Exec Q&A: Hugh McDonald of Entergy Arkansas

Hugh McDonald has been Entergy's highest ranking executive in Arkansas for more than a decade, and he's currently managing the breakup of the company's longstanding system agreement that left Arkansas ratepayers vulnerable to decisions in other states.

Entergy is, after years of waiting, leaving its system agreement and has chosen to join the Midwest Independent System Operator group. What's in it for Entergy and what's in it for Entergy Arkansas' ratepayers?

The decision to exit the system agreement was made immediately following the Federal Energy Regulatory Commission's 2005 order on rehearing that required Entergy Arkansas to begin making production cost equalization payments to Entergy's other operating companies. Following its exit from the System Agreement in 2013, those payments will go away and will no longer be collected from customers on Entergy Arkansas bills. That will be a huge relief to our customers. The decision to join MISO is a result of a comprehensive analysis to determine which alternative would best meet Entergy's needs and those of its customers. Conservative estimates show a projected savings of $200 million over a 10-year period for Entergy Arkansas customers. Much of the benefits will come from having a single entity optimizing transmission and generation within the entire Entergy region. MISO has what is known as a Day 2 market. The Day 2 market operates based on market-driven principles with market participants establishing a price for electricity by matching supply and demand.

Southwest Power Pool, headquartered in Little Rock, argues that Entergy's ratepayers would be better off if Entergy joined SPP rather than MISO. