERIs post-event improvements in procedures and/or methods of operation shows that pre-event procedures and/or methods of operation were imprudent, SERI commits to provide a letter report further updating the Commission.
This submittal contains no new regulatory commitments. Should you have any questions or require additional information, please contact me at (601) 368-5138.
Respectfully,
Ron Gaston
PLC/plc/kap
3 See, e.g., Direct Testimony of Donald Grace (Revised Jan uary 30, 2024), at p. 41 (Q: IS IT THEN CORRECT TO SAY THAT YOUR POSITION IS THAT IMPRUDENT MANAGEMENT ON THE PART OF GRAND GULF CREATED THIS SITUATION WHERE GRAND GULF FELT COMPELLED TO STAY SHUTDOWN, AND THIS ROUGHLY FIVE MONTH SHUTDOWN OF THE PLANT SHOULD BE CONSIDERED THE RESULT OF IMPRUDENCE? A: Yes, that is CTCs position. Q: COULD WE NOT THEREFORE CONCLUDE THAT GRAND GULF HAD RECOVERED FROM A DEGRADED CONDITION BY LATE JANUARY 2017, AND IF NOT, WHY NOT? A. Their degraded performance has been previously mentioned regarding capacity factor and the NRC ROP Categorizati ons demonstrates that they had not recovered. In addition, the fact that they initiated and are continuing with programs to improve upon the 3 Ps (i.e., People, Plant Condition, and Processes) supports the argument that by late January 2017 they had not yet improved to a reasonable level. ) (emphasis added); see also id. at 45 (table 7 proposing the assessment of damages based on claim of imprudence).
4 Direct Testimony of Edward Kee (Revised February 7, 2024), at p. 133 (citing in part licensee event reports description that corrective action will be to revise plant procedures to isolate the initiation logic before performing this surveillance with a work order to remove the channel associated with the common sensing lines to prevent safety system initiation.); see also id. at p. 42 (noting that a corrective action included a revision of procedures), p. 52 (similarly citing creation of an offnormal event procedure as a corrective action), p. 62 (similarly citing revision of si te operational procedures as a corrective action), p.
152 (similarly citing revision of a procedure as a co rrective action to preclude repetition), and p. 158 (similarly citing revising the primary water system operating procedure as a corrective action).
CNRO2024-00010 Page 4 of 4
Enclosures:
- 1) Excerpt of Testimony from Council of the City of New Orleans
- 2) Excerpt of Testimony from Louisiana Public Service Commission
cc: NRC Region IV-Regional Administrator NRC Senior Resident Inspector-Grand Gulf Nuclear Station, Unit 1 NRC Project Manager-Grand Gulf Nuclear Station, Unit 1 LOUISIANA PUBLIC SERVICE
- COMMISSION
- COUNCIL OF THE CITY OF
- NEW ORLEANS, LOUISIANA
- VERSUS
- SYSTEM ENERGY RESOURCES, INC.,
- DOCKET NO. EL21-56-002 ENTERGY SERVICES, LLC,
- ENTERGY OPERATIONS, INC.,
- DIRECT TESTIMONY OF BYRON S. WATSON ON BEHALF OF THE COUNCIL OF THE CITY OF NEW ORLEANS
December 22, 2023 Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 1 of 24 FERC Docket No. EL21-56-002
1 I. INTRODUCTION
2 Q. PLEASE STATE YOUR NAME, ADDRESS, AND POSITION.
3 A. My name is Byron S. Watson. My business address is 6041 S. Syracuse Way, Suite 105,
4 Greenwood Village, Colorado. I am a Senior Consultant with the firm Legend Consulting Group
5 Limited.
6 Q. PLEASE DESCRIBE YOUR BACKGROUND AND QUALIFICATIONS.
7 A. I received a Bachelor of Science degree in Electrical Engineering from Southern Methodist
8 University in 1989. In 1991, I received a Master of Business Administration degree from Emory
9 University. In 2009, I received the Chartered Financial Analyst (CFA) designation, and I am an
10 active member of the CFA Institute. In 2014, I received the Certified Rate of Return Analyst
11 designation from the Society of Utility Regulatory Financial Analysts (SURFA), and I am an
12 active member of SURFA.
