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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 ) DOCKET NO. 17-041-U POWER PURCHASE AGREEMENT FOR A ) RENEWABLE RESOURCE AND FOR ) RECOVERY OF AN ADDITIONAL AMOUNT )
PETITION FOR A DECLARATORY ORDER AND APPROVAL OF A POWER PURCHASE AGREEMENT FOR A RENEWABLE SOLAR RESOURCE AND FOR RECOVERY OF AN ADDITIONAL AMOUNT
COMES NOW ENTERGY ARKANSAS, INC. ("EAI" or the “Company”), and for its Petition for a Declaratory Order and Approval of a Power Purchase
Power Agreement (“PPA”) for a Renewable Solar Resource and for Recovery of
an Additional Amount (“Application”), states:
DESCRIPTION OF THE COMPANY
1. The Company is a corporation organized and existing under the
laws of the State of Arkansas, and is a public utility, as defined by Ark. Code
Ann. § 23-1-101 et seq., subject to the jurisdiction of the Arkansas Public Service
Commission (“APSC” or the “Commission”). The Company’s principal place of
business is located at the Simmons Tower Building, 425 West Capitol Avenue,
Little Rock, Arkansas 72201. A copy of the Company’s Agreement of
Consolidation of Merger (Articles of Incorporation) is on file with the APSC and is
hereby incorporated by reference.
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2. The Company’s property consists of facilities for the generation,
transmission, and distribution of electric power and energy to retail and
wholesale customers. These facilities are located principally in the State of
Arkansas. As of December 31, 2016, the Company provided retail electrical
service subject to the jurisdiction of the Commission to a total of 706,879 customers. Of these customers, 589,524 were residential; 92,791 were commercial; 23,858 were industrial; and 706 were public agencies, institutions, or others.
3. EAI owns or operates two nuclear generating units, four coal-fueled generating units, four hydroelectric plants, one large natural gas-fueled steam electric generation station, and three natural combined-cycle gas turbine
(“CCGT”) generating facilities. In addition, EAI purchases capacity and associated energy from the Grand Gulf Nuclear Station in Mississippi. These resources provide EAI with approximately 5,265 MW of generating capability that is available to serve its customers. EAI also owns and operates approximately
938 circuit miles of extra high voltage transmission lines of 345 kV or greater;
169 circuit miles of transmission lines of 230 kV; 3,620 circuit miles of transmission lines of 161 kV and lower; transmission substations, distribution substations, and associated facilities necessary to provide electric service.
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JURISDICTION,
LEGISLATIVE FINDINGS, AND RELIEF REQUESTED
4. This Application for approvals related to a solar PPA is filed pursuant to Ark. Code Ann. § 23-2-301, Act 1088,1 Ark. Code Ann. § 23-18-701, et. seq. (the “Arkansas Clean Energy Development Act”) together with Ark. Code
Ann. § 23-18-502(c)(1) (part of the “Utility Facility and Environmental and
Economic Protection Act”), and Section 4 of the Commission’s Rules of Practice and Procedure.
5. With its passage of the Arkansas Clean Energy Development Act of
2012, the General Assembly found that “it is in the public interest to require all electric…public utilities subject to the jurisdiction of the [APSC] to consider clean energy and the use of renewable energy resources as part of any resource plan…”2 Accordingly, by law:
All electric and natural gas public utilities subject to the jurisdiction of the [APSC] shall consider clean energy and the use of renewable resources as part of any resource plan or natural gas procurement plan.3
The 2012 Act provides that the Commission may approve any clean energy resource or renewable energy resource that it determines to be in the public interest.4 Further, the General Assembly included as part of the Utility Facility
1 Act 1088 amends Arkansas Code Title 23, Chapter 18, Subchapter 1 to add Ark. Code Ann. §23-18-108 regarding PPAs. 2 Ark. Code Ann. § 23-18-701. 3 Ark. Code Ann. § 23-18-702. 4 Ark. Code Ann. § 23-18-703(a)(3).
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and Environmental and Economic Protection Act the finding that “laws and practices relating to the…operation of the utility facilities should provide for the protection of environmental values, encourage the development of alternative renewable and nonrenewable energy technologies that are energy-efficient, and take into account the total cost to society of the facilities…”5 The PPA in this case is consistent with all of the General Assembly’s findings by virtue of its nature as a solar, renewable resource, the procurement of which is in the public interest.
6. Ark. Code Ann. § 23-18- 109 provides that a utility cannot enter into a PPA for a term longer than five years without a finding from the Commission that: (1) the cost of the PPA is reasonable and prudent; (2) the PPA will provide savings for retail customers as compared to other generation and power supply options over the term of the PPA; (3) the PPA is required by public convenience and necessity; (4) the PPA is necessary to supplement or replace the utility’s existing generation sources; and (5) approval of the PPA is in the public interest.6
Further, after making such findings approving the PPA, the APSC may approve the utility’s recovery of the costs of the PPA over the term of the PPA.7 This statute also provides the Commission with the authority to authorize the utility to recover an additional sum in connection with the PPA, stating:
5 Ark. Code Ann. § 23-18-502(c)(1). 6 Ark. Code Ann. § 23-18- 109(c)(1) – (5). 7 Ark. Code Ann. § 23-18- 108(d).
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(e)(1)(A) If the commission approves a [PPA] under this section, the commission may authorize the utility to recover an additional sum as determined by the commission in recognition of the unique characteristics of the [PPA] if the commission finds that including the additional sum is in the public interest. (B) However, an additional sum is not appropriate if the generator party to the [PPA] is an affiliate of the utility. (2) In determining the additional sum allowed under subdivision (e)(1) of this section, the commission may consider: (A) The risks of the [PPA]; (B) A commensurate return on the [PPA] as would be allowed for an equivalent investment in a power plant; (C)(i) An equitable sharing of any savings between the utility and the retail customers of the utility. (ii) However, the retail customers’ share shall not be less than seventy-five percent (75%); and (D) Any other reasonable mechanisms for determining the additional sum… (3) If the commission authorizes an additional sum under this subsection, the utility shall recover the additional sum over the entire term of the [PPA] in the same manner as it recovers the cost of the [PPA] as long as electricity, generation capacity, or ancillary products are being delivered in accordance with the terms of the [PPA].8
The facts of the this case support the conclusion that the solar PPA is in the public interest and further that EAI should be allowed to equitably share in the savings being realized by its retail customers.
7. For the reasons stated below and supported in the accompanying testimony, EAI is hereby requesting that, prior to April 30, 2018, the Commission
issue an order granting:
a. declaratory relief that the legislative findings set forth in the
Arkansas Clean Energy Development Act of 2012 and included in
8 Id. at (e).
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the Utility Facility and Environmental and Economic Protection Act,
as well as the economics and efficiencies associated with the
agreement, support the conclusion that the instant solar PPA is
required by the public convenience and necessity and in the public
interest; b. approval of the terms and conditions set forth in the solar PPA as
being in compliance with the requirements set forth in Act 1088; c. approval of EAI’s recovery of the costs of the PPA over the term of
the PPA through EAI Rate Schedule No. 38, Energy Cost Recovery
Rider (“Rider ECR”); and d. approval of EAI’s recovery through Rider ECR, as proposed to be
amended in this docket, of an additional amount, as determined as
a function of this docket, representing an equitable sharing of the
savings to retail customers.
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THE SOLAR PPA AND PROJECT
8. On June 19, 2017, he Company executed a proposed 20-year power purchase agreement (the solar “PPA” or “Agreement”) with Chicot Solar,
LLC (“Chicot Solar”),9 for a renewable energy resource. The Chicot Solar Project
(“Project”), which will be located near Lake Village, Arkansas, is planned to be a
100 MW solar photovoltaic project interconnecting to the existing Lake Village
Bagby to Reed 115 kV transmission line.
9. Chicot Solar is affiliated with one of the largest generators of solar energy in the United States that currently owns and operates approximately
2,262 MW of solar facilities in the United States, Canada, and Spain. NextEra
Energy, Inc., through its affiliates, is the largest generator of wind and solar power in the world, with 16,114 MW of renewable generation in operation in 31 states and four Canadian provinces. Approximately 99 percent of the electricity generated by NextEra facilities comes from clean or renewable fuels. Renewable energy is homegrown energy, reducing dependence on foreign oil and driving the clean energy economy in America. Approximately 85 percent of wind farm materials are made in the U.S and approximately 65 percent of solar energy center materials are made in the US.
9 Chicot Solar, LLC is an affiliate of NextEra Energy Resources Acquisitions, LLC, an indirect wholly-owned subsidiary of NextEra Energy Resources, LLC (“NEER”).
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10. The Project is planned to be an approximately 100 MW solar photovoltaic facility. The Project is a greenfield solar electric generation facility located near Lake Village, Arkansas with a planned commercial operation date of
May 31, 2020. As discussed by EAI witness Kandice Fielder in her direct testimony, the Project will cover nearly 850 acres of land and fundamentally will be comprised of solar panels mounted to a single-axis tracking system and cabled to intermediate field transformers, inverters and ultimately to a step-up transformer which is interconnected to the Entergy Transmission System. The facility will produce power and inject it into the grid during the daylight hours based on the intensity of the solar energy reaching the panels. On a given summer day, the facility may begin producing energy around 6:00 a.m. in the morning and reach its maximum output around 10:00 a.m. The facility may stay at or near that maximum output level until approximately 3:00 p.m., at which point production will begin to decrease to a zero output level by dusk. On other days with significant cloud cover, the production may be more intermittent and only produce a small amount of energy over the course of a day. Over the course of a year, the solar facility is expected to produce about 248,819 MWh in the first contract year. The actual amount in any given year could vary significantly, and the annual expected amount will decrease slightly each year due to normal solar panel degradation.
11. EAI will buy the energy from Chicot Solar under the terms of the solar PPA at the price described by Ms. Fielder in her direct testimony.
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Ms. Fielder provides an overview of some of the provisions of the solar PPA
proposed between EAI and Stuttgart Solar, provisions that she notes are very
similar to the Stuttgart PPA approved by the Commission in Docket No.
15-014-U. Ms. Fielder provides an overview of pricing options and certain PPA
terms in her Highly Sensitive EAI Direct Exhibit KF-3.
12. The Project is designed to qualify for the 30 percent federal investment tax credit (“ITC”) that will be used by the provider to offset its cost of construction. Chicot Solar expects to have a positive economic impact on the local economy and to contribute approximately $384,000 in property taxes during
the Project’s first year of operation. The local benefits expected by Stuttgart
Solar are more fully described below and in the direct testimony of Company witness Kurtis W. Castleberry.
REQUEST FOR DECLARATORY RELIEF
13. As noted previously, pursuant to Ark. Code Ann. § 23-18- 109, a
utility seeking to enter into a PPA for a term longer than five years must establish
that the PPA is required by public convenience and necessity and is in the public
interest.10 It is undisputed that the resource in this instance is a renewable, solar
resource. The Project is the type of resource already found by the General
Assembly to be desirable and essential in consideration of electric utilities’
10 Act 1088, adding Ark. Code Ann. § 23-18-108(c)(3) and (5).
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resource plans. It will also promote clean energy consistent with the Arkansas
Clean Energy Development Act of 2012 and the findings included as part of the
Utility Facility and Environmental and Economic Protection Act. Thus, in addition
to its favorable economics and efficiencies in meeting EAI’s power needs, the
Project is also in the public interest by virtue of its renewable nature. EAI
respectfully requests the Commission declare the solar PPA to be needed for the
public convenience and necessity and in the public interest.
SELECTION AND BENEFITS OF THE SOLAR PPA AND AN
EQUITABLE SHARING OF THE SAVINGS WITH RETAIL CUSTOMERS:
COMPLIANCE WITH ARK. CODE ANN. § 23-18-109
14. On May 26, 2016, EAI issued the 2016 Request for Proposals for
Long-Term Renewable Generation Resources for Entergy Arkansas, Inc. (“2016
EAI RFP”). As discussed in greater detail by Ms. Fielder, the 2016 EAI RFP
solicited proposals targeting approximately 100 MW of capacity, capacity-related
benefits, energy and other electric products and environmental attributes from
baseload and/or intermittent renewable resources. Generally speaking, the
renewable resources contemplated generation facilities powered by biomass,
run-of-river hydroelectric, solar photovoltaic, and wind-powered resources.
Additionally, consistent with EAI’s commitment in Docket No. 12-038-U, EAI
engaged an independent monitor (“IM”), Ms. Elizabeth R. Benson, for the 2016
EAI RFP whose role included monitoring the design and implementation of the
2016 EAI RFP and providing an objective, third-party perspective on EAI’s efforts
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to ensure that all proposals were treated consistently and without undue preference to any bidder. Consistent with the Commission’s expectation stated in Order No. 7 in Docket No. 14-118-U,11 EAI provides as Highly Sensitive EAI
Application Exhibit 1 to this Application a copy of the IM’s report for the 2016 EAI
RFP, noting, however, that the IM is not appearing as an EAI witness in this
proceeding and would be presented by the Staff, if necessary, at the hearing of
this matter.
15. In response to the 2016 EAI RFP, the Company received 45
proposals with respect to renewable resources that totaled 4,319 MW, including
the Chicot Solar proposal, which gave rise to the Agreement that is the subject of
this proceeding. The Company’s three-phase evaluation of the 2016 EAI RFP
began in September of 2016 and was conducted by a number of evaluation
teams. As part of the evaluation process, EAI’s Resource Planning team
provided oversight of the evaluation process and was tasked with compiling the
individual team results and developing an overall proposal ranking. EAI’s
President and Chief Executive Officer (“CEO”), Richard Riley, provided executive
oversight, reviewing information that would be considered in the ultimate
resource selections he would make from the 2016 EAI RFP. Moreover, the
Resource Planning and Operations Committee (“RPOC”) of EAI served in its support role, providing oversight and input to the processes, reviewing summary
11 Docket No. 14-118-U, Order No. 7 at 74.
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results, and making recommendations regarding the ultimate resource selections
presented to Mr. Riley.
16. Based on the evaluation results, the recommendations developed
by the EAI Resource Planning Team and the review by EAI’s RPOC, Mr. Riley
approved moving forward with negotiations with Chicot Solar (i.e., Proposal ID
9463) in an attempt to reach a final agreement. EAI and Chicot Solar did reach
final agreement as presented in this proceeding. While the long-term nature of a
20-year PPA can carry risk of changes in the market price for energy or capacity, the solar PPA is forecasted to provide savings to EAI customers over the life of the Agreement, which together with other qualitative benefits resulted in EAI selecting the Proposal ID 9463 solar resource. As set forth in the Report of the
Independent Monitor of the Entergy Arkansas, Inc. 2016 Request for Proposals for Long-Term Renewable Generation Resources, a copy of which is attached to
EAI’s Application in this proceeding, the IM reviewed and concurred with the results of the Company’s 2016 EAI RFP economic analyses, including the sensitivity analyses.
17. In her direct testimony, Ms. Fielder discusses the 2016 EAI RFP process as compared to the RFP process through which the Stuttgart PPA was identified, the 2014 EAI RFP. Although Ms. Fielder notes some differences that should be apparent (e.g., the two RFPs, given the differing time periods in which they were issued, sought resources that would be available by different start
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dates and utilized different assumptions in their evaluation), the same general
approaches to conducting the RFP and evaluating the responses were used.
Ms. Fielder discusses additional noteworthy similarities and differences regarding
the two processes in her direct testimony.
18. Two categories of benefits expected to be realized from the solar
PPA that are discussed by Ms. Fielder include projected energy benefits and diversity and risk mitigation benefits. EAI witness Fielder elaborates on these
benefits and provides an overview of the PPA contract terms, providing an estimate of projected benefits from the solar PPA in her Highly Sensitive EAI
Direct Exhibit KF-7. Mr. Castleberry discusses other benefits of the solar PPA.
The benefits of the solar PPA discussed collectively by Mr. Castleberry and
Ms. Fielder are significant. Projected customer bill impacts demonstrate that customers should realize savings in the first year of the solar PPA.
19. With respect to diversity and risk mitigation benefits, Ms. Fielder
describes the provision of energy under this solar PPA as compared to nuclear,
fossil-fueled, and hydro-powered generation. She further explains how much of
customers’ current total energy needs met through this solar PPA would likely
displace fossil-based generation, and that the Chicot PPA would provide a hedge
against the risk associated with other types of generation technologies over the twenty-year delivery term. Considering the nominal life expectancies, nuclear license expiration dates, and proposed environmental compliance measures, all
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of which indicate that EAI will retire several of its other generation resources
before the solar PPA expires, the Company submits that taking steps now is
warranted to address such potential planning issues.
20. Mr. Castleberry also discusses some of the diversity benefits
associated with this solar PPA. As he explains, this solar PPA adds diversity to
EAI’s generation portfolio and is an economically attractive, emission-free
resource. Diversity means utilizing a mix of generating technologies and fuel
sources within the utility’s generation portfolio; diversity mitigates risk by helping
protect customers from fluctuations in the cost and availability of the fuel needed
to produce electricity. The proposed Project offers an opportunity to further diversify EAI’s generation portfolio with the addition of a resource that offers stable pricing while avoiding exposure to volatile fuel prices as well as anticipated
CO2 and other environmental emission-based costs. Significantly, the 2016 EAI
RFP economic evaluation for the solar PPA indicates that these diversification
benefits of the solar PPA can be achieved while also lowering customer costs.
21. As observed by Mr. Castleberry, while new nuclear and coal
resources provide a utility with greater fuel-price stability relative to natural gas
resources (given the high variability that natural gas prices have shown over the
past two decades), those technologies have other future cost uncertainties, such
as environmental impacts of coal emissions. In contrast, the solar PPA does not
release emissions, does not require significant volumes of water, and will not
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require pipelines or railways to be constructed to bring fuel to the plant. From an environmental cost risk, as well as an environmental impact standpoint, this solar
PPA has a much lower risk profile than nuclear and coal resources.
22. Mr. Castleberry also explains how the geographic location of this resource is beneficial, as it is located within EAI’s service area. With a resource deriving energy from the same source that is causing those higher loads (i.e., the sun), this solar PPA is expected to provide energy to meet customer needs at many of the times when EAI’s energy needs are higher, and when one would expect peak power prices to be higher.
23. Mr. Castleberry further explains that the Project is designed to qualify for the 30 percent federal investment tax credit (“ITC”) that will be used by the provider to offset its cost of construction. From conversations with Chicot
Solar, Mr. Castleberry understands that the Project is expected to have a positive economic impact on the local economy. Specifically, Chicot Solar or its affiliate(s) have represented to EAI that they expect to employ approximately 200 to 300 workers during the construction phase; generally, workers and vendors employed by contractors are sourced locally. During the operational life of the project, Chicot Solar expects to expend approximately $600,000 annually in outside services for project site maintenance such as land management and vegetation control, operations office rent, operations team payroll, and other items that will have a local impact. Chicot Solar estimates that the sales and use
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tax contributions to the State of Arkansas during the construction phase of the
Project will be approximately $710,000. It is reasonable to conclude that local
businesses such as stores and hotels may also benefit indirectly from the
infusion of construction workers and activity during this time period. Further,
Chicot Solar has represented to EAI that during the 20-year operational life of the
Project, it will staff the facility with two to three full-time employees who will be responsible for day-to-day operations and anticipates additional opportunities for local businesses to contract to provide specialized services on-site. In addition,
the property taxes over the 20 year life of the Project are estimated to provide
approximately $3.5 million.
24. Even accounting for the risks as set forth in the contract and discussed by Mr. Castleberry and Ms. Fielder, the solar PPA is the most
attractive solar proposal submitted in the 2016 EAI RFP. EAI’s analysis of the resource indicates that it will provide economic benefits to customers over the term of the solar PPA, with savings projected for the first year of its operation. By entering into the solar PPA, EAI is taking steps to provide customers with an attractively priced, emission-free renewable energy resource that offers a variety of economic and environmental benefits. Accordingly and as allowed under Ark.
Code Ann. § 23-18- 109, EAI is requesting that the Commission also approve recovery of an additional sum representing an equitable sharing of the benefits with retail customers, the calculation of which is explained in detail by
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Mr. Castleberry. The Company recognizes that the benefits of this solar PPA are
more readily achievable by contracting with an entity that is highly skilled at
owning and operating this type of technology. Allowing EAI to recover an
additional sum for this solar PPA is in the public interest and serves to encourage
the further pursuit of transactions of this type.
25. Based on the foregoing and as established in the testimony of the
Company’s witnesses, the solar PPA proposed by EAI in this proceeding meets
the requirements set forth in Ark. Code Ann. § 23-18- 109.
COST RECOVERY AND RELATED TARIFF AMENDMENT
26. Ark. Code Ann. § 23-18-109(d) provides that the Commission may provide for a utility to recover the costs of an approved PPA over its term.
Accordingly, EAI is requesting to recover the costs of the solar PPA through the existing Rider ECR. As explained by EAI witness Scott Celino, EAI utilizes Rider
ECR to recover fuel costs from retail customers for Company-owned generation, the fuel portion of purchased power from the Grand Gulf Nuclear Station, purchased energy from third parties, and certain environmental costs directly related to energy consumption. The rate is re-determined annually in a process defined by Section 38.3 of Rider ECR, which requires the Company to file on or before March 15 re-determined rates to be effective with the first billing cycle of
April. That re-determined rate is based upon actual fuel and purchased energy expenses for the immediate prior calendar year, adjusted for certain planned
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refueling outages. Moreover, as a result of measures taken and compliance
filings made in Docket No. 13-028-U12 to revise Rider ECR to encompass long- term renewable PPAs (considered generally to be energy only without a capacity element), only minor tariff changes are required to Rider ECR to allow for the recovery of the costs of this solar PPA.
27. Arkansas Code Ann. § 23-18- 109(e) provides that the Commission
may provide for a utility to recover an additional sum in recognition of the unique
characteristics of the PPA if the Commission finds the additional sum to be in the
public interest. EAI is requesting to recover an additional sum, the calculation of which is described by Mr. Castleberry. Further, as described by Mr. Celino, the recovery of this additional sum through Rider ECR would require only minor tariff
changes to Rider ECR with respect to the amount of the additional sum.
NEED FOR TIMELY COMMISSION REVIEW AND APPROVAL
28. EAI requests an order of approval from the Commission by April 30,
2018 to allow time for any challenges to the Commission’s order to be concluded
by November 15, 2018 as required by the PPA and to facilitate the construction
of the transmission facilities to serve Chicot Solar by the Commercial Operation
Date of May 31, 2020, as also is required by the PPA.
12 See, e.g., Docket No. 13-028-U Butler Surrebuttal at 8 -9.
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WITNESSES
29. In support of this Application, EAI has filed the direct testimonies of
Kurtis W. Castleberry, Kandice Fielder, and Scott M. Celino. The witnesses discuss the following topics:
• Kurtis W. Castleberry provides an overview of EAI’s planning
processes, describes the need for renewable resources within
EAI’s portfolio of generating resources and some of the benefits of
the Project, explains various risks associated with this solar PPA
and EAI’s efforts to mitigate those risks, and explains the recovery
of an additional sum sought by EAI in this proceeding.
• Kandice Fielder describes the 2016 EAI RFP, describes the
analyses conducted for proposals submitted in response to the
2016 EAI RFP including the proposal by Chicot Solar, and
provides an overview of the proposed solar PPA.
• Scott M. Celino provides an overview of Rider ECR including the
existing provision that allows for recovery of the costs of the solar
PPA, describes the manner in which the solar PPA costs will be
collected, and describes the proposed Rider ECR tariff changes
requested to provide for the recovery of the additional sum
proposed by EAI under Ark. Code Ann. § 23-18-109.
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SERVICE LIST
30. EAI requests that the following individuals be included on the
service list in this proceeding:
Laura Landreaux Vice President, Regulatory Affairs – Arkansas Entergy Arkansas, Inc. 425 West Capitol Avenue P. O. Box 551 Little Rock, Arkansas 72203 Telephone: (501) 377-5876 [email protected]
Matthew R. Suffern Assistant General Counsel Entergy Services, Inc. 425 West Capitol Avenue P.O. Box 551 Little Rock, AR 72203 Telephone: (501) 377-5855 [email protected]
WHEREFORE, Entergy Arkansas, Inc. prays that prior to April 30, 2018,
the Commission issue an order (i) declaring that the legislative findings set forth in the Arkansas Clean Energy Development Act of 2012 and included in the
Utility Facility and Environmental and Economic Protection Act, as well as the economics and efficiencies associated with the agreement, support the conclusion that the instant solar PPA is required by the public convenience and necessity and in the public interest; (ii) approving the terms and conditions set forth in the solar PPA as being in compliance with the requirements set forth in
Ark. Code Ann. § 23-18- 109; (iii) approving EAI’s recovery of the costs of the
PPA over the term of the PPA through Rider ECR; (iv) approving EAI’s recovery
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through Rider ECR, as proposed to be amended in this docket, of an additional sum, as determined as a function of this docket, representing an equitable sharing of the savings to retail customers; and (v) granting all other appropriate relief to which EAI is entitled.
Respectfully submitted,
ENTERGY ARKANSAS, INC.
By /s/ Matthew R. Suffern
Matthew R. Suffern Assistant General Counsel Telephone: (501) 377-3571
Tucker Raney Assistant General Counsel Telephone: (501) 377-3500
Kimberly Bennett Senior Counsel Telephone: (501) 377-5715
Entergy Services, Inc. 425 West Capitol Avenue P. O. Box 551 Little Rock, AR 72203
ATTORNEYS FOR ENTERGY ARKANSAS, INC.
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CERTIFICATE OF SERVICE
I, Matthew R. Suffern, 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/ Matthew R. Suffern
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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 ) DOCKET NO. 17-041-U POWER PURCHASE AGREEMENT FOR A ) RENEWABLE RESOURCE AND FOR ) RECOVERY OF AN ADDITIONAL AMOUNT )
EAI APPLICATION EXHIBIT 1
INDEPENDENT MONITOR REPORT FOR THE 2016 EAI RFP
REDACTED
- - 23 APSC Docket No. 17APSC-041 FILED-U Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. Exh.____ 12 Testimony of Elizabeth R. Benson
BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION
IN THE MATTER OF THE PETITION ) OF ENTERGY ARKANSAS, INC. FOR A ) DECLARATORY ORDER REGARDING ) DOCKET NO. 17-041-U A PURCHASE POWER AGREEMENT ) FOR A RENEWABLE RESOURCE ) )
TESTIMONY OF ELIZABETH R. BENSON
Independent Monitor of the Entergy Arkansas, Inc. 2016 Request for Proposals For Long-Term Renewable Generation Resources
24 APSC Docket No. 17APSC-041 FILED-U Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. Exh. ______12 Testimony of Elizabeth R. Benson
EXHIBIT
EXHIBIT NO. DESCRIPTION Exhibit ERB – 1 Report of the Independent Monitor Exhibit ERB – 2 Summary of Professional Qualifications
i
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1 I. INTRODUCTION AND PURPOSE OF TESTIMONY
2 Q: PLEASE STATE YOUR NAME, POSITION AND BUSINESS ADDRESS.
3 A: My name is Elizabeth R. Benson. I am President of Energy Associates, a management
4 consulting firm. My business address is 7303 Timber Lane, Falls Church, Virginia
5 22046.
6 Q: WHAT IS YOUR OCCUPATION?
7 A: I am an independent energy consultant specializing in competitive, organizational,
8 regulatory, and policy issues related to electricity and natural gas. In recent years, much
9 of my work has addressed competitive power procurement and requests for proposals
10 (“RFPs”). Since 2003, I have served as an Independent Monitor (“IM”) for sixteen long-
11 and short-term market-based, competitive power supply RFPs.
12 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?
13 A. My testimony addresses the application of Entergy Arkansas, Inc. (“EAI”) for
14 authorization to enter into a 20-year power purchase agreement (“PPA”) with Chicot
15 Solar, LLC (“Chicot Solar”). Chicot Solar is a planned 100 MW solar photovoltaic
16 project located in Chicot County, Arkansas. Chicot Solar is an affiliate of NextEra
17 Energy Resources Acquisitions, LLC (“NextEra”), indirect wholly owned subsidiary of
18 NextEra Energy Resources LLC. EAI’s application is the outcome of its 2016 Request
19 for Proposals for Long-Term Renewable Generation Resources (“2016 RFP” or “RFP”),
20 a market-based, competitive procurement of power supply that resulted in the proposed
21 PPA. My testimony introduces the Report of the Independent Monitor, which is integral
22 to this testimony, and which is included with it as Exhibit ERB-1. The report describes in
23 detail how EAI conducted the 2016 RFP, how it evaluated RFP proposals, and whether
1
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1 the RFP treated all bidders and all proposals fairly and objectively. The report also
2 addresses the negotiations that took place between EAI and NextEra, summarizes certain
3 negotiation outcomes, and comments on whether those negotiations were conducted at
4 arm’s length. First, however, this testimony summarizes my professional experience, and
5 describes my role as IM for EAI’s 2016 RFP.
6 Q. PLEASE PROVIDE AN OVERVIEW OF YOUR PROFESSIONAL
7 EXPERIENCE IN THE ENERGY FIELD.
8 A. During my career, I have been involved in many of the issues affecting changing energy
9 markets, first as manager of the electricity and natural gas planning, analysis, and
10 regulatory functions for an electric and gas utility, and more recently as a consultant to
11 energy companies principally in the United States, but also in Canada and Europe.
12 During the last twenty-five years, I have worked with over a dozen investor- and
13 publicly-owned utilities participating in competitive electricity markets as sellers or
14 buyers of power. My work with them has involved issues directly relevant to this
15 proceeding, including competitive procurement of power supply, independent monitoring
16 competitive power procurements, wholesale market development, resource planning, and
17 utility regulation. I have written and published two power supply RFP guides, developed
18 and taught a comprehensive course on procuring power competitively and negotiating
19 power contracts that was attended by over 50 utilities, and appeared as an expert witness
20 on power solicitation processes for public utilities before the Federal Energy Regulatory
21 Commission (“FERC”). Additional information regarding my professional experience is
22 included with this testimony in Exhibit ERB-2.
23 II. ROLE OF THE INDEPENDENT MONITOR
2
27 APSC Docket No. 17APSC-041 FILED-U Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc.Exh.______12 Testimony of Elizabeth R. Benson
1 Q. ON WHOSE BEHALF ARE YOU SUBMITTING YOUR TESTIMONY?
2 A. I am submitting this testimony as part of my responsibilities as the IM for EAI’s 2016
3 RFP. However, I am not submitting it on behalf of any party. In keeping with my IM
4 responsibilities, neither the Staff of the Arkansas Public Service Commission (“APSC
5 Staff” or “Staff”), nor EAI, nor any other party has approved the contents of this
6 testimony. Its observations and conclusions are mine alone.
7 Q. PLEASE EXPLAIN WHY EAI RETAINED AN INDEPENDENT MONITOR
8 FOR THE 2016 RFP.
9 A. In testimony related to Docket No. 12-038-U, an earlier EAI RFP for competitive power
10 supply, APSC Staff recommended that EAI retain an IM to oversee future RFPs. In
11 response, EAI retained me as IM for its 2016 RFP.
12 Q. PLEASE SUMMARIZE YOUR RESPONSIBILITIES AS THE INDEPENDENT
13 MONITOR OF EAI’S 2016 RFP.
14 A. As IM, I was responsible to ensure that the 2016 RFP was conducted fairly and
15 objectively, and that the RFP gave no undue preference to any proposal it received. In
16 carrying out those responsibilities, I worked closely with EAI’s Resource Planning Team,
17 with designated RFP team members, and counsel representing EAI during the RFP’s
18 development, implementation and evaluation phases. I worked with EAI to put in place
19 RFP safeguards, to oversee those safeguards, to monitor closely all RFP activities to
20 ensure fairness and objectivity, to protect the confidentiality of bid and evaluation data,
21 and to guarantee arm’s length consideration of all proposals. With respect to the proposed
22 20-year PPA, I monitored negotiations between EAI and NextEra to ensure that they
3
28 APSC Docket No. 17APSC-041 FILED-U Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc.Exh.______12 Testimony of Elizabeth R. Benson
1 were conducted at arm’s length. Early in the RFP’s development I met with Staff to
2 discuss RFP planning, implementation, and proposal evaluation issues.
3 III. INTRODUCTION OF THE INDEPENDENT MONITOR’S
4 REPORT
5 Q. ARE THE DEVELOPMENT AND IMPLEMENTATION OF THE 2016 RFP, THE
6 EVALUATION OF PROPOSALS, THE NEGOTIATIONS BETWEEN EAI AND
7 NEXTERA, AND YOUR CONCLUSIONS REGARDING THEM DESCRIBED IN
8 DETAIL IN THE REPORT OF THE INDEPENDENT MONITOR (EXHIBIT
9 ERB-1) THAT IS PART OF THIS TESTIMONY?
10 A. Yes, they are.
11 Q. DOES THIS CONCLUDE YOUR INTRODUCTORY TESTIMONY?
12 A. Yes, it does.
4
29 APSP Docket No. 17-041-U Exh._____ Testimony of Elizabeth R. Benson Exhibit ERB-2
APSC FILED Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. 12 Elizabeth R. Benson President, Energy Associates 703-641-7948 – tel [email protected]
Summary of Qualifications
Ms. Benson is expert in energy issues ranging from the organization and regulation of electricity and natural gas markets, to competitive requests for proposals (RFPs) issued by electric utilities, to energy efficiency and the growth in renewable resources and climate change actions in the United States.
Her work includes over twenty-five years’ experience managing electricity and natural gas programs targeted to both supply- and demand-side applications, and commercial transactions ranging from $300 million to $1.5 billion in the form of competitive power RFPs.
Most recently, she has served as Independent Monitor under state Public Utility Commission (PUC) and Federal Energy Regulatory Commission (FERC) jurisdictions for utility power supply RFPs for combined acquisitions of over 10,000 MW of capacity. Prior to this, she specialized in managing competitive power supply procurements for both investor-owned and municipal utilities, helped utilities restructure their operations, and investigated and performed selected due diligence for a successful utility acquisition.
Ms. Benson has represented United States clients on both the buying and selling sides of power markets in Arkansas, California, Delaware, Louisiana, Massachusetts, Mississippi, Minnesota, New Jersey, New York, Pennsylvania and Texas, and international clients in British Columbia, Quebec, and Germany. She has successfully helped energy clients initiate, evaluate, and negotiate effective, competitive power supply and services agreements, and has worked with transmission issues in Mid-Atlantic, Northeast and Southern regions of the United States.
She has consulted with utilities, other businesses, government officials, and educators in Germany, Switzerland and at the European Union on a wide range of energy issues, including, most recently, the growth of renewable energy resources and climate change issues in the United States, and earlier, U.S. energy policy embodied in federal legislation, state retail access programs, and the August 2003 blackout in the United States and its implications for the United States and for Europe.
She is experienced working with state and federal regulatory officials, with power suppliers including utilities, utility affiliates, and independent power producers, and with state and local governments, city councils, local commissions, and a wide range of stakeholder groups.
Ms. Benson is also actively involved in international trade issues, with a particular emphasis on energy services, and works directly with U.S. trade negotiators in Washington, DC. She is a cleared Advisor to the United States Trade Representative (USTR) on Trade Policy Matters, and Chairman of the Industry Trade Advisory Committee on Services and Finance Industries. The information and advice from this work is used by USTR to help shape U.S. positions on bilateral and multilateral trade treaties throughout the world.
She represented U.S. services industries at ministerial meetings of the World Trade Organization (WTO) in Hong Kong, China and Cancun, Mexico. Ms. Benson holds a secret-level national security clearance in connection with her trade-related work.
30 1 APSP Docket No. 17-041-U Exh._____ Testimony of Elizabeth R. Benson Exhibit ERB-2
Detailed Consulting Experience – 1992 - 2017 APSC FILED Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. 12 Independent Monitor
Independent monitor for long term competitive procurement seeking to acquire up to 100 MW of renewable energy resources (solar photovoltaic, wind, run-of-river hydro-electric and biomass) through power purchase agreement and asset acquisition proposals.
Independent monitor for long term competitive procurement seeking to acquire up to 1000 MW of newly constructed combined cycle gas turbine technology resources through tolling, power purchase agreement and asset acquisition proposals. Included market test of combined cycle self- build resource.
Independent monitor for long term competitive procurement seeking to acquire: 1) up to 600 MW of traditional baseload, load following or peaking capacity through tolling, power purchase agreement and asset acquisition proposals; and 2) up to 200 MW of renewable resources (solar photovoltaic and wind) through power purchase agreements.
Independent monitor for long term competitive procurement seeking to acquire up to 800 MW of load following capacity through tolling power purchase agreement proposals and asset acquisition proposals.
Independent monitor for long term competitive procurement seeking to acquire up to 150 MW of baseload resources through power purchase agreements. Included market test of a nuclear self- supply resource.
Independent monitor for a competitive procurement seeking up to 750 MW of low NOx capacity and energy for contract terms of three or five years.
Independent monitor for long term competitive procurement seeking to acquire approximately 550 MW of load following capacity through tolling power purchase agreements, power plant acquisition, and/or utility self-build plant construction.
Independent monitor for a long term competitive procurement seeking to acquire approximately 600 MW of intermediate and peaking capacity through power contracts, tolling agreements, power plant acquisitions, and/or utility self-build power plant construction.
Independent monitor for a long term competitive procurement seeking to acquire up to 2,000 MW through power contracts, tolling agreements, power plant purchases, and/or utility self-build power plant construction.
Independent monitor for an intermediate term competitive procurement seeking to acquire up to 800 MW through variously structured power contract and call option products.
Independent monitor for a long term competitive power supply procurement seeking to acquire up to 1,800 MW through power contracts, power plant purchase, and/or self-build power plant construction.
Independent monitor for a long term competitive power supply procurement seeking up to 765 MW of power through power contracts and/or power plant purchase.
Independent monitor for four short-term power supply procurements designed to provide incremental power for a one year term. Procurements were monitored due to the participation of the utility’s merchant affiliate in the bid pool.
31 2 APSP Docket No. 17-041-U Exh._____ Testimony of Elizabeth R. Benson Exhibit ERB-2
Competitive Power Markets and Market Transition — United States APSC FILED Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. 12 Performed due diligence for major utility acquisition. Focused on the power supply portfolio of the target company, forward power supply contract obligations, short- and long-term commodity risk, federal and state regulatory requirements, and impact of Independent System Operator (ISO) systems and procedures on commodity costs.
Supported asset transfer of 10,500 MW of generation from a regulated utility to an unregulated affiliated company. Work included: legal and regulatory requirements, asset transfer agreement, real estate transfer, contract and other asset assignments, provision of services to affiliated businesses.
Structured, implemented and supported 805 MW competitive power supply request for proposals process. Drafted RFP documents, worked with client to structure an inclusive initial round of bids, establish clear, consistent bid procedures, and secure the support and approval of state regulatory personnel for the process, timing and substance of the solicitation.
Evaluated power supply and generation options for a 175 MW municipal utility system. Managed competitive power supply process. Negotiated among top bidders to secure optimal contract, cutting purchased power costs by 20% and saving $77 million over a 10.5-year term. Managed communication / community education process.
Evaluated power supply and generation options for 100 MW municipal utility system. Managed competitive power supply / services process. Managed communication / community education process.
Developed and taught seminar: “Power Supply 101: A Primer on Energy Purchasing for Board Members.” Attended by board members from 62 publicly-owned United States and Canadian utilities.
Authored and taught comprehensive course on “Negotiating Effective Power Supply Agreements” for U.S. and Canadian public power executives. Attended by over 50 different utilities.
Evaluated the potential for business alliances between power marketers and utilities as a means to leverage the market effectiveness of each.
Assessed Pennsylvania retail pilot program licensing and entrance requirements, and profiled eight Pennsylvania investor-owned utility pilot program proposals as guide for pilot program supplier/aggregator.
Assessed power-marketing opportunities in 33 states. Identified potential buyers and sellers of power. Evaluated market opportunities for power marketers.
Briefed senior staff of the United States Senate Armed Services and House National Security Committees on competitive energy markets, privatization, and potential to streamline access of the Department of Defense to private sector capital and expertise.
Developed strategy to support Massachusetts Department of Environmental Protection’s position on electric industry restructuring in Massachusetts. Focus on state and federal environmental issues.
Interviewed power marketers and their customers to assess the status of the market and the strengths and weaknesses of power marketers as viewed by investor-owned, municipal, and cooperative utilities.
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Developed power marketing guide detailing the issues associated with being a utility-affiliated power marketer. AddressedAPSC FILED federal Time: 10/17/2017 and state 2:27:38 legal PM: and Recvd regulatory 10/17/2017 requirements,2:27:00 PM: Docket structural 17-041-U-Doc. options, 12 market opportunities, business alliances, risk management and competitive positioning.
Developed power marketing strategic plan for newly formed utility power sales group. Group realized $70 million in new revenue during its first two years.
Evaluated the effectiveness of the electric, gas and customer business units of the United States’ largest electric and gas utility. Identified policy, jurisdictional, and organizational disputes hampering effective transition to a competitive market. Recommended policy and organizational reforms to enable the client to retain customers and expand business opportunities in the retail power market.
Evaluated the status of electric utility municipalization in the United States including: 1) the conditions which prompt municipalization; 2) the process used to municipalize; and 3) the businesses, organizations, and individuals encouraging and/or supporting municipalization.
Studied wholesale power sales functions of 14 key investor-owned utilities (IOUs) to benchmark organization, staffing, and compensation patterns, and to assess IOU views on the levels of competition in wholesale power markets.
Competitive Power Markets and Market Transition — Europe and Canada
In Berlin, Hamburg, Heidelberg, Nuremberg, and Stuttgart, Germany, conducted a series of lectures for government officials, business persons, journalists, economists, analysts, universities, and community groups on U.S. energy policy with a particular focus on electric generation and transmission, and on renewable energy and climate change issues.
In Munich, Frankfurt, Düsseldorf, Essen and Berlin, Germany, advised utility officials and federal government ministers on the origins of and circumstances surrounding the August 2003 U.S. electricity blackout, on the relationship of that event to European transmission issues, and on the long term financial and structural issues facing both European and North American energy providers.
In Geneva and Bern, Switzerland, advised utility and government officials on the August 2003 U.S. electricity blackout and its differences from and similarities to the September 2003 Italian blackout.
Consulted on energy policy, industry restructuring and market competition in Bern, Geneva and Zurich, Switzerland, Brussels, Belgium and Frankfurt and Berlin, Germany.
Focus of sessions: assessing U.S. energy market liberalization and how adaptable U.S. concepts and conditions are to liberalization efforts in Switzerland, Germany and other European Union countries.
Issues addressed: legal and regulatory frameworks; energy supply security; transmission reliability; and managing the transition from a regulated to a market system.
Participants: energy industry executives, government ministers, elected officials, economists, academics and journalists.
Conceived, developed and conducted a conference in Cologne, Germany on liberalizing Germany’s natural gas markets. In partnership with the United States Embassy in Berlin, the conference assessed the impact of liberalization on regulatory and market structures in the United States and Germany. Participants included German gas and electricity distributors, gas transporters and producers, independent marketers, risk managers, banks, policy makers, trade
33 4 APSP Docket No. 17-041-U Exh._____ Testimony of Elizabeth R. Benson Exhibit ERB-2 associations, end users, German anti-trust officials and European Commission regulators.
Prepared a detailedAPSC assessment FILED Time: for 10/17/2017 a city- owned2:27:38 PM: German Recvd 10/17/2017 utility of 2:27:00key issues PM: Docket it needed 17-041-U-Doc. to address 12 to compete in a liberalized power market, included generating and purchasing power, improving operating efficiency, enhancing customer offerings, and developing and marketing new products.
Developed power marketing strategic plan targeted to expand sales in the United States for a Canadian utility-affiliated marketer. Firm became one of the largest power marketers in North America.
Provided market, structural and organizational information to Canadian utility to help it expand power sales to targeted U.S. customers.
Organized and implemented detailed U.S. State Department briefing for visiting German federal, state, and city officials on U.S. electricity industry restructuring and competitive power supply procurements.
Briefed General Directors from thirteen Russian electric utilities on market and competitive issues affecting the U.S. power industry and their relevance to and potential impacts on power sector development in Russia.
Trade and Environment
Conducted critique of the impact on U.S. energy services industries of individual free trade agreements (FTAs) between the United States and the following countries and regions: Chile, Singapore, Morocco, Central America, the Dominican Republic, Australia, Bahrain, Colombia, Peru, Panama, and South Korea. Edited reports to the U.S. Trade Representative and the U.S. Secretary of Commerce on the impacts of those FTAs on trade liberalization affecting a broad range of services industries including energy, financial, environmental, legal, insurance, engineering, architectural, e-commerce, audio-visual, educational, investment and health.
Represented the interests of U.S. services industries on a mission to the World Trade Organization (WTO) in Geneva, Switzerland and the European Commission in Brussels, Belgium. Mission provided substantive input to international trade ambassadors currently negotiating the General Agreement on Trade in Services, the WTO’s multilateral trade treaty on services.
At the Fifth Ministerial of the WTO in Cancun, Mexico and Sixth Ministerial of the WTO in Hong Kong, advised the U.S. delegation on energy services issues that are part of the General Agreement on Trade in Services (GATS).
Advises U.S. negotiators on energy services issues related to multilateral and bilateral free trade agreements.
Authored document describing the environmental services used by U.S. energy companies for the Environmental Protection Agency (EPA) Office of International Activities for its use in United States trade negotiations.
Critiqued the impact of services trade liberalization on the environment in the United States and submitted the critique to the United States Trade Representative (USTR).
Assisted the U.S. Department of Energy (DOE) to implement the National Climate Change Action Plan. Conducted management interviews with utility and manufacturing industry executives on their plans to reduce greenhouse gas emissions.
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Demand-side Management APSC FILED Time: 10/17/2017 2:27:38 PM: Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. 12 Conducted strategic assessment of $8 million retail customer program outsourced from an investor-owned utility to an energy services company (ESCO). Addressed regulatory and market transformation issues in the context of the program’s successes and shortcomings. Fashioned recommendations addressing program operations and customer targeting. Identified, assessed, and recommended changes to client’s relationships with customers, its utility client, and regulatory personnel.
Developed and implemented a series of guides and tools to improve project planning, implementation, and monitoring for a statewide collaborative demand-side management demonstration project.
Related Industry Experience
Alliant Energy - Wisconsin Power & Light Company (WP&L).
Managed market research, planning, program evaluation, financial analysis, pricing and regulatory activities for utility’s gas and electric marketing programs.
Directed product pricing, sales forecasting, market research, market analysis, budget and regulatory activities.
Developed pricing and market intelligence systems, emphasizing the needs of price sensitive industrial customers, during the volatile period that natural gas markets were undergoing deregulation.
Established programs to model the financial effectiveness of marketing programs and system expansions.
Developed gas marketing programs that increased the value of existing infrastructure through targeted gas heating and related conversions.
Chaired statewide inter-utility and regulatory task group that developed major portions of the State of Wisconsin’s regulatory framework for deregulated natural gas market.
Testified in regulatory proceedings before the Wisconsin Public Service Commission (PSCW) on marketing and energy efficiency issues. Successfully argued in favor of including marketing costs in utility rates by demonstrating that marketing programs would benefit all ratepayers.
Publications
Benson, Elizabeth R., Power Supply RFP Guide. First edition, December 1997. Revised June 2001.
Benson, Elizabeth R., Public Power Magazine, “Dover Goes Shopping,” August 1995.
Benson, Elizabeth R., Public Power Magazine, “Dover Finds Competition and Likes It,” July 1996.
Presentations
Appleton, Wisconsin – Lawrence University. “Energy Future: Prospects for A Greener World.”
Berlin, Germany – Humboldt University of Berlin. “Strategies for Energy Security in Transatlantic Comparison.”
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Washington, DC – Federal Energy Regulatory Commission. Expert Witness, FERC Technical Conference on “SolicitationAPSC FILED Processes Time: 10/17/2017 for Public 2:27:38 PM:Utilities.” Recvd 10/17/2017 2:27:00 PM: Docket 17-041-U-Doc. 12
Geneva, Switzerland – FEDRE Forum. “Electricity Blackouts from America to Europe: Causes and Consequences.”
Berlin, Germany – Ecologic. German Federal Foreign Office. “Moving Forward from Cancun – The Global Governance of Trade, Environment and Sustainable Development.” General Agreement on Trade in Services.
Bern, Switzerland – World Trade Institute. The status of World Trade Organization negotiations on energy services, and the impact of trade capacity building issues of developing countries on the overall success of expanded trade negotiations.
Washington, DC – United States Department of Commerce. “Expanding Professional Services – Energy, the Environment and Trade Capacity Building” at Services 2002 – A Business– Government Dialogue on U.S. Trade Expansion Objectives.
Vancouver, BC, Canada – “Gaining Board Approval of Power Supply Contracts” at American Public Power Association’s Annual Legal Seminar.
Denver, Colorado - “Will Small IOUs, RECs and Munis Survive as Load Servers?” at Electric Utility Consultants, Inc. “Electricity Distribution Conference.
Vineland, New Jersey – “Competitive Options for Power Supply and Services” to City Council, Town Meeting and televised audience in City of Vineland.
Cologne, Germany – Addressed German utility executives from city-owned systems on power market restructuring in Germany, the competitive threats it presents, and how it can lead to increased opportunity.
Vail, Colorado – “Marketing Strategies in Wholesale Requirements Markets” at Electric Utility Consultants, Inc. “Bulk Power Markets Conference.”
Denver, Colorado – “What Do Customers Want? Developing Products and Services and Gaining Market Share” at Electric Utility Consultants, Inc. conference “Retail Competition – Bridging the Gap Between Promise and Reality.”
Chicago, Illinois – “New Directions in Serving Municipal Customers” at Infocast conference “Competing for Industrial, Commercial and Municipal Customers.”
Nashville, Tennessee – “Anatomy of a Power Management Agreement” at Gas Mart National Trade Show describing process, decision-making and benefits associated with competitively sourced long term power supply and services contract.
Arlington, Virginia – “Power Marketer Report Card” to Annual Meeting of The Power Marketing Association assessing customer reactions to and expectations of power marketers.
Milwaukee, Wisconsin – “Competitive Gas Purchasing – The Need for State Regulators to Support Prudent Risk Management” at the Annual Meeting of the Mid-America Regulatory Conference.
36 7 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______
Report of the Independent Monitor of the Entergy Arkansas, Inc. 2016 Request for Proposals for Long-Term Renewable Generation Resources
Prepared by: Elizabeth R. Benson Energy Associates August 2017
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Table of Contents
I. Overview ...... 1 A. Background ...... 1 B. Independent Monitor Responsibilities ...... 2 C. APSC Staff Discussions and Briefings ...... 3 D. Organization of the Report ...... 4 II. Developing and Implementing the RFP ...... 4 A. Resource Need and Eligible Technologies ...... 4 B. Eligible Suppliers, Resources and Products ...... 5 C. RFP Organization ...... 5 D. RFP Notice ...... 7 E. Minimum Requirements for Developmental Resources ...... 8 F. RFP Safeguards ...... 8 1. Confidentiality Acknowledgements ...... 9 2. Information Protocols ...... 9 3. Entergy Arkansas Resource Planning Team ...... 11 G. RFP Bidders’ Conference ...... 12 H. RFP Questions and Answers ...... 13 I. RFP Documents and Procedures ...... 13 1. Updating Procedures ...... 14 2. Final Documents ...... 15 J. Bidder Registration and Proposal Fees ...... 16 K. Proposal Submission, Review, and Phase 1A Redaction ...... 17 L. Comments ...... 21 III. Proposal Evaluation ...... 24 A. Evaluation Process ...... 24 1. Economic Evaluation ...... 26 2. Viability Assessment ...... 28 3. Deliverability Assessment ...... 31 4. Accounting Evaluation ...... 32 5. Credit Evaluation ...... 33 B. Phase I Results ...... 33 C. Phase II Results ...... 37 D. Proposal Selection ...... 41 i
38 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______E. Notifications ...... 42 F. Sensitivity Analyses ...... 42 G. Conclusion of the RFP ...... 43 H. Comments ...... 44 IV. PPA Negotiations ...... 45 V. Conclusion ...... 48 Addendum – September 28, 2017 ...... 49
ii
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Tables
Table 1: EAI RFP Organizational Structure ...... 6 Table 2: Registered Proposals ...... 16 Table 3: Submitted Proposals ...... 18 Table 4: Conforming Proposals ...... 21 Table 5: VAT Wind and Solar Resource Categories ...... 30 Table 6: EET Phase 1A Results ...... 35 Table 7: EET Phase 1B – Shortlisted Proposals ...... 37 Table 8: EET Phase II Results ...... 39
iii
40 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______
I. Overview A. Background On June 19, 2017, Entergy Arkansas, Inc. (“EAI”) executed a 20 year power purchase agreement (“PPA”) with Chicot Solar, LLC (“Chicot Solar”). Chicot Solar is an affiliate of NextEra Energy Resources Acquisitions, LLC (“NextEra”), an indirect wholly-owned subsidiary of NextEra Energy Resources LLC (“NEER”).
Chicot Solar is a proposed 100 MW single axis tracking system solar photovoltaic project. It is expected to begin commercial operation no later than June 1, 2020. The Chicot Solar PPA is subject to approval from the Arkansas Public Service Commission (“APSC”). If the PPA is approved, the project will be located in Chicot County, Arkansas approximately eleven miles northwest of the city of Lake Village.
The proposed Chicot Solar PPA is the result of a proposal submitted by NextEra into EAI’s 2016 Request for Proposals for Long-Term Renewable Generation Resources (“2016 RFP” or “RFP”), a market-based competitive procurement of long-term power supply. EAI received 40 conforming proposals for renewable generation in response to the RFP. The Chicot Solar proposal was evaluated in comparison to all other conforming proposals. The evaluation determined that the Chicot Solar proposal provided the highest overall benefit to EAI customers of all the solar proposals submitted into the 2016 RFP.1
This report describes and discusses the 2016 RFP from the perspective of the Independent Monitor (“IM”) retained by EAI to oversee the 2016 RFP.2 It includes how EAI developed the RFP, administered it, and evaluated the renewable resource proposals it received, including the proposal submitted by NextEra that is the subject of EAI’s request for approval of the Chicot Solar PPA. It also discusses PPA negotiations between EAI and NextEra.
1As modeled, two wind proposals provided greater financial benefits than Chicot Solar, but their ability to deliver energy to EAI is uncertain. 2EAI retained Elizabeth Benson of Energy Associates to serve as the IM for the 2016 RFP. Ms. Benson has served as IM for sixteen power supply RFPs – for EAI and for other companies. These RFPs have been subject to state and, in certain cases, federal regulatory jurisdiction. Ms. Benson has no interest in the outcome of this or any RFP and has worked in no capacity other than as IM for EAI or any other company for which she has performed IM duties.
1
41 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______Generally, the role of the IM in the 2016 RFP was to: 1) oversee the design and implementation of the RFP solicitation, evaluation, selection, and contract negotiation processes to ensure that they were impartial and objective; and 2) provide an objective, third-party perspective regarding whether the RFP treated all proposals fairly and consistently and avoided undue preference toward any bidder. The IM’s responsibilities in this RFP are described more fully in the next section of this report.
B. Independent Monitor Responsibilities From February 2016 through February 2017, the IM worked closely with EAI and RFP team members and monitored all aspects of 2016 RFP development, implementation and evaluation. From March through June 2017, the IM monitored negotiations between EAI and NextEra.
The IM’s responsibilities included:3 1) reviewing and suggesting changes to 2016 RFP procedures, documents, and timelines; 2) reviewing and commenting on the structure and composition of RFP evaluation teams; 3) reviewing and, as needed, revising 2016 RFP confidentiality acknowledgements (“CAs”), ensuring all individuals participating in the 2016 RFP signed CAs, and adhered to all CA requirements; 4) reviewing all proposal evaluation assumptions, models and procedures to ensure they addressed the RFP’s objectives and guaranteed fair treatment of all proposals; 5) reviewing and, as needed, commenting on all communications – including RFP notices, presentations, and questions and answers – between the RFP and potential and actual bidders; 6) participating in the 2016 RFP bidders’ conference; 7) monitoring 2016 RFP bidder registration and proposal submission systems including, as required, their procedures to mask from RFP evaluators the identities of bidders, generation resources, and proposals; 8) reviewing all proposals received, and approving redaction of certain identifying information before releasing proposals to RFP evaluators; 9) monitoring economic, deliverability, due diligence, accounting, and credit evaluations performed by designated RFP personnel; 10) overseeing 2016 RFP evaluators’ clarifying questions to bidders and any other communication between the RFP and bidders, including teleconferences between the RFP and each shortlisted bidder; 11) monitoring all communications among RFP evaluators, and participating in RFP bid evaluation and selection discussions; 12) meeting, as needed and
3 The IM’s detailed Scope of Work for the 2016 RFP is posted on EAI’s RFP Website.
2
42 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______requested, with APSC Staff; 13) as required, monitoring negotiations between EAI and selected counterparties for PPA proposals; and 14) participating, as required, in regulatory proceedings pertaining to selected proposals.
In line with the IM’s responsibilities, this report addresses the development and implementation of the RFP, the evaluation of proposals submitted by bidders, and the negotiations between EAI and NextEra that resulted in the PPA that is the subject of EAI’s certification request to the APSC. The report also provides the IM’s assessment of those activities, including whether they met EAI’s obligations for fairness and impartiality, and avoided any undue preference toward any proposal.
C. APSC Staff Discussions and Briefings
Although the APSC does not have a formal competitive power procurement rule, the APSC Staff (“Staff”) has a keen interest in EAI’s power supply RFPs and wants to ensure that those RFPs treat all bidders and proposals fairly and impartially. Because of this interest, Staff recommended in Docket No. 12-038-U that EAI retain an IM to oversee future RFPs. EAI has complied with that recommendation in all subsequent RFPs.
One of the IM’s responsibilities is to meet with Staff as necessary during the RFP. During this RFP, the IM met with Staff at the Public Service Commission’s office in Little Rock, Arkansas on April 25, 2016. The purpose of the meeting was to discuss lessons learned from previous EAI RFPs – in particular EAI’s 2014 RFP – to review the goals and structure of the 2016 RFP, and to discuss any RFP-related issues of interest or concern to Staff and the IM. EAI did not attend this meeting between the IM and Staff.
During the RFP’s proposal receipt and evaluation period (August 2016 – February 2017), EAI provided periodic RFP update reports to Staff. They included: 1) a summary of the proposals bid into the RFP; 2) a review of the evaluation process, the shortlist outcomes, and the due diligence discussions with bidders whose proposals were shortlisted; and 3) a discussion of RFP evaluation outcomes and proposal recommendations held before EAI informed bidders about the outcome of the RFP. The IM reviewed and commented on EAI’s written updates to Staff before these meetings, but did not attend any of the meetings.
3
43 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______D. Organization of the Report This report has five sections. Section I is this Overview. Section II discusses the need for the RFP, eligible RFP technologies and products, RFP safeguards, developing RFP procedures and documents, communicating with potential bidders, implementing the RFP, registering, receiving, reviewing, and redacting proposals, and releasing proposal information to RFP evaluation teams. Section III discusses the RFP evaluation of proposals, including evaluation components, procedures, models, and outcomes. Section IV discusses EAI’s PPA negotiation with NextEra. Section V provides the IM’s comments and conclusion regarding the overall fairness and objectivity of the RFP.
The IM also comments on the RFP throughout this report.
II. Developing and Implementing the RFP A. Resource Need and Eligible Technologies
The 2016 RFP was based on EAI’s estimated generation requirements as discussed in its Integrated Resource Plan (“IRP”) dated October 30, 2015 and covering a study period from 2017 through 2036.4
The IRP’s “reference” case estimated the addition of 4,850 MW of incremental generation capacity to EAI’s portfolio over the 20 year study period. The IRP projected that approximately 1,300 MW of reference case capacity would originate from cost-effective renewable resources.5 The IRP’s “low” case portfolio estimated adding no renewable resources, while its “high” case estimated adding approximately 1,597 MW – both over the same 20-year study period.6
With these estimates as background, EAI’s 2016 RFP targeted acquiring approximately 100 MW of commercially proven, cost effective renewable resources. Renewable resource technologies
4The 2015 IRP document is available by following this link: http://entergy-arkansas.com/content/transition_plan/07- 016-U_49_1.pdf. 5 The State of Arkansas does not have a Renewable Portfolio Standard that requires EAI to include any set amount or percentage of renewable generation in its resource plan. Rather, EAI acquires renewable resources in line with its overall generation planning. 6 The IRP reference case and low estimates, and how they led to EAI’s decision to target 100 MW of renewable resources in the 2016 RFP were discussed in the 2016 RFP documents.
4
44 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______eligible for this RFP were: 1) solar photovoltaic; 2) wind; 3) biomass; and 4) run-of-river hydroelectric.
B. Eligible Suppliers, Resources and Products
The 2016 RFP encouraged a full range of potential suppliers to submit proposals, including electric utilities, wholesale generators, marketers, qualifying facilities, and independent power producers. EAI’s regulated and competitive affiliates were not eligible to participate in the RFP, and EAI itself did not have a competitive stake in the RFP since it did not propose market testing a self-build generation project.
The RFP encouraged eligible bidders to submit proposals sourced from both developmental and existing resources. The RFP sought a total of up to 100 MW of long-term renewable energy, capacity, capacity-related benefits, environmental attributes, and other electric products. Each proposal was required to provide at least 30 MW but not more than 100 MW of capacity.
The RFP stated a preference for resources located in the Midcontinent Independent System Operator’s (“MISO”) Local Resource Zone (“LRZ”) 8,7 although it made clear that otherwise eligible resources located outside LRZ 8 and also outside MISO were eligible to participate.
The RFP accepted proposals offering PPAs for all eligible technologies, and required bidders proposing PPAs to offer delivery terms of at least 10 but not more than 20 years. The RFP also offered suppliers bidding solar photovoltaic resources the opportunity to submit acquisition proposals, but required that those solar resources be directly interconnected to the EAI transmission system. EAI applied this condition to solar acquisition products because it did not wish to own solar generation if the facility was in a remote location. The IM considered this condition reasonable and agreed with it.
C. RFP Organization Since EAI exited the Entergy System Agreement on December 19, 2013, it has assumed key responsibility for its power supply RFPs. This includes the following:
EAI’s President and CEO (“CEO”) provides executive oversight to the RFP and makes final resource selection decisions;
7 MISO’s LRZ 8 corresponds to EAI’s service area.
5
45 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______ senior EAI Resource Planning Team personnel (“EAI Team”) oversee RFP development, ensure the RFP reflects EAI resource needs, participate in all aspects of RFP implementation and proposal evaluation, and compile individual evaluation team results into an overall proposal ranking; EAI’s Resource Planning and Operations Committee (“RPOC”) provides policy direction to the RFP, regularly reviews its progress and outcomes, and makes resource recommendations to EAI’s CEO; and EAI contracts with Entergy Services, Inc., (“ESI”), its affiliated services company,8 to conduct economic, production cost (“Aurora”), deliverability, viability, accounting and credit evaluations of proposals. ESI also provides support to the RFP from RFP Administration and ESI Technical Management Teams, neither of whose members serve on any evaluation team.
A graphic description of the EAI RFP organizational structure appears immediately below.
Table 1: EAI RFP Organizational Structure
8 ESI employs analysts, engineers, accountants, attorneys, and other subject matter experts with substantial experience conducting and evaluating power supply RFPs.
6
46 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______D. RFP Notice On February 12, 2016, the IM began discussing plans for the RFP with the EAI Team, including plans to provide a notice to interested parties that the RFP would take place. No RFP documents were available for the IM to review, but the basic outline of the RFP was in place – including eligible renewable technologies, capacity amounts, basic products, and a proposed timeline.
Following this and additional discussions, the EAI Team, the IM, and regulatory counsel assigned to the RFP discussed and agreed on an RFP notice announcing the solicitation.
On March 15, 2016, EAI announced its intention to conduct the 2016 RFP in a notice to interested parties that it posted on its RFP Website, published in Platts Megawatt Daily, and sent electronically to an extensive list of power suppliers. The suppliers’ list was composed largely of companies that had expressed interest in or participated in previous Entergy RFPs for power supply and, EAI concluded, could likely be interested in this upcoming RFP.
The notice informed all parties that EAI expected to issue final RFP documents in approximately two months,9 and that all RFP documents, as well as answers to questions about the RFP from potential bidders and other interested parties, would be posted on EAI’s official RFP Website. The notice also informed all parties that EAI would not submit a “self-build” option into the RFP, and would permit neither its competitive affiliates nor other Entergy Operating Companies to participate in the RFP.
The notice provided contact information for an RFP Administrator, Entergy’s single point of contact for the RFP, and for the IM. It encouraged potential bidders with questions at this early stage to direct them to the RFP Administrator so that the questions could be answered by RFP personnel and posted to the RFP Website for the benefit of all interested parties.
Because RFP documents would not be immediately available, EAI’s notice laid out the basic definitions of and requirements for the renewable resources it was seeking, and described the RFP in reasonable detail so that potential bidders would have enough information to be able to ask specific and meaningful questions about it as early as possible.
9 RFP documents were released on May 26, 2016.
7
47 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______E. Minimum Requirements for Developmental Resources Accompanying the notice was a description of minimum requirements bidders offering developmental resources into the RFP would need to meet when they submitted their proposals. Given the long lead time and complexity associated with developing a new resource, the description gave bidders specific information on EAI’s proposal submission requirements, and provided them reasonable time to assemble the information before submitting their proposals.
The minimum requirements document included the following components: an overview description of the project; a summary of key project personnel, their background and experience, and information on relevant projects they had completed; evidence that the project being submitted had progressed beyond the conceptual phase, including that its engineering, cost, and schedule estimates met industry standards appropriate to the expected timeline; evidence that the bidder had control of the site on which the project was to be constructed; for solar, wind, and hydroelectric technologies, documented profile information that supported resource production levels, and plans for waste disposal, as and if relevant to the technology. For biomass technologies, a reasonably detailed plan for fuel supply, transportation, storage and waste disposal; evidence of a plan to support all required permitting; a completed interconnection request submitted to MISO before July 11, 2016 or, if the resource would be located outside MISO, a detailed plan to interconnect to the applicable balancing authority and identifying the delivery point to MISO; as applicable to the resource, a plan for access to and use of water; and a feasible plan to structure and finance the project.
F. RFP Safeguards
After posting notice of the upcoming solicitation, the EAI Team, regulatory counsel, and the IM discussed and agreed on the procedural and informational safeguards that would guide RFP activities. 8
48 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______RFP safeguards were designed to protect commercially sensitive information, and ensure that all proposals would receive fair and impartial treatment throughout the RFP. They applied to all RFP participants and were closely monitored throughout the RFP by the IM. The safeguards were specified in published RFP documents and, as pertinent, discussed with bidders and other interested parties during the course of the solicitation. Among the safeguards were procedures to ensure confidential treatment of RFP information, protocols that defined who would have access to which information, how information would be handled, and how bidders would interface with the RFP. They included:
1. Confidentiality Acknowledgements All Entergy personnel involved with the 2016 RFP, including the EAI Team, signed confidentiality acknowledgements (“CAs”) that governed their access to and uses of RFP proposal information. CAs were tailored to separate groups working on the RFP in accordance with their responsibilities and related requirements for information. For example, proposal evaluators signed CAs affirming their obligation to protect the confidentiality of non-public information they would receive in connection with the RFP, while participating executives signed CAs acknowledging their oversight role related to the RFP, but restricting them from directing, organizing or executing the development of the RFP.
The IM reviewed each different CA form to ensure that it addressed all necessary issues and protections. In this RFP, the IM proposed a small number of clarifications to the CAs so they conformed to EAI RFP requirements regarding treatment of confidential information. After discussion, EAI implemented the IM’s proposed clarifications. After the CAs were signed, the IM received and retained information identifying all RFP participants, and oversaw compliance with all CA protocols throughout the RFP.
2. Information Protocols To manage and control how information was received and used, ESI designated the RFP Administrator to handle most RFP communications. With limited exceptions, bidders were required to direct all RFP questions, requests, and other inquiries to the RFP Administrator in
9
49 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______writing using a dedicated RFP email address.10 The RFP Administrator was the only Entergy employee authorized to receive and handle RFP communications from bidders throughout most of the RFP and, exclusively, from the date the RFP Notice was issued in March 2016 until the proposal shortlist was selected in December 2016.
The RFP Administrator also managed a public RFP Website that was used to post all RFP documents and to address most questions and other communications from bidders. The RFP Website provided an accessible and transparent forum which ensured that RFP questions and answers pertinent to all parties would be simultaneously and equally available to everyone, but also that confidential and identifying information would be redacted.
During the proposal evaluation period, the RFP Administrator managed all clarifying communications between RFP evaluators and bidders and ensured that bidder, resource, and proposal identifying information was appropriately redacted before releasing information to evaluators. The RFP Administrator also managed communications among RFP evaluation teams to ensure that only approved information was shared.
The IM worked closely with and oversaw the work of the RFP Administrator throughout the RFP. The IM reviewed all documents and communications before they were posted to the RFP Website. The IM reviewed all proposal information, questions, data, and clarifying requests, commented on them or recommended changes, as necessary, and approved or suggested changes to all redactions proposed by the RFP Administrator before documents were provided to evaluators. This ensured that communications with bidders and among evaluation teams were handled properly and fairly, and that all commercially sensitive information was protected.
Before the RFP was published, the IM reviewed the list of employees designated to work on each RFP evaluation team to ensure that those individuals were separate and different, that they would not provide an undue advantage to any RFP proposal, and that their participation in the RFP complied fully with their CAs, Arkansas affiliate rules, and Federal Energy Regulatory Commission Affiliate Restrictions and Standards of Conduct, as applicable.
10 Exceptions included that bidders: 1) were required to communicate directly with MISO on specified transmission issues; 2) communicated directly with the EAI Team and participating RFP personnel while attending the April 26, 2017 RFP Bidders’ Conference in Little Rock, AR; and 3) were free to communicate with the IM at all times about any RFP issue.
10
50 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______RFP evaluation teams focused on separate aspects of each individual proposal and each team received only the information it needed to do its job. For example, economic evaluators received a confidential report containing only pricing and required operating information for each proposal, but no information that identified the bidder. At the same time, the identity of individual bidders was not withheld from the deliverability (transmission) team, because it needed bidder and resource location information to perform its job. However, the deliverability team did not receive price information from bidders’ proposals.
Evaluators did not receive any proposal information until the RFP economic models were completed, locked down and provided to the IM for review. Similarly, procedures used to assess due diligence and transmission issues were provided to the IM before evaluators received proposal information.
Finally, even though certain evaluation teams needed to know the identity of bidders and the location of their resources, the information these evaluators received routinely masked the identity of bidders, generation resources, and proposals by adding randomly generated identification numbers that bidders received when they registered their proposals. These bidder, resource and proposal IDs were affixed to all RFP documents, reports and outcomes, and ensured a consistent method of communication throughout the RFP.
EAI documented how it would protect proposal information in Appendix G of its RFP documents and posted that information on its RFP Website. Appendix G remains on the EAI RFP Website.
3. Entergy Arkansas Resource Planning Team EAI Team members signed CAs appropriate to their role, which included reviewing and approving all RFP assumptions, models, and documents. In recognition of EAI’s overall responsibility for the RFP, the IM agreed that the EAI Team should also have access to bidders’ identities and to substantially all RFP proposal information, including pricing. This allowed the EAI Team to track and assess the RFP evaluation and ensure that each evaluation team had the information it needed to perform effective, timely analysis of RFP proposals. At the same time, the EAI Team was prohibited from sharing restricted information with any evaluation team. In
11
51 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______keeping with RFP protocols, all proposal information the EAI Team received was identified by bidder, resource and proposal IDs.
G. RFP Bidders’ Conference
On March 28, 2016, EAI posted notice that it would host an RFP Bidders’ Conference in Little Rock, Arkansas on April 26, 2016. Potential bidders were encouraged, but not required, to attend the Bidders’ Conference. Because it took place before official RFP documents were available, the Bidders’ Conference provided substantial information for bidders as a means to encourage them to ask questions, raise concerns they might have, and begin preparing their proposals.11 In their presentations, the EAI Team and members of RFP evaluation teams provided a detailed briefing that included: 1) information on EAI’s service area, customers, and existing capacity; 2) the RFP capacity request, resource and technology requirements, and information bidders would be required to submit with their proposals; 3) proposed commercial terms and conditions and instructions for proposing exceptions to EAI term sheets; 4) interconnection requirements for developmental projects; and 5) registration and bid submission procedures. Team members also discussed RFP evaluation components and process, and provided a tentative RFP schedule.
The IM described her role in the RFP and outlined RFP safeguards in place to ensure fair treatment of all proposals.
Anticipating that many bidders would submit proposals sourced from developmental resources, the EAI Team invited a MISO representative to provide information to potential bidders on MISO’s generation interconnection requirements, procedures, costs and timing.
The EAI Team, evaluation team members and MISO took questions following their presentations. They responded to all questions at the Bidders’ Conference, but the RFP Administrator also posted each question and answer – as well as all RFP and MISO presentation materials – to the RFP Website to ensure that all interested parties, whether they had attended the Bidders’ Conference or not, would have access to the information.
11 Bidders’ Conference materials did not substitute for official RFP documents, but did provide potential bidders detailed information on the objectives, requirements, commercial terms and conditions, and timing of the RFP.
12
52 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______All Bidders’ Conference documents and related questions and answers are posted on the EAI RFP Website.
H. RFP Questions and Answers Starting shortly after EAI provided notice to potential suppliers on March 15, 2016 and concluding just before the beginning of the proposal submission period on August 15, 2016, potential bidders submitted thirty-three questions to EAI about the RFP. The RFP Administrator and IM handled each according to the RFP’s confidentiality protocols, and posted all questions and answers to the RFP Website.
The questions covered a range of issues including: 1) transmission interconnection and MISO interface requirements; 2) project delivery requirements and associated costs; 3) RFP communication protocols; 4) inquiries about eligible technologies and bidders; 5) requests to clarify certain credit requirements; 6) requests to clarify certain parts of the proposal evaluation process; and 7) requests to clarify certain requested due diligence and operational information requirements.
All questions and answers are posted on the EAI RFP Website.
I. RFP Documents and Procedures RFP procedures require that all documents be made available to the IM for review and comment prior to their publication. On April 14, 2016, EAI and ESI first briefed the IM on the objectives and evaluation methods of the 2016 RFP. On April 20, 2016, the IM received the first set of draft RFP documents. Over the next month, the IM received, reviewed and commented on drafts of the RFP’s Main Body, nine RFP appendices, and six related documents including proposal registration and submission forms, a proposal submission agreement, and a proposal viability self-assessment document.
The objective of the IM’s review was to ensure all documents and procedures: 1) adequately addressed the goals of the RFP; 2) were thorough and clear, and adequately described information bidders would be required to submit; and 3) provided no undue preference to any bidder or proposal.
13
53 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The RFP’s Main Body and appendices provided detailed information on: 1) resources EAI was seeking and how those resources addressed EAI’s needs; 2) a summary of principal commercial terms for PPAs and acquisitions; 3) the timeline for RFP activities; 4) different RFP evaluation teams and assessments each team would perform; 5) appendices providing due diligence information bidders were required to provide with their proposals; 6) how bidders could take exception to RFP commercial terms; and 7) RFP bidder registration and proposal submission procedures.
The documents discussed the safeguards in place to protect commercially sensitive proposal information and the identity of bidders and resources during the evaluation. They described the role of the IM and how bidders could contact the IM if they wished to do so. They discussed procedures to ensure those working on the RFP would not have preferential access to information, or otherwise provide unfair advantage to any proposal. They included a separate and detailed confidentiality agreement that could be used by EAI and bidders in the event they determined they needed to share highly sensitive information that went beyond the confidentiality protections already provided by RFP procedures.
1. Updating Procedures Most of the procedures in the 2016 RFP had been used in previous competitive power procurements, but were updated as needed to address the requirements of this RFP or to provide additional information to bidders.
One example illustrating how procedures were updated related to the RFP’s due diligence review. Known as the “viability assessment,” the due diligence review requires bidders to provide a substantial amount of developmental, technical, operational, and credit information when they submit their proposals. The viability assessment has proved to be a useful tool because it helps evaluators and EAI determine whether proposals with attractive economics can, in fact, deliver on those economics. For example, the viability assessment of developmental resources reviews a bidder’s plans and related documentation to determine whether they support a commercial operations date (“COD”) that is in line with RFP requirements. The IM supports this assessment, particularly in an RFP that is likely to attract a large number of developmental resources or that contemplates acquiring an asset.
14
54 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______In this RFP, the IM asked EAI to provide more information to bidders on how the viability assessment evaluates the detailed information bidders are required to provide. Some or all of this information is reviewed at different times during the evaluation – from screening all proposals for threshold requirements at the beginning, to a detailed assessment of shortlisted proposals later on. In the IM’s view, providing more information on how the viability assessment works would give bidders a clearer understanding of its importance, and could help them prepare better proposals. Providing more information on the viability assessment would also be in line with more complete descriptions of work performed by other evaluation teams already provided in RFP documents.
Following discussion with the IM, the EAI Team and evaluators who would work on the viability assessment adopted her recommendation and prepared a description and an information table that together helped bidders understand how the viability assessment evaluated each shortlisted (Phase II) proposal in comparison to each other proposal. The description and table were not completed before EAI posted its final documents, but the RFP Administrator posted a separate document on the RFP Website on August 4, 2016 that described the viability assessment analysis and evaluation in more detail than had previously been the practice.
The Viability Assessment Team Phase II Analysis document is posted on the RFP Website.
2. Final Documents While reviewing all RFP documents, the IM highlighted a number of areas where she felt information being provided by EAI or requested from bidders should be clarified or reviewed for consistency with other parts of the RFP, but identified no major areas of concern. She conducted two separate reviews of all RFP documents, provided her input in writing on all of them, and, in certain cases, discussed issues with RFP evaluation team members. Following these steps, the IM and the EAI Team agreed on the final RFP documents.
The RFP Administrator posted RFP documents to the EAI RFP Website on May 26, 2016, and notified the list of interested parties electronically that the posting had taken place. An article in Platts Megawatt Daily discussed the RFP, and pointed prospective bidders to the EAI RFP Website for more information.
All 2016 RFP documents are posted on EAI’s RFP Website. 15
55 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______J. Bidder Registration and Proposal Fees Between July 5 and July 8, 2016, bidders interested in the 2016 RFP submitted proposal registration forms to the RFP Administrator. Each form provided required contact, company, and proposal information. The RFP Administrator sent randomly generated bidder, resource and proposal IDs to each registered bidder with instructions to use them on bid documents as required by the RFP.
All aspects of bidder registration proceeded smoothly. A brief summary of registered renewable proposals appears immediately below.
Table 2: Registered Proposals
Number of Bidders 20
Number of Generation Resources 39
Developmental Resources 39
Existing Resources 0 Number of Proposals 60
Solar
Wind
Solar and Wind
Biomass
Hydroelectric
Five days after bidder registration ended, an unregistered supplier contacted the RFP Administrator requesting that it be allowed to register proposals out of time. The supplier had registered proposals successfully in EAI’s 2014 Renewable RFP, but offered no explanation why it did not register on time for this RFP. In a second communication, the supplier suggested that EAI extend the bidder registration deadline for all parties in order to accommodate its request. The EAI Team, regulatory counsel and the IM discussed the supplier’s request, and concluded that because there was no fault in the RFP’s bidder registration notice or procedures, the supplier had had a fair chance to register its proposals on time. The RFP Administrator informed the
16
56 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______supplier it would not be allowed to register late for the 2016 RFP, and encouraged it to participate in future EAI RFPs.
ESI invoiced all registered bidders a $5,000.00 fee for each registered proposal, and required bidders to pay all fees before they could submit their proposals. One registered bidder offering two solar and one biomass proposal decided it did not wish to proceed with the RFP and withdrew from consideration before paying any fees. Another registered bidder was unable to file a timely interconnection application for one of its two solar proposals. It withdrew the affected proposal but paid the fee for its remaining proposal. All other registered bidders paid the proper fees without difficulty and on time.
Beginning with proposal registration and continuing through proposal submission, the RFP Administrator maintained an RFP telephone hotline to respond to bidders’ questions on registering proposals, paying proposal fees, and submitting proposals. The hotline was a useful backup safeguard for any bidder uncertain about submission procedures, or experiencing difficulty submitting registration or proposal information.
K. Proposal Submission, Review, and Phase 1A Redaction Bidders submitted their proposals by email to the RFP Administrator beginning August 15, 2016 and concluding at 5:00 p.m. CT on August 18, 2016. Bidders completed a specially designed RFP proposal template with required information that would be sent to each of the six evaluation teams following review and redaction by the RFP Administrator and approval by the IM. Bidders provided additional information in file attachments, flash drives, or CDs – largely in response to the RFP’s viability assessment and credit requirements. Bidders also noted any special proposal features or clarifications, provided additional information on their proposals, or, in accordance with RFP protocols, proposed exceptions they wished to take to RFP commercial term sheet requirements. All proposal information was held securely by the RFP Administrator until the IM and RFP Administrator accessed it following the August 18th proposal deadline.
The proposals submitted into the RFP reflected several changes in comparison to the registered proposals:
three bidders did not submit all the proposals for which they had paid bid fees;
17
57 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______ adding the proposals withdrawn from the RFP before bid fees were paid to those that were not submitted, the RFP received 15 fewer proposals than had been registered. However, although some bidders submitted a smaller number of proposals, no bidder who paid bid fees withdrew from the RFP; and one bidder registered a combined wind and solar proposal, but the proposal it submitted included pricing only for a wind proposal.
All these changes complied with RFP requirements.
A summary of renewable proposals submitted into the RFP appears immediately below.
Table 3: Submitted Proposals
Number of Bidders 19 Number of Generation Resources 30
Developmental 30
Existing 0 Number of Proposals 45
Wind
Solar
Wind & Solar
Proposal Products
20 Year PPA 38
Acquisitions 7
Due to the large number of proposals received by the RFP, and the expectation that some would be more beneficial to EAI customers than others, the EAI Team and ESI Technical Management proposed conducting the first part of the evaluation in two steps – Phase 1A and Phase 1B. During Phase 1A, economic and due diligence evaluators would evaluate all proposals to determine how economically competitive each was in comparison to all others, identify whether any failed to meet key RFP threshold requirements, and determine whether any otherwise contained a significant flaw that would make it problematic to pursue. The EAI Team would review the Phase 1A results and discuss them with the RPOC which would determine whether it would recommend to the CEO eliminating less competitive proposals from further consideration. 18
58 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______During Phase 1B, evaluators would expand their assessment of the proposals found to be the most competitive in Phase 1A.12
The IM concurred with conducting Phase I in two steps. It was reasonable to expect some proposals would be more beneficial to EAI customers than others, and it was reasonable to identify those proposals early in the evaluation. Phase 1A would assess all proposals fairly and in conformance with RFP Phase I procedures, and also identify less competitive proposals. Doing so would enable evaluators to focus on a manageable number of more attractive proposals during Phase 1B.
On August 18, 2016, the RFP Administrator and IM began reviewing each proposal. The RFP Administrator and IM worked with the RFP Administration Team during the first days of proposal review. This review prepared proposal information for release to economic and due diligence teams so they could conduct the Phase 1A evaluation, and to the EAI Team, which oversaw the RFP evaluation.
Phase 1A bidder information was located in two RFP-designed documents each bidder was required to submit: 1) the proposal template (“template”); and 2) the Viability Self-Assessment Form for Developmental Resources (“Viability Self-Assessment”). The template contained proposal pricing, key operating information, basic transmission interconnection information, and bidder-identified special considerations that could affect each proposal’s economics or operations, or that proposed commercial exceptions to EAI term sheets. All pricing and relevant operating information would go to economic evaluators. Transmission information would be reviewed by the due diligence evaluator assessing delivery. The Viability Self-Assessment was an overview of each proposal and a summary of operating, permitting, financing, commercial, and developmental information. This information would be reviewed by due diligence evaluators.13
12During Phase 1B, for example, evaluators reviewed all due diligence materials provided by bidders. During Phase 1A, they reviewed only a portion of those materials. 13In certain cases, the Phase 1A review required consulting other proposal information – particularly detailed due diligence information – in order to understand fully a bidder’s intent. For example, a bidder’s legal control over its proposed project site was not always clear from the brief summary in the Viability Self-Assessment. If needed, the IM approved providing more detailed information to evaluators during Phase 1A. 19
59 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The RFP Administrator and IM reviewed and redacted each template, Viability Self-Assessment, and any related document to remove unauthorized identifying information and provide only the proposal information each evaluation team was authorized to receive. During this and all subsequent redactions, the RFP Administrator and IM kept separate copies of complete and unredacted information from all proposals, information that included the identity of each bidder and resource.
After approving all proposed redactions, the IM authorized the RFP Administrator to release Phase 1A proposal information to the economic and due diligence evaluation teams. The economic evaluators received Phase 1A documents on September 6, 2016. Due diligence evaluators received Phase 1A documents on September 7, 2016.
During Phase 1A, two issues arose that eliminated five non-conforming proposals from the RFP. The first issue concerned two different bidders, each of which submitted a proposal that did not provide financial delivery to the EAI transmission system. Bidders had been informed early in the RFP’s development that financial delivery to the EAI transmission system was an RFP requirement, and that failure to so deliver would eliminate any affected proposal from the RFP. The EAI Team recommended eliminating the two non-conforming proposals. The IM concurred with the recommendation.
The second issue concerned a bidder that submitted three proposals, but did not include a required proposal submission agreement (“PSA”). The PSA sets forth the terms of bidders’ participation in the RFP and requires each bidder to sign it. Because the affected bidder had participated in EAI’s 2014 Renewable RFP and signed the PSA at that time, EAI expected its failure to do so in 2016 was an oversight. In fact, the bidder reported that it would not sign the PSA without extensive changes in the language. Following email communications, a telephone discussion including the bidder, Entergy commercial and regulatory counsel, the RFP Administrator and the IM, and a separate communication between the bidder and the IM, the bidder and EAI were unable to agree on new language.
Following discussion with the IM, the EAI Team authorized the RFP Administrator to notify the bidder it had been eliminated from the RFP, and encouraged it to participate in future EAI RFPs. The IM agreed with this decision.
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60 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______A final summary of conforming proposals submitted into the RFP appears immediately below.
Table 4: Conforming Proposals
Number of Bidders 17 Number of Generation Resources 26
Developmental 26
Existing 0 Number of Proposals 40
Wind
Solar
Wind & Solar
Proposal Products
20 Year PPA
Acquisitions
L. Comments During RFP development and implementation, the IM was responsible to ensure that: 1) its objective was clearly stated; 2) it was widely publicized and encouraged a robust response from the competitive wholesale market; 3) potential bidders and other interested parties could ask questions about, comment on, or take issue with any procedure or requirement; 4) it had procedures in place to ensure fair and objective analysis and evaluation of all proposals; 5) it provided enough time for bidders to prepare their proposals; and 6) it provided useful information to bidders on how their proposals would be evaluated. Based on her close oversight of all RFP activities, the IM concludes that the RFP adequately addressed these issues. The following observations support the IM’s conclusion and provide additional comments:
The EAI Team ensured that the RFP’s objectives and procedures were clear, and was actively involved in all aspects of the RFP’s development and implementation. The RFP was the second conducted by EAI since it exited the Entergy System Agreement. The EAI Team oversaw RFP planning and implementation. EAI contracted with ESI, its affiliated services company, to conduct the detailed proposal evaluations, but the EAI Team received all proposal information, and actively oversaw the work of the evaluation
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61 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______teams. The IM worked with both EAI and ESI personnel on all aspects of the RFP’s development and implementation.
The RFP was widely promoted using different forms of outreach to wholesale renewable suppliers. EAI contacted potential bidders and other interested parties directly, promoted the RFP in a widely read national trade publication, held a timely Bidders’ Conference, and made all RFP documents and bidders’ questions and answers available to all parties on a publicly accessible RFP Website.
The RFP was organized and staffed to safeguard data and ensure fair consideration of all proposals. A designated RFP Administrator managed and controlled access to all RFP information and all communications between the RFP and bidders, and among all RFP evaluation teams. The IM oversaw the RFP Administrator’s work. All RFP participants signed CAs requiring them to protect proposal information and the integrity of the RFP process. Bidder, resource, and proposal names were replaced by numeric identifiers as required by RFP protocols, and in RFP evaluation documents. Other identifying information was carefully redacted. Each evaluation team performed designated and separate functions and received only the information it needed to do its job. The IM reviewed all evaluators assigned to participate in the RFP to ensure that they did not possess material non-public information about any proposal, and that they understood their obligation to maintain the protocols and safeguards of the RFP.
Prospective bidders had the opportunity over a five month period to request clarifications, ask questions about, or take issue with any aspect of the RFP. Bidders exercised that opportunity by putting 33 questions to the RFP covering a broad range of issues. The RFP provide timely responses to all questions and made them available to all parties on the EAI RFP Website.
EAI described the proposal evaluation in sufficient detail in the RFP documents and in related RFP Website postings. These descriptions provided useful information to bidders regarding how their proposals would be evaluated. The evaluation process, the different evaluation teams and their responsibilities, and the evaluation timeline were discussed during the RFP Bidders’ Conference, and described in written documents posted on the 22
62 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______RFP Website. The evaluation process was substantially transparent; RFP documents disclosed to bidders how and when price and non-price factors would be considered in the review of their proposals. In this RFP, EAI for the first time described in reasonable detail how the viability assessment would consider and assess specified non-price factor categories (e.g., technology, development experience, environmental issues, etc.) as a means to measure comparative risk among proposals.
Proposal registration and submission procedures were fair and described fully. All bidders successfully complied with RFP registration and proposal submission procedures. The RFP Administrator provided backup support through the RFP hotline.
Seventeen bidders submitted forty conforming wind and solar proposals into the RFP. This strong response from wholesale renewable suppliers provided EAI with a solid market test of utility-scale solar and wind resources.
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63 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______III. Proposal Evaluation A. Evaluation Process The goal of the 2016 RFP evaluation was to identify the proposal or proposals that best addressed EAI’s need for reliable long-term renewable generation at the lowest reasonable cost and risk. The evaluation was structured to meet that goal and to treat all proposals fairly and objectively. It was conducted in two phases.
Phase I identified the proposals that were the most economically, developmentally, and operationally attractive, and from them select a shortlist of proposals to be considered during Phase II. Phase I had two steps – Phase 1A and Phase 1B.
Phase 1A screened each proposal for compliance with the RFP’s threshold requirements. The Economic Evaluation Team (“EET”) determined the economic benefit of all forty conforming proposals and ranked the proposals from most to least attractive. The Viability Assessment Team (“VAT”) evaluated each proposal’s Viability Self-Assessment to determine whether the proposal had an operational, organizational, or developmental flaw that created serious doubt regarding its ability to provide reliable generation and otherwise address RFP requirements. The EAI Team combined EET and VAT Phase 1A results, briefed the RPOC, and recommended to the CEO that he select the twenty-three most economically competitive proposals. The proposals were sourced from sixteen resources and submitted by ten bidders. The CEO endorsed the recommendation.
Phase 1B was a more detailed analysis of the top twenty-three proposals. The EET updated its economic evaluation of the remaining proposals. VAT evaluators reviewed all due diligence information bidders submitted with their proposals and provided an assessment of each proposal. The Deliverability Assessment Team (“DAT”) evaluated proposal transmission information and included its findings with the VAT Phase 1B assessment.
All proposal information was provided to evaluators by the RFP Administrator after it had been reviewed and redacted by the RFP Administrator and the IM, and approved for release by the IM.
Based on the Phase 1B evaluation, the EAI Team and the RPOC recommended to the CEO and the CEO agreed to select seven solar and two wind proposals from five different bidders for the
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64 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______RFP shortlist. Seven proposals were located in MISO. Two proposals were located outside MISO. The IM agreed with the shortlist selection.
The RFP Administrator informed bidders sponsoring these nine proposals that they had been shortlisted, and offered them the opportunity to provide a “best and final” price decrease for each proposal. The RFP Administrator informed bidders sponsoring all other proposals that those proposals had been removed from further consideration.
During Phase I, all bidders provided timely responses to the RFP’s proposal submission requirements and to follow-up clarifying questions submitted to them by RFP evaluators.14 The Phase I evaluation took longer than expected because of the large number of proposals, and because all were sourced from developmental resources. The EAI Team and ESI Technical Management Team proposed extending the shortlist selection beyond its original October 2016 date. After conferring with the IM, who agreed extending the schedule would ensure a careful and complete proposal evaluation, EAI postponed selecting its shortlist to no later the mid- December 2016. The RFP Administrator notified all bidders of the new schedule.
Phase II was a more detailed evaluation of the nine shortlisted proposals: 1) the EET determined the effect of each proposal on EAI’s total supply costs, and combined that information with each proposal’s fixed costs and capacity revenue to determine its net benefit; 2) the Aurora Modeling Team (“AMT”) ran Entergy’s production cost model, the AURORAxmp Electric Market Model (“AURORA”), to assess the energy value of each proposal. AURORA results were used by the EET for its supply cost analysis; 3) the DAT assessed whether proposals could require transmission upgrades, and provided planning level delivery cost estimates for affected proposals; 4) the VAT conducted a thorough viability assessment of and scored each shortlisted proposal; 5) the Accounting Evaluation Team (“AET”) determined whether any proposal contained an accounting liability that could transfer to or otherwise negatively affect EAI during the PPA term; and 6) the Credit Evaluation Team (“CET”) assessed each bidder’s credit to determine how the proposal(s) it offered would affect EAI risk management requirements.
14 Clarifying questions from RFP evaluators addressed a wide range of issues. For example, they requested information on technical or interconnection issues, and clarification of commercial exceptions to EAI term sheets. All clarifying questions and bidder responses were communicated through the RFP Administrator and monitored by the IM.
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65 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The EAI Team held teleconference meetings with five bidders beginning January 4, 2017 and concluding January 12, 2017. Each meeting addressed specific issues identified for each bidder but, in general, covered: 1) project development status; 2) plant and equipment; 3) progress on interconnection and transmission; 4) environmental issues; 5) commercial issues; 6) regulatory issues; and 7) questions from bidders. In addition to the EAI Team, selected RFP evaluators from the VAT, DAT, AET and CET, the RFP Administrator, and the IM participated in each meeting.15
The EAI Team combined information from all evaluation sources into a comprehensive assessment of each shortlisted proposal that guided its recommended Phase II selections.
The following subsections describe more completely the responsibilities of each team during the evaluation.
1. Economic Evaluation The EET developed an economic estimate of the benefits of each proposal. The EET modeled each proposal using information provided by bidders, confidential modeling assumptions proprietary to EAI, and the energy value of each proposal estimated by AURORA.
For PPAs, bidders submitted an “all-in” energy price expressed in $/MWh that was either fixed for the 20 year term or escalated for each year of the term. The all-in energy price was the price EAI would pay the bidder throughout the PPA term. It included the cost of generation and delivery of the defined electric products, as well as interconnection and transmission costs, all fees and expenses, and the effects of any tax credit16 or other subsidy.
For acquisitions, bidders provided a single fixed purchase price in dollars ($), and estimated first year fixed O&M expenses expressed in $/kW-year.
Bidders offering acquisitions were required to exclude any investment tax credit or bonus depreciation value that might potentially be transferrable with the resource. The EET modeled those values in line with EAI tax requirements.
15 No EET or AMT member participated in any bidder meeting. 16 All proposals were eligible for the federal Investment Tax Credit (“ITC”) for solar projects, or the Production Tax Credit (“PTC”) for wind projects.
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66 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The EET used other proposal information in its model including its start date, the type of resource and product offered, and the proposed amount of capacity.
The economic model used proprietary assumptions that reflected EAI internal forecasts (e.g., financial assumptions such as tax rates, debt and equity costs, weighted average cost of capital, etc.). Other model assumptions included capacity price forecasts, replacement capacity costs, inflation, depreciation values, property tax and insurance, and solar equipment degradation estimates. These and other evaluation model assumptions and inputs were provided to and discussed with the IM, but were otherwise confidential. The IM reviewed the model’s assumptions and forecasts, and concluded that they were reasonable and, as applicable, in line with those of independent third party sources.
The EET used information from AURORA in its supply cost analysis that simulated power market hourly operations over the RFP study period and projected the variable costs and revenues of each proposal to determine its energy value. AURORA was run by the AMT, an evaluation team separate from the EET. AURORA models all generation and load from MISO and regions adjacent to MISO including, for example, the Southwest Power Pool, the Southern Company, and the Tennessee Valley Authority. AURORA includes both zonal and nodal representations of these markets. The nodal representation is the more detailed of the two and was used in the RFP analysis. Inputs to AURORA include fuel and CO2 forecasted prices, and a wide range of other assumptions including available resources, reserve requirements, and unit deactivations.
The AMT provided AURORA results to the RFP Administrator, who sent them to the EET following the IM’s approval.
Because EAI was interested in acquiring and owning a solar resource, the EET considered the effect of federal tax requirements that obligate an investor-owned utility (“IOU”) owning a renewable resource to normalize ITC benefits over the depreciable life of the asset. In contrast to IOUs, non-utility renewable resource owners are allowed to take the ITC benefit during the first year the facility is in service. This difference in treatment increases the cost of energy from an IOU-owned renewable resource when compared to the cost of energy from a non-utility owner. The EET informed bidders of the normalization requirement and its effect on RFP acquisition
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67 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______proposals during the Bidders’ Conference and in the Bidders’ Conference documents posted on the RFP Website.
The EET conducted sensitivity analyses to measure the effect certain risks or circumstances could have on the cost of each proposal, or to reflect possible changes in market conditions. For example, the EET computed a cost to PPA proposals due to their potential effect on EAI’s capital costs. This “imputed debt” cost stems from the treatment of long term PPAs by credit rating agencies.17 The EET also analyzed the effects changes in the price of natural gas, different carbon prices, and EAI’s assuming certain responsibilities within MISO could have on the value of four proposals remaining at the end of the RFP.
RFP safeguards and information protocols were designed to ensure that the EET’s conclusions would be based on the objective results of its analyses. They were fully enforced during the evaluation. The EET did not receive identifying information for any bidder or resource during the RFP. It evaluated all proposals using numeric IDs, and communicated with bidders through the RFP Administrator and the IM. During approved communications between the EET and the AMT, or in any other evaluation discussion, proposals were identified by their numeric IDs, and all such discussions and communications were fully monitored by the IM.
2. Viability Assessment
The VAT evaluated all resources and associated proposals bid into the RFP and provided guidance to EAI on the merits of each.
The VAT was staffed by subject matter experts (“SMEs”) prepared to address all renewable technologies eligible to bid into the RFP. Because neither biomass nor hydroelectric resources were bid, SMEs focused exclusively on wind and solar resources.
SMEs were all Entergy employees experienced in the subject areas for which they were responsible. Since all proposals in this RFP were sourced from developmental resources, SMEs reviewed information from each bidder addressing: a) project development schedules, status of
17 According to Standard & Poor’s, a PPA is considered to be a debt of a certain percent of the PPA obligation. If a utility were to enter into a long-term PPA, its total debt would increase. Because a credit rating could decline when debt increased, entering into a PPA could decrease the utility’s credit rating and increase its cost of capital. The utility accounts for these increased costs by measuring the equity it would have to issue to maintain the same capital structure and credit rating. 28
68 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______design and engineering studies; b) site control documentation; c) environmental issues, including land conditions and required permits; d) technical information about either solar or wind technology; e) commercial considerations, including business and risk issues; and f) construction experience of the project team.18
The VAT’s Phase 1A assessment reviewed each Viability Self-Assessment to determine whether the proposal: a) met RFP eligibility requirements; b) originated from a resource capable of meeting the RFP’s required start date; c) met capacity requirements; d) proposed a term of at least ten but not more than twenty years; and e) was free of any significant flaws that would keep it from meeting EAI’s supply objectives. The VAT also flagged key issues, including exceptions to commercial term sheets bidders had noted in their proposals.
The VAT’s Phase 1B assessment reviewed twenty-three proposals sourced from sixteen resources in greater detail. The VAT described each proposal, including the equipment it proposed, the status of its development, and associated commercial, environmental, and transmission issues. As relevant to each proposal, SMEs also highlighted issues that required further consideration if the proposal was shortlisted and moved on to Phase II of the evaluation.
The VAT’s Phase II assessment evaluated each shortlisted resource and proposal in detail. The Phase II assessment was organized around categories (e.g., project status, bidder experience, technology, etc.) and a numeric measurement system that produced a scorecard for each shortlisted proposal and resource.
The IM reviewed the scorecard before it was completed. It was similar to scorecards used in previous RFPs, but its categories and weightings were reconsidered to address the needs of this RFP. The weightings for each category were based on SMEs’ expert opinion of its relative contribution to the overall viability of the resource and were, in the IM’s view, a reasonable way to measure that contribution.
In this RFP, the VAT scorecard used a four point numeric scale to assess each issue as follows:
1 – incomplete or deficient;
18This is a representative list of VAT due diligence categories for developmental renewable resources. Appendix C- 1 of the 2016 RFP documents contains complete due diligence requirements and is posted on EAI’s RFP Website.
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69 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______ 4 – adequate with some concerns; 7 – adequate and above average; and 10 – fully functional and flexible. Within each category, the scale was defined to ensure consistent review of each proposal. For example, the environmental category considered whether a proposed site had the potential for operating restrictions or other environmental concerns. Its scale was defined as follows: a) “1” indicated that significant issues existed where resolution could lead to project delays; b) “4” indicated that issues existed that had not been fully addressed; c) “7” indicated that issues existed or had existed, but had been addressed; and d) “10” indicated that no identified issues existed. Definitions for each category were completed and reviewed by the IM before any proposal was evaluated.
The overall score weighed each category using predetermined percentage values. The final scorecard ranked each proposal both on its total viability score and the weighted value of each category.
The 2016 RFP categories for developmental wind and solar resources, their category percentage weightings and sub-category descriptions are illustrated below. This information was disclosed to bidders on EAI’s RFP Website.
Table 5: VAT Wind and Solar Resource Categories
Category Weighting Category Weighting
Bidder Experience / Operations 20% Project Status 35% Utility-Scale Development Experience Status of Engineering Analysis Utility-Scale Ownership / O&M Experience Status of EPC Contracting Process Equipment Maintenance Program Status of Project Financing Quality of Cost Estimate Site Control / Easements / Right of Way Certainty of COD
Technology 20% Environmental 15% Commercial Installations (Panels / Turbines) Status of Critical Permits Commercial Installations (Inverters) Compliance History Operational History (Panels / Turbines) Potential for Operating Restrictions or Operational History (Inverters) Concerns Critical Equipment Reliability (i.e., turbines, inverters, Land or Environmental Issues blades, etc.) Resource Quality / Data Profile Quality
Long Term Planning 10% Proximity to Load MISO / RTO Experience
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70 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______
The VAT knew the identity of bidders during its evaluation. It requested clarifying information on each resource from the beginning of Phase I to ensure it understood each proposal, and, as indicated, to develop further areas of inquiry. During Phase II, the VAT issued additional clarifying requests through the RFP Administrator to shortlisted bidders. Certain members of the VAT also participated in teleconference meetings with each shortlisted bidder. From this information and contact, the VAT developed the scorecard rating for each shortlisted proposal.
VAT members did not have access to proposal pricing, and were prohibited by RFP protocols from disclosing bidder and resource identifying information to the EET. All VAT communications and evaluation documents used bidder, resource and proposal numeric IDs in place of names or other identifying information. VAT clarifying requests to bidders were communicated through the RFP Administrator, except during each teleconference meeting with shortlisted bidders. In this case, the meeting was fully monitored by the IM.
The RFP Administrator provided VAT results to the EAI Team who used them in combination with results from other evaluators to identify the proposals that best addressed the RFP’s objectives. The IM monitored and, as needed, provided comments on the VAT’s work to ensure an objective and impartial review.
3. Deliverability Assessment In Phase I of the RFP evaluation, the deliverability assessment was reported as part of the VAT’s proposal review. During Phase 1A, the DAT transmission evaluator screened all forty conforming proposals to determine whether they met interconnection and energy delivery threshold requirements of the RFP. The results of this review were included with the VAT’s Phase 1A report to the EAI Team.
During Phase 1B, the DAT evaluator reviewed the results of available MISO feasibility studies to determine whether they identified overloads that could require mitigation for any of the remaining twenty-three proposals. For resources located outside MISO, the DAT evaluation identified any known deliverability risks. This information was consolidated with the VAT report to the EAI Team for it to use in selecting the shortlist.
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71 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______During Phase II, the DAT used transmission planning models to analyze the seven shortlisted proposals located in MISO. These analyses provided information on potential transmission constraints and, for any affected proposal, planning level estimates of the costs to mitigate those constraints. For the two shortlisted proposals located outside MISO, the DAT used information from MISO’s Definitive Planning Phase (“DPP”) and completed facilities study for the project.
The RFP Administrator provided the DAT’s Phase II analysis to the EAI Team for it to consider in its final proposal recommendations.
Because the DAT required certain specific information about each resource to do its job, it received the name and location of the resource, as well as its interconnection application. The DAT was prohibited by RFP protocols from disclosing this information to, or communicating directly with, the EET. The RFP Administrator and IM handled any communication between the DAT and the EET to ensure that this prohibition was observed.
DAT communications and evaluation documents used bidder, resource and proposal IDs in place of names or other identifying information. At no time did the DAT have access to proposal cost information directed to the EET.
4. Accounting Evaluation
The AET assessed each shortlisted proposal to determine whether contracting for a PPA from that proposal could trigger adverse accounting treatment and negatively affect EAI’s balance sheet. The AET was guided by the rules and standards of the Financial Accounting Standards Board (“FASB”) including: a) whether any shortlisted proposal contained a lease, and, if so, whether the lease would trigger a long-term liability for EAI or its affiliated companies under FASB rules in effect during the PPA term; b) whether the entity owning the generation resource from which the PPA would be sourced was a variable interest entity (“VIE”), and, if so, whether EAI would be required to consolidate the entity on its books during the PPA term; and c) whether the PPA would be or would contain a derivative and, if so, how EAI would be required to account for the derivative.
The RFP required PPA bidders to submit a representation that, to the best of their knowledge, their proposals would not result in long-term liabilities for EAI or any of its affiliated companies.
32
72 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______To perform its work, the AET required information identifying the bidder and proposal pricing. The AET operated separately from the other evaluation teams and the results of its evaluation went solely to the EAI Team, EAI regulatory counsel, the RFP Administrator, and the IM. In its evaluation report, the AET identified each shortlisted proposal used only its proposal ID.
5. Credit Evaluation The CET assessed whether a bidder’s credit quality combined with the proposal(s) it offered adequately addressed EAI risk management standards. The CET identified collateral requirements or other forms of security in the event the supplier, while under contract with EAI, failed to perform and EAI was required to replace energy and capacity during the term of the PPA. The CET assessed only shortlisted bidders.
EAI described its credit evaluation requirements in an appendix to the RFP, which discussed in detail how the CET would review a bidder’s credit position and how and when collateral requirements would be applied to different products. During the development of the RFP documents, the IM reviewed credit and collateral requirements and when they would be implemented by EAI. The IM concluded that the requirements were fair and thoroughly disclosed.
The CET needed to know the name of each bidder and its legal organizational structure. To assess each bidder’s ability to manage potential credit risk, the CET also received information on the capacity amount, delivery term, and price of each shortlisted proposal. No bidder was excluded from participating in the RFP due to its credit position, and the CET’s credit evaluation had no effect on the outcome of the economic evaluation. Recommendations from the CET were provided to the RFP Administrator, the EAI Team and the IM. They were available and provided credit guidance to EAI and ESI during PPA negotiations.
B. Phase I Results Phase I began on September 6, 2016 when the RFP Administrator first provided Phase 1A bid information to the EET and the VAT, and concluded on December 6, 2016 when bidders were notified whether their proposals had been selected to the shortlist.
33
73 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______1. Phase 1A EET and VAT evaluators reviewed proposal information and, as required, submitted clarifying questions to bidders through the RFP Administrator.
The EET evaluated each of the forty conforming proposals to determine its economic effect on EAI based on levelized $/kW-year. All proposals showed a benefit to EAI when compared to the EET’s base case, however, there was a wide spread in the level of savings across the forty proposals offered. PPA proposals provided both the highest and the lowest benefit of all proposals submitted, but the proposals showing the greatest benefit were all PPAs. None of the seven acquisition proposals was among the most economically competitive. The EET provided its Phase 1A results to the RFP Administrator, who provided them to the EAI Team and the IM.
The DAT’s Phase 1A deliverability screening confirmed both the location of each proposed resource, and that each would be a developmental project. It also confirmed all proposals had submitted a valid interconnection application to MISO by the required date, or to another applicable transmission provider in accordance with its requirements, and verified that each solar acquisition proposal would be directly connected to the EAI transmission system.
The VAT’s Phase 1A review confirmed each proposal’s proposed COD, the experience of each bidder’s development team, whether the bidder had control over its development site, where the bidder proposed to deliver the project’s energy, and whether bidders had questions about or proposed commercial exceptions to EAI’s term sheets. The VAT concluded that no proposal had an operational or developmental flaw that created serious doubt regarding its ability to provide reliable generation and otherwise address RFP requirements. The VAT provided Phase 1A findings for itself and the DAT to the RFP Administrator, who made them available to the EAI Team and the IM.
The EAI Team presented Phase 1A evaluation results to the RPOC and the CEO and recommended that twenty-three proposals showing the greatest economic benefit, as measured on a levelized $/kW-year, be advanced to Phase 1B of the evaluation. The EAI Team concluded that the top twenty-three proposals were a reasonable and ample subset of those submitted into the RFP. There was a considerable range in modeled economic benefit within the subset; the proposal with the lowest level of savings showed approximately 50% of the savings of the
34
74 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______proposal with the highest level of savings. The twenty-three proposals were submitted by ten bidders. They included three wind proposals and twenty solar proposals. All twenty-three proposals offered 20 year PPAs. None of the acquisition proposals was recommended for advancement to Phase 1B. The CEO endorsed the Phase 1A recommendation.
The IM also agreed with the EAI Team’s Phase 1A recommendation.
On October 13, 2016, EAI met with APSC Staff to discuss the status of the RFP. It reported on Phase 1A outcomes, and described the plans and timing for Phase 1B.
A graphic illustration of the EET’s Phase 1A evaluation results of all forty conforming proposals, including the twenty-three proposals that advanced to Phase 1B, is shown immediately below. The results reflect the levelized benefit of each proposal in $/kW-year.
2. Phase 1B During Phase 1B, the EET issued clarifying questions and modeled the twenty-three remaining proposals again to determine the benefit of each in $/kW-year over the proposal term. When compared to Phase 1A outcomes, the Phase 1B analysis showed small changes in total benefits for some proposals. Overall, the top proposals in Phase 1A remained the top proposals in Phase
35
75 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______1B, although several proposals changed rank order. The EET provided its results to the RFP Administrator who provided them to the EAI Team and the IM.
During Phase 1B, the VAT thoroughly reviewed all due diligence information from the remaining twenty-three proposals, and issued follow-up clarifying questions to bidders as needed. The VAT produced a summary of each proposal addressing its findings on: a) resource and equipment issues; b) project status; and c) environmental issues. The summary highlighted certain areas of risk, including several projects with limited project engineering detail and other projects where additional environmental due diligence was required, but the VAT again concluded that no proposal contained a design, developmental, or other flaw that would make it ineligible to continue in the RFP.
The DAT assessment of transmission and congestion issues summarized potential delivery issues for all twenty-three proposals. The DAT’s summary was reported as part of the VAT’s Phase 1B review. Twenty proposals appeared to have at least some transmission overloads as identified by MISO feasibility studies, while delivery to EAI from three proposals would rely on a direct current transmission line that was not yet constructed. The Phase 1B report highlighted these issues for the EAI Team, but concluded that no proposal failed to comply with RFP requirements.
After considering proposal economics and updated qualitative issues, the EAI Team recommended nine proposals for selection to the RFP shortlist. The IM reviewed the EAI Team’s recommendation and concurred that it fairly represented the results of the Phase I evaluation. The EAI Team and the RPOC recommended the shortlist to the CEO, who ratified the recommendation.
On December 6, 2016, the RFP Administrator notified five bidders sponsoring the nine proposals that the proposals had been selected to the shortlist, offered bidders the opportunity to submit best and final pricing, and announced that EAI would hold teleconference meetings with each bidder. The RFP Administrator also notified bidders sponsoring all unsuccessful proposals that those proposals would not be considered further.
On December 8, 2016, the EAI Team discussed the status of the RFP with APSC Staff, and reported it had moved nine proposals to the shortlist based on Phase I findings. The EAI Team 36
76 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______described the analyses conducted during Phase I and discussed key economic, operational, and commercial Phase 1B results.
It reported that it had offered shortlisted bidders the opportunity to lower proposal pricing, and participate in teleconference meetings to discuss their proposals. The EAI Team also outlined plans for the RFP’s Phase II analysis.
Phase 1B economic results of the nine short listed proposals are summarized below. They are based on the “as bid” nominal offer price in $/MWh19 and show the total benefit in $/kW-year for each proposal.
Table 7: EET Phase 1B – Shortlisted Proposals
Bidder ID Proposal Resource MW Capacity Total Benefit ID Factor ($/kW-year)
C. Phase II Results At the beginning of Phase II, three of five shortlisted bidders submitted best and final offers that decreased the price of five of nine proposals.
19 Two proposals offered fixed prices for the 20-year term. The other seven proposals were escalated over the 20- year term according to the bidder’s instructions.
37
77 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______One other shortlisted bidder notified the RFP Administrator and the IM that the offer price on the proposal template it submitted in August 2016 for its shortlisted proposal, P6195, was incorrect, and, specifically, that it was too low. The bidder stated it had mistakenly transposed numbers in the correct offer price when it prepared the proposal template. The bidder said it had provided the correct – and higher – price in the detailed proposal description it submitted at the same time as the proposal template in August 2016.
The IM reviewed the original documents, verified that there were two different offer prices and confirmed that the difference appeared to be because two numbers had been transposed. The IM also verified that the RFP Administrator had provided both an appropriately redacted proposal template and proposal description to the EET during Phase 1A of the evaluation, and that those documents included two different prices. In line with RFP protocol, the EET used the price offered in the proposal temple. No one noticed that there were two different prices and, therefore, did not ask the bidder to clarify its offer.
To determine whether the proposal remained a candidate for the shortlist, the EET re-ran the economic model using the correct nominal price. The results showed that the total benefit of the proposal decreased somewhat, but that it remained among the top nine most economically competitive proposals and a candidate for the shortlist.
1. Economic Analysis The EET’s Phase II evaluation analyzed each shortlisted proposal in more detail. The EET’s base case assumed EAI would purchase energy and capacity at forecasted market prices over the proposal term. In this analysis, the EET projected how EAI’s total costs would change compared to the base case if it entered into a PPA with each proposal. The EET included AURORA results for each proposal in combination with its fixed costs and capacity revenue to determine its net benefit to EAI.
Because all economically competitive proposals in this RFP offered 20 year PPAs, the cost of imputed debt did not differentiate among them and was not a factor in determining the most economically attractive proposal.
The RFP Administrator provided EET analysis results to the EAI Team and the IM at the conclusion of Phase II. 38
78 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______Phase II economic analysis results showing the projected benefits of each proposal in $/kW-year and total savings in $MM are shown immediately below. They include the value of bidders’ best and final offers and the correct pricing for P6195.
Table 8: EET Phase II Results
Bidder ID Proposal Resource Levelized Net Benefit ID Benefit ($/kW-yr) ($MM NPV)
2. Viability Assessment
The VAT completed its due diligence evaluation and produced its scorecard. The results showed some differences among proposals, and highlighted some concerns. For example, the VAT questioned whether proposals relying on an uncertain transmission delivery system could guarantee a COD in line with EAI’s required June 1, 2020 start date. The VAT also highlighted bidders’ positions on certain commercial terms. These analyses provided useful information, but the VAT felt they did not provide grounds to strongly promote one proposal over another. When the EAI Team reviewed the VAT results, it concurred with the VAT’s findings and concluded that they provided information that would be useful during contract negotiations with selected bidders, or with any other discussions that might take place.
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79 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______3. Deliverability Assessment
The DAT summarized transmission issues for the seven shortlisted proposals located in MISO, including each proposal’s interconnection location, timely interconnection application, and whether it would financially deliver to EAI. The DAT conducted reliability studies to identify whether each proposed resource could require transmission upgrades, to provide planning level cost estimates for any required upgrades, and to identify when required upgrades would need to be in place. The analysis focused on transmission upgrades needed for North American Electric Reliability Corporation (“NERC”) reliability compliance. It did not include, and did not substitute for transmission upgrades and associated costs that could later be identified by MISO for a resource’s interconnection to the grid, or its being granted network resource interconnection service (“NRIS”). The DAT found that three of the seven proposals could require transmission upgrades to comply with NERC reliability requirements, and provided planning level cost estimates for those upgrades.
The DAT reviewed MISO’s DPP system impact study and facilities study reports for the two proposals located outside MISO. The reports provided detailed information on required upgrades, upgrade costs, and an estimated construction timeline for the upgrades.
The RFP Administrator provided the DAT’s assessment to the EAI Team for its use in recommending the most attractive proposals.
4. Accounting Assessment
The AET determined that no shortlisted proposal would subject EAI to adverse accounting treatment and negatively affect its balance sheet. It found that no shortlisted proposal contained a lease under new FASB lease guidance because EAI would not have the right to control the generation asset from which each proposal was sourced. It concluded that VIE accounting rules would not require EAI to consolidate on its books the legal entities that owned the generation resources from which each shortlisted proposal was sourced. It further concluded that each shortlisted proposal appeared to be or contain a derivative, but that all would qualify for an accounting exception known as “normal purchase normal sales” and would not be subject to derivative accounting and its related disclosures.
40
80 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The AET provided its report to the RFP Administrator, who provided it to the EAI Team and the IM.
5. Credit Assessment
The CET’s report provided credit information for each shortlisted proposal. The information included: a) the bidder’s credit rating, if available; b) the bidder’s plan for meeting the RFP’s credit / collateral requirements; c) basic proposal information and projected credit support guidance; d) Letter of Intent (“LOI”) guidance; and e) CET comments on relevant bidder issues.
The CET provided its report to the RFP Administrator, who provided it to the EAI Team and the IM. The report was available for use during PPA negotiations with any successful bidder.
D. Proposal Selection
The EAI Team reviewed evaluation results from each RFP evaluation team. On January 31, 2017, the EAI Team briefed the RPOC and recommended to the CEO that he select solar proposal P9463 as the primary selection, and begin negotiating a 20 year PPA with the bidder. P9463, which showed the greatest benefit among all shortlisted solar proposals, was submitted by NextEra and known as Chicot Solar.
The EAI Team also recommended placing two solar proposals, P2591 and P3357, on its secondary selection list, a designation meaning EAI could pursue discussions with those bidders at a later time if PPA negotiations with Chicot Solar were not successful.
Two identical wind proposals,20 P2752 and P2865, showed the greatest benefit of all proposals bid into the RFP, but also presented significant uncertainty due to their dependence on the construction of an approximately 700-mile overhead direct current transmission line currently under development. The EAI Team and the RPOC discussed options for dealing with the wind proposals with the CEO, including negotiating a LOI with the bidder that could lead to PPA negotiations when transmission line construction became more certain.
20 These proposals were bid from the same resource, offered 100 MW each, and were economically, technically, and developmentally the same. 41
81 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The CEO endorsed the primary and secondary recommendations, and authorized beginning PPA negotiations with NextEra. The CEO also supported exploring one of the wind proposals further to determine whether a LOI between EAI and the bidder was feasible.
E. Notifications
On February 1, 2017, the EAI Team met with Staff. The EAI Team reviewed its Phase II analysis, and advised Staff that three solar proposals would remain under consideration in the RFP – the Chicot Solar proposal as the primary selection and the focus for PPA negotiations, and two secondary selection solar proposals. The EAI Team also advised Staff that it would not advance any wind proposal at that time. However, in view of the significant modeled benefit from wind, the EAI Team reported it would initiate discussions with the bidder to determine whether it might be able to capture the benefit from one of the proposals.
On February 2, 2017, EAI notified NextEra that it had selected the Chicot Solar proposal to its primary selection list and wished to initiate commercial negotiations for a definitive 20 year PPA. EAI also notified bidders submitting P2591 and P3357 that they had been placed on EAI’s secondary selection list and would be notified by April 28, 2017 if EAI was interested in moving ahead with their proposals. The RFP Administrator informed the remaining shortlisted solar proposals that they would not be considered further.
On February 3, 2017, the RFP Administrator posted notice to the RFP Website that EAI had concluded its evaluation of solar proposals, and had selected one solar proposal as a primary selection and two solar proposals as secondary selections.
Following additional consideration of the transmission uncertainties affecting the remaining wind proposal, on March 1, 2017 EAI directed the RFP Administrator to send a letter to the bidder expressing interest in the proposal and specifying the conditions EAI would require be met before agreeing to negotiate a LOI. F. Sensitivity Analyses Following these notifications, the EET conducted three sensitivity analyses in April 2017 to give EAI insight into the effects of possible future market conditions on the benefits of each remaining proposal. The proposals were P9463 (Chicot Solar), P2591, P3357 (secondary selections), and P2752 (wind proposal candidate for possible LOI). Two of the sensitivities 42
82 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______considered all four proposals, while the third sensitivity addressed P9463 only. Sensitivity results were compared to results for the proposals reported in Phase II of the evaluation.
The first sensitivity used EAI’s base case natural gas price, and a lower CO2 price. The second
sensitivity used a lower natural gas price and no price for CO2.
The sensitivity analyses found that all proposals under all conditions studied continued to provide positive benefit to EAI across all measures. At the same time, and not surprisingly, the benefit from all proposals decreased in both natural gas / CO2 sensitivities.
Overall, these sensitivity analyses provided EAI insight into how the four proposals remaining in the RFP would perform under different conditions, but did not suggest any fundamental change in direction or decision making.
G. Conclusion of the RFP The 2016 RFP officially concluded with the release of three remaining proposals, P2591, P3357, and P2752. By April 28, 2017, negotiation for a PPA with Chicot Solar was approaching a successful conclusion. Since EAI did not need to retain the two secondary selection solar proposals as alternatives, it released them from further consideration. On June 15, 2017, the wind bidder reported it would not be able to fully meet the conditions specified by EAI in the RFP Administrator’s March 1, 2017 letter. On June 19, 2017, the RFP Administrator informed the
21 EAI informed all PPA bidders in the RFP that it expected them to serve as the MP for the resources bid into the RFP, although it retained the right to determine “from time to time” whether it would serve as the MP.
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83 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______bidder its proposal would no longer be considered in this RFP, and encouraged it to participate in future EAI RFPs.
H. Comments The validity of the RFP evaluation was determined by whether it was thorough, objective, and free of undue preference toward any bidder. Based on close oversight throughout the evaluation, the IM concludes that it met these standards. This conclusion is supported by the following observations:
The RFP evaluation was consistent with the description and protocols described in the RFP. The EAI Team and all evaluators followed the protocols in place to ensure fair and objective treatment of all proposals. Evaluation procedures and models were consistently applied to all proposals. The evaluation identified the proposals with the greatest likelihood to benefit EAI customers. In addition to evaluating the economic benefits of each proposal, RFP evaluators assessed its viability by identifying developmental and delivery issues, and bidders’ willingness to accept certain risks. The EAI Team provided direction to all facets of the evaluation. The evaluation was overseen by the IM, who worked closely with the EAI Team, each RFP evaluation team, and the RFP Administrator.
The economic analysis of all proposals was the most important factor in determining the EAI Team’s recommendations to the RPOC and the CEO’s proposal selection. VAT and DAT evaluation findings provided useful information on each proposal, but did not change the outcome of the evaluation. AET conclusions removed concerns regarding adverse accounting treatment tied to any proposal. CET conclusions provided credit support information useful to PPA negotiations.
The large number of conforming proposals provided a meaningful market test, increased competition, and provided associated benefit to EAI customers. Compared to its 2014 Renewable RFP, EAI received almost one-third more conforming proposals in this RFP. This appeared to be due to a combination of factors, including the presence of new renewable generation suppliers, decreasing equipment costs, and stable, qualifying tax credits. EAI did not fully anticipate how much time it would take to evaluate the number 44
84 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______of proposals it received. The situation was particularly challenging because all 40 conforming proposals originated from resources that did not exist. While EAI did delay selecting a shortlist, it did not fall behind overall and made proposal decisions in line with its original schedule. The EAI Team oversaw the selection of the most economically beneficial solar proposal for negotiation of a 20 year PPA. That PPA, the proposed Chicot Solar PPA, is projected to provide significant long term benefits to EAI customers.
Market conditions benefited EAI during its consideration of solar and wind proposals, but a key uncertainty affecting shortlisted wind proposals created an issue EAI wasn’t able to overcome at this time. Both solar and wind proposals have become more economically competitive in the last several years. EAI also benefited from decreasing costs in solar equipment during the RFP, and that decrease likely helped some of the shortlisted bidders lower their price to EAI in their best and final offers. At the same time, wind proposals showing considerable economic benefit were, in the final analysis, unavailable because they lacked a transmission delivery system. This is not a new issue. The absence of transmission available to move wind resources from their source to load centers has affected their development as suppliers have scaled up in many locations throughout the United States. Transmission supporting wind resources has been constructed in many locations, but is needed to unlock the benefit of the most economic wind resources in many others. Time will determine whether meaningful wind resources become available to EAI customers.
IV. PPA Negotiations
On March 13, 2017, EAI and NextEra executed a confidentiality agreement and set in motion the PPA negotiation for the Chicot Solar project. Since the parties had recently negotiated a PPA for the Stuttgart Solar project,22 they agreed to base the first Chicot Solar PPA draft on that successful contract. Commercial counsel representing EAI produced the first contract draft. The IM monitored work on the contract through regular discussions with the EAI Team, through
22 The APSC found the Stuttgart Solar PPA to be in the public interest on September 24, 2015 in Docket No. 15- 014-U. 45
85 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______discussions with ESI commercial personnel, and by reviewing draft PPA contracts during the negotiation.
Because work on the Chicot Solar contract was an arm’s length negotiation between two unaffiliated parties, the IM did not participate directly in the discussions as would have been the case if the proposed PPA were being negotiated between affiliated companies. The IM’s principal interest in monitoring this negotiation was determining whether the terms of the proposed PPA were in line with those of the proposal bid into the RFP, and whether they would ensure similar benefits to EAI customers. It is the IM’s opinion that the PPA terms meet these standards.
The PPA negotiation provided EAI
The options are described immediately below:23
23 These are general descriptions of PPA provisions and do not substitute for official contract language. 46
86 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______
The PPA also includes provisions and protections intended to manage risk and the commercial relationship between EAI and Chicot Solar over the 20 year contract term. Certain key examples follow:
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87 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______ The PPA includes a provision for discount energy. For any energy amount Chicot Solar delivers over 115% of the AEEQ in any contract year, EAI will pay 50% of the standard fixed energy price. For any energy amount up to 115%, EAI will pay the full contract price.
If, in any contract year, Chicot Solar does not deliver an energy amount at or above the AGEQ, Chicot Solar would pay EAI liquidated damages (“LD”) for each MWh shortfall based on the LD formula defined in the PPA.
The contract assigns Chicot Solar, not EAI, responsibility for any incremental transmission upgrade costs required to secure NRIS. At present, MISO indicates that the facility will require one transmission upgrade to secure 100 MW of NRIS. This upgrade is already under construction by a third party transmission owner, and is expected to be completed in time to ensure the June 1, 2020 facility COD. Chicot Solar is not responsible to pay for the upgrade.
EAI has curtailment rights and there is no limit to the number of times EAI may exercise these rights. In the event EAI does exercise its curtailment rights, it will be required to pay Chicot Solar for each MWh of curtailed energy based on the price of the curtailed energy minus the price Chico Solar receives if it is able to sell the curtailed energy, or any net MWh cost Chicot Solar is able to save by not generating the curtailed energy.
EAI has negotiated compensation and termination rights in the event Chicot Solar does not achieve commercial operation, is delayed, or does not meet contractually guaranteed minimum delivered energy requirements.
The IM concludes that the proposed 20 year PPA contract for the output of the Chicot Solar project was negotiated fairly between EAI and NextEra, has reasonably apportioned risk between the two parties, will benefit EAI customers economically, and will add diversity to EAI’s generation resource portfolio.
V. Conclusion
EAI has, subject to regulatory approval, proposed to enter into a 20 year PPA for the output of the 100 MW Chicot Solar project. The Chicot Solar project is the selection resulting from EAI’s 48
88 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______2016 RFP, a competitive solicitation that attracted forty conforming renewable proposals from seventeen bidders. Twenty-nine proposals offered solar PPAs. Four proposals offered wind PPAs. Seven proposals offered solar acquisitions. The Chicot Solar PPA was the most attractive solar proposal bid into the RFP based on quantitative and qualitative measures.
During the 2016 RFP, the IM monitored RFP activities closely. She had unrestricted access to all RFP information, to the EAI Team, RFP evaluation teams, and other ESI personnel assigned to the RFP. All those assigned to the RFP cooperated fully with the IM, sought her input on open or unclear issues, provided timely and complete responses to her requests for information, were responsive to her suggestions and recommendations, and involved her in their thinking and decision-making during each step of the solicitation.
Overall, it is the IM’s conclusion that the proposed 100 MW Chicot Solar PPA was selected by EAI as the result of an objective and fair RFP that showed no undue preference toward any proposal, and was followed by an arms’s length contract negotiation between two independent and equal parties. This conclusion is supported by evidence regarding the development and administration of the RFP, the evaluation of RFP proposals, and the negotiations resulting in the PPA that will be considered by the APSC. These have been described in detail in this report.
Addendum – September 28, 2017
On July 18, 2017, regulatory counsel for EAI informed the IM that ESI had identified an error in the logic of the AURORA model, and was working with EPIS, Inc., AURORA’s developer, to correct it. In simple terms, the AURORA model was overstating the locational marginal price (“LMP”) throughout MISO. The error affected recent AURORA modeling conducted by ESI, including that conducted for the EAI RFP. ESI was updating the RFP results using corrected AURORA logic, and estimated that it would complete that task by mid-August 2017. The update was likely to lower the LMPs for RFP proposals and, thus, their modeled savings estimates. Following this discussion, the IM discussed this issue with the SME overseeing AURORA modeling and confirmed the basic facts, likely time required to rerun the model using the new logic, and expected general outcome of the analysis.
49
89 APSC FILED Time:Report 10/17/2017 of the 2:27:38 Independent PM: Recvd 10/17/2017 Monitor 2:27:00 of PM: Docket 17-041-U-Doc. 12 Entergy Arkansas, Inc.’s 2016 Long-Term Renewable Generation RFP ______The IM concluded that she would add an addendum to the IM report when the updated AURORA modeling was complete, and the new result available. The IM completed the IM report on August 7, 2017 and submitted it to EAI for redaction.24
On August 14, 2017, the IM received revised economic results for the Chicot Solar proposal. The analysis compared the revised results to those from the sensitivity analysis conducted in April
2017 that used the base case natural gas price and the lower CO2 price. EAI chose that option for
comparison because it expected that the lower CO2 price more accurately reflected its current
CO2 forecast. The April 2017 sensitivity showed an EAI total supply cost savings for Chicot Solar of $109.4 million. Using updated AURORA information when modeling that sensitivity, the Chicot Solar proposal showed an EAI total supply cost savings of $91.4 million.
To compare this result with those from the other competitive proposals remaining at the end of the RFP, the IM suggested that EAI model the proposals studied as part of the April 2017 sensitivity analyses. EAI concluded that it would request updated AURORA model runs for the two solar proposals identified as secondary selections, but felt that because the wind proposal was not eliminated from consideration based on economics, there was no value in including it in further modeling. The IM agreed with this modification.
As of this writing, EAI has requested additional model runs related to the proposed Chicot Solar transaction and using the corrected AURORA model. They are: 1) a model run for the Chicot
Solar proposal using the “low natural gas price, no CO2 price” sensitivity. EAI expects that the results of that analysis will be completed by the end of September 2017; and 2) model runs for each of the secondary selection solar proposals using the “base case natural gas price, lower CO2 price” sensitivity. EAI expects that the results of these analyses will not be completed until mid- October 2017. The IM will comment on these analyses as necessary when they are completed.
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24 The IM submitted the IM report to EAI for the sole purpose of EAI’s redacting non-public confidential information.
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