13 In 2013, I became a Senior Consultant with Legend which provides engineering, economic,
14 financial, and regulatory consulting services and serves as the Technical Advisors to the Council
15 of the City of New Orleans (Council), a role in certain ways analogous to that served by a retail
16 regulators staff. As a Technical Advisor for the Council, my responsibilities include analysis and
17 testimony related to electric and gas utility revenue requirements, cost of service, strategic
18 planning, economic analysis, and regulatory ratemaking. I have sponsored testimony before state
19 regulatory bodies as well as the Council, including testimony recommending retail regulatory
20 ratemaking treatment for Entergy New Orleans, LLC (ENO).2 In addition, I have sponsored
21 testimony before the Commission on various regulatory and ratemaking matters.3 Relevant here, I
2 See Ex. No. CNO-0002 (Byron S. Watson Experience).
3 Id.
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 2 of 24 FERC Docket No. EL21-56-002
1 sponsored testimony regarding an Entergy affiliates, System Energy Resources, Inc. (SERI),
2 cost recovery in FERC Docket Nos. EL18-152 and EL20-72.
3 Q. ON WHOSE BEHALF ARE YOU TESTIFYING IN THIS PROCEEDING?
4 A. I am sponsoring this testimony on behalf of the Council, which has retail regulatory authority over
5 ENO.
6 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
7 A. The purpose of my testimony is to present my analyses related to ratepayer harm over the period
8 2016-2020 caused by the imprudent management of Unit No. 1 of Grand Gulf Nuclear Station
9 (Grand Gulf). I also discuss and recommend a performance incentive mechanism relative to
10 Grand Gulfs operations and Unit Power Sales Agreement (UPSA) billings. For the period related
11 to the instant complaint and, to my understanding, for the entire history of the UPSA tariff
12 (described below) to date, SERI has been able to invoice the Purchasers (defined below) its full
13 cost of service relative to its interest in Grand Gulf based on the formula rate included in the UPSA.
14 These billings were, and continue to be, invoiced, regardless of Grand Gulfs output (i.e., such
15 billings are decoupled from Grand Gulfs actual output; stated differently, the amounts invoiced do
16 not decrease if Grand Gulfs output decreases). Of note, my testimony focuses solely on the
17 ratepayer impact resulting from the imprudent management of Grand Gulf and does not include
18 analysis of Grand Gulfs imprudent management; rather, I rely on other expert testimony regarding
19 this issue.
20 Q. DOES YOUR DIRECT TESTIMONY RELY ON THE FINDINGS AND
21 RECOMMENDATIONS OF OTHER WITNESSES ON BEHALF OF THE
22 REGULATORS?
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 18 of 24 FERC Docket No. EL21-56-002
1 Q. WHAT IS YOUR RECOMMENDATION REGARDING PURCHASER HARM
2 CALCULATIONS?
3 A. As my review of SERIs accounting for and UPSA billings of fuel costs concludes that SERI
4 eventually bills all of its fuel costs, even in the event of a Grand Gulf downpower or outage event,
5 I recommend that Your Honor not offset (i.e., reduce) any harm or refund calculations by any
6 amount intended to reflect fuel savings, including fuel savings related to downpower or outage
7 event.
8 V. PERFORMANCE INCENTIVE MECHANISM
9 Q. WHAT IS A PERFORMANCE INCENTIVE MECHANISM IN THE CONTEXT OF SERI
10 AND THE UPSA?
11 A. As stated above, for the period related to the instant complaint, and to my understanding, for the
12 entire history of the UPSA to date, SERI has been able to invoice the Purchasers its full cost of
13 service relative to its interest in Grand Gulf based on the UPSA formula rate. These billings were
14 not affected by Grand Gulfs output; as I discuss above in this testimony, Fuel Expense billings
15 may decrease temporarily due to a Grand Gulf downpower or outage event, but SERI eventually
16 recovers all of its fuel expenses. In the discussion that follows, I am recommending a performance
17 incentive mechanism that would adjust SERIs UPSA billings based on Grand Gulfs performance.
18 Q. WHAT IS THE PURPOSE OF ANY SERI PERFORMANCE INCENTIVE MECHANISM?
19 A. As the name suggests, a performance incentive mechanism would provide Entergy with an
20 incentive to prudently operate Grand Gulf in line with the operations of other US nuclear generating
21 facilities. Such an incentive may serve to protect the Purchasers retail ratepayers from the harm
22 that Grand Gulfs imprudent management has caused, as Grand Gulfs managements behavior
23 would be informed by the presence of the incentive mechanism.
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 19 of 24 FERC Docket No. EL21-56-002
1 Q. HAS ENTERGY PROPOSED PERFORMANCE INCENTIVE MECHANISMS IN THE
2 PAST?
3 A. Yes. I am aware of an ENO retail proceeding (Council Docket No. UD-18-07), where ENO
4 proposed a Return on Equity (ROE) modifier based on the operational reliability of ENOs
5 electric distribution system. ENO referred to this as a Reliability Incentive Mechanism, whereby
6 the earnings component of its electric base rates be correlated to reliability performance through
7 an adjusted return on equity formula.30 The Council did not adopt ENOs proposal in part because
8 the issue of distribution reliability was being addressed separately.31
9 Q. WHY IS A PERFORMANCE INCENTIVE MECHANISM APPROPRIATE IN THE
10 INSTANT PROCEEDING?
11 A. The retail regulatory process before the Council is capable of addressing management issues
12 relatively quickly compared to complaints before the Commission. SERI is able to recover its exact
13 costs through UPSA billings, but any action related to alleged irregularities involving SERI and the
14 UPSA can take years to resolve. For example, the complaint in Docket No. EL17-41, which relates
15 to SERIs allowed ROE, was filed on January 23, 2017, yet it remains unresolved and that
16 complaints refund period has long since expired. A performance incentive mechanism can be more
17 timely and more effective in incentivizing the desired management decisions from Entergy as
18 compared to a complaint filed before the Commission.
19 Q. HAVE YOU IDENTIFIED ANY CONCERNS REGARDING ANY PERFORMANCE
20 INCENTIVE MECHANISM INCLUDED IN THE UPSA?
30 Revised Application of Entergy New Orleans, LLC for a Change in Electric and Gas Rates Pursuant to Council Resolutions R-15-194 and R-17-504 and for Related Relief, Docket No. UD-18-07, at 2 (filed Sept. 21, 2018).
31 See Council Resolution No. R-19-457 at 106 (the Council finds that ENO's proposed [Reliability Incentive Mechanism] Plan should be denied, and the issue of reliability standards and any penalties for failing to meet them should be taken up in Council Docket No. UD-17-04 rather than in this rate case).
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 20 of 24 FERC Docket No. EL21-56-002
1 A. Yes. First, any penalties for Grand Gulfs failure to perform in line with industry standards should
2 not be so great as to render Grand Gulf economically inoperable from SERIs perspective. I note
3 that Entergy has deactivated and sold all of its merchant (i.e., not rate regulated) nuclear units. I
4 understand this decision to be based in part on economics. As such, Grand Gulfs continued
5 economic operation from SERIs perspective rests upon the guaranteed cost recovery provided
6 through the UPSA. Should a performance incentive mechanism constitute a substantial threat to
7 SERIs ability to recover its costs, SERI could have reason to cease Grand Gulfs operations, an
8 event that is not the intent of the complaint in this proceeding. Further, it is conceivable that a
9 performance incentive mechanism of excessive magnitude could incent Entergy to operate Grand
10 Gulf at the limit of relevant safety standards in order to avoid any penalties.
11 Q. GIVEN THESE CONCERNS, HOW SHOULD A PERFORMANCE INCENTIVE
12 MECHANISM BE CONSTRUCTED?
13 A. A performance incentive mechanism should not prevent SERI from recovering its prudently
14 incurred costs through UPSA billings. Rather, any penalties resulting from a violation of the
15 performance incentive mechanism should come from SERIs profits, which can be viewed as the
16 return on SERIs rate base at the equity component of SERIs cost of capital. To prevent a
17 performance incentive mechanism from being too heavy-handed and conceivably affecting
18 Entergys safety-related decision making, a performance incentive mechanism should only engage
19 when Grand Gulf has operated demonstrably below industry standards for a substantial period
20 (discussed below).
21 Q. SHOULD SERI RECEIVE A BONUS FOR ACCEPTABLE GRAND GULF
22 PERFORMANCE?
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 21 of 24 FERC Docket No. EL21-56-002
1 A. No. My review of EIA data, specifically the Monthly Nuclear Utility Generation (MWh) by State
2 and Reactor Excel files titled USREACTXX,32 where XX represents a year, indicates that the
3 strong majority of US nuclear generating units operate at a high CF. While I do not offer expert
4 testimony as to nuclear facility management or hold myself out as an expert in this area, these data
5 demonstrate to me that Entergy should be able to operate Grand Gulf according to industry
6 standards without the need of an incentive bonus.
7 Q. HOW DO YOU RECOMMEND DEFINING ANY GRAND GULF PERFORMANCE
8 DEMONSTRABLY BELOW INDUSTRY STANDARDS?
9 A. I recommend that the first penalties under my recommended performance incentive mechanism
10 begin when Grand Gulfs CF as compared to its summer rating of 1,401 MW falls from this measure
11 by one standard deviation of the US nuclear fleets CF as measured by the Monthly Nuclear Utility
12 Generation (MWh) by State and Reactor Excel files. I understand that Mr. Don Grace is filing a
13 statistical analysis of the fleet simultaneously with my Direct Testimony. My understanding of this
14 analysis is that the US nuclear fleets (without Grand Gulf) mean CF is in the range of 93%
15 (including the effect of Refueling Outages (RFO)) and the standard deviation of this fleet is in
16 the rough range of 5% for the period 2020-2022. As such, penalties under the performance incentive
17 mechanism begin when Grand Gulfs CF may fall below 88% (93% - 5%). Further, per the
18 identified concerns, I recommend that this measure be calculated annually across two years as of
19 the end of a calendar year. This annual measurement across two years addresses Grand Gulfs bi-
20 annual RFO schedules consistent with the US nuclear fleets mean CF reflecting their respective
21 RFOs.
32 See U.S. Nuclear Generation and Generating Capacity, U.S. Energy Information Administration (Nov.
28, 2023), https://www.eia.gov/nuclear/generation/.
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 22 of 24 FERC Docket No. EL21-56-002
1 Q. HOW DO YOU RECOMMEND THAT GRAND GULFS CAPACITY FACTOR BE
2 MEASURED?
3 A. I recommend that the following formula be employed to calculate Grand Gulfs two-year capacity
4 factor for the purpose of the performance incentive mechanism, which I have designated PIMCF.
5 PIMCF = Actual MWh Net Generation From Grand Gulf in Year 1 + Actual MWh Net Generation
6 From Grand Gulf in Year 2) / ((1,401 MW * (Hours in Year 1 + Hours in Year 2)). Year 1 and
7 Year 2 represent the two calendar years prior to the measurement date of CF (e.g., if the
8 measurement were as of December 31, 2023, Year 1 would be 2022 and Year 2 would be 2023).
9 Years other than leap-years have 8,760 hours0.0088 days <br />0.211 hours <br />0.00126 weeks <br />2.8918e-4 months <br />, while leap years have 8,784 hours0.00907 days <br />0.218 hours <br />0.0013 weeks <br />2.98312e-4 months <br />. I recommend that
10 Grand Gulfs Actual MWh Net Generation amounts be obtained from the North American Electric
11 Reliability Corporation (NERC) Generating Availability Data System (GADS),33 which is an
12 industry standard reporting system.
13 Q. WHEN DO YOU RECOMMEND THAT GRAND GULFS CF BE CALCULATED?
14 A. NERCs reporting deadline for data required to calculate PIMCF is due February 15 the year
15 following the reporting period.34 As such, SERI will have the required data no later than February
16 15 of each year. As the calculation of PIMCF is straightforward, I recommend that any adjustments
17 to UPSA billings be effective the February Grand Gulf operations month (April billing month).
18 Q. WHAT MECHANISM DO YOU RECOMMEND TO ADJUST UPSA BILLINGS WHEN
19 GRAND GULFS CF FALLS BELOW 88%?
20 A. To address the concern as to SERIs recovery of its prudently incurred costs, I recommend that
21 SERIs equity ratio be reduced, thus reducing the effective profit from its ROE. Specifically, I
33 See Generating Availability Data System (GADS), North American Elec. Reliability Corp. (2023),
https://www.nerc.com/pa/RAPA/gads/Pages/GeneratingAvailabilityDataSystem-(GADS).aspx.
34 Id.
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 23 of 24 FERC Docket No. EL21-56-002
1 recommend that SERIs Common Equity Capitalization Ratio35 for the purpose of UPSA bill
2 calculations be multiplied by a factor of 1-5*(0.88-PIMCF), where the factor cannot exceed 1 or
3 be less than zero. SERIs Debt Capitalization ratio becomes 1 minus the Common Equity
4 Capitalization Ratio to keep the sum equal to 1 or 100%. To be clear, my recommendation would
5 not affect SERIs actual capitalization or its reporting of such in disclosures such as the Form 1 or
6 Entergy Corporations SEC 10-k annual report. The effect of this formula is that SERIs
7 Capitalization Ratio is reduced to zero linearly as SERIs CF falls from 88% to 68% (i.e., falls from
8 one to three standard deviations below the US nuclear fleets mean CF). The below graph illustrates
9 my recommended Common Equity Capitalization Ratio factor.
10
11 Q. WHAT IS THE APPROXIMATE MAXIMUM PENALTY SERI COULD INCUR UNDER
12 YOUR RECOMMENDED PERFORMANCE INCENTIVE MECHANISM?
35 See UPSA, Attachment A, line 5 at 5 (UPSA Development of Cost of Capital).
Direct Testimony of Byron S. Watson Ex. No. CNO-0001 On behalf of the Council of the City of New Orleans Page 24 of 24 FERC Docket No. EL21-56-002
1 A. Had Grand Gulfs Common Equity Capitalization Ratio factor been zero (i.e., PIMCF of 68% or
2 less, or five standard deviations below the US nuclear fleets mean CF) in 2022, I estimate that its
3 total UPSA billings to all Purchasers would have been $112 million less than a Common Equity
4 Capitalization Ratio factor of 1 (i.e., what was actually billed in 2022).36
5 Q. DOES THIS CONCLUDE YOUR TESTIMONY?
6 A. Yes.
36 I note that in 2022, some months UPSA bills calculations were different for EML than for the other Purchasers due a settlement in various proceedings before the Commission. These calculations are based on total UPSA billings without the effect of this settlement.
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
LOUISIANA PUBLIC SERVICE
- COMMISSION
- COUNCIL OF THE CITY OF
- NEW ORLEANS, LOUISIANA
- VERSUS
- SYSTEM ENERGY RESOURCES, INC.,
- DOCKET NO. EL2 l -5 6-002 ENTERGY SERVICES, LLC,
- ENTERGY OPERATIONS, INC.,
- AFFIDAVIT OF BYRON S. WATSON
Byron S. Watson, being first duly sworn, deposes and says that he is the same Byron S.
Watson whose testimony accompanies this signed affidavit; that such testimony was prepared by
him; that he is familiar with the contents thereof ; that the facts set therein are true and correct to
the best of his knowledge, information and belief; and that he does adopt the same as his sworn
1 testimony in this proceeding.
Dated: December 21, 2023
STATE OF COLORADO )
)ss.
County of Arapahoe )
The foregoing instrument was acknowledged before me on December 21, 2023 by Byron S. Watson.
My commission expires: Witness my hand and official seal.
May 31, 2024
Susan L. Murray, Nota,y Public of the State of Colo
SUSAN L. MURRAY Notary Pub lic State o f Co lorado Nota ry I D #2012 4033849 My Commission Expires 05-31-?0~~,
....... - - ***---*---.- --*~.. ----*-~--..... **-.
2 PUBLIC VERSION CUI//PRIV INFORMATION HAS BEEN REDACTED
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION
LOUISIANA PUBLIC SERVICE
- COMMISSION
- ARKANSAS PUBLIC SERVICE
- COMMISSION
- COUNCIL OF THE CITY OF NEW
- ORLEANS, LOUISIANA
- DOCKET NO. EL21-56-002 VERSUS
- SYSTEM ENERGY RESOURCES,
- INC.,
- ENTERGY SERVICES, LLC
- ENTERGY OPERATIONS, INC.
- PREPARED DIRECT TESTIMONY
OF
R. LANE SISUNG (PUBLIC VERSION)
ON BEHALF OF THE
LOUISIANA PUBLIC SERVICE COMMISSION
DECEMBER 22, 2023
5366535v.1 Direct Testimony of R. Lane Sisung Exhibit No. LC-0118 PUB Page 226 of 228
1 Q. HAVE YOU BEEN ABLE TO QUANTIFY THE EFFECTS OF LOST 2 GRAND GULF PRODUCTION ON LOCATIONAL MARGINAL PRICES?
3 A. Not in the time available. The calculation of the supply reduction effects will be
4 difficult, but we are working on developing a method for estimating the effects and
5 avoiding a double count of the replacement power costs.
6 Q. WHAT OTHER METHOD CAN BE USED?
7 A. A second way to calculate damages from Grand Gulf's inadequate performance is
8 to determine what customers paid for that they did not receive - "expectancy
9 damages." This approach captures various categories of costs and is consistent with
10 the competitive environment, which economic regulation should emulate. In a
11 competitive market, if a consumer pays for a product that is not delivered, he or she
12 gets the payment back. To provide a cushion for SERI, the Retail Regulators chose
13 a 90 percent capacity factor for Grand Gulf as the minimum unit output for System
14 Energy to be eligible for full payment, which is approximately three percent below
15 the national average nuclear output.
16 Q. HOW WOULD THIS CALCULATION BE MADE?
17 A. Grand Gulf's achieved annual capacity factors since 2012 have produced far less
18 energy than customers were paying for. If the amount of energy output from Grand
19 Gulf achieved even a 90 percent capacity factor, three percent less than the national
20 average, the unit would produce 9,940,936 MWh per year. This is the minimum
- 226 -
5366535v.1 Direct Testimony of R. Lane Sisung Exhibit No. LC-0118 PUB Page 227 of 228
1 performance level the Retail Regulators request in a prospective performance-based
2 tariff and allows leeway to System Energy for output reductions it may not have
3 caused. Customers paid for energy output at least at that level or higher. The actual
4 output in most years, however, fell well short of that level. The shortfall in MWh,
5 from the 90 percent level, multiplied by the average per-MWh cost that would have
6 been reflected at the 90 percent level (excluding average fuel cost), was the
7 following:
8 9 ENERGY PAID FOR, NOT DELIVERED 10
11 $1,002,119,492 12 13 14 Q. DOES THIS CALCULATION DOUBLE COUNT ANY UPRATE COSTS?
15 A. No. The uprate disallowance should be added.
- 227 -
5366535v.1 Direct Testimony of R. Lane Sisung Exhibit No. LC-0118 PUB Page 228 of 228
1 Q. WHAT ABOUT REPLACEMENT ENERGY COSTS?
2 A. It would be a theoretical inconsistency to assess both replacement energy and lost
3 energy costs under this method.
4 Q. ARE THERE LIMITS TO THIS METHOD?
5 A. Yes. It calculates the lost expected energy value, but does not account for excessive
6 capital, operation and maintenance, or regulatory compliance costs.
7 Q. ARE THERE OTHER DISALLOWANCES THAT SHOULD BE APPLIED?
8 A. Yes. If SERI is found to have violated its tariff or to have been imprudent, its legal
9 and expert witness expenses attributable to this litigation should be disallowed, to
10 the same extent the "good utility practice" and imprudence claims of the Retail
11 Regulators are upheld.
12 CONCLUSION
13 Q. DOES THIS CONCLUDE YOUR TESTIMONY?
14 A. Yes.
- 228 -
5366535v.1 AFFIDAVIT
Robert Lane Sisung, being first duly sworn, deposes and says that he is the same Robert
Lane Sisung whose testimony accompanies this signed affidavit: that such testimony was prepared
by him; that he is familiar with the contents thereof; that the facts set forth therein are true and
correct to the best of his knowledge, information and belief; and that he does adopt the same as his
sworn testimony in this proceeding.
Robe^Lane Sisum
Subscribed and sworn before me on this.y^n J day of uZCC
Justin A. Swaim My Commission Expires: State of Louisiana-Notarial ID No. 144181 My commission is issued life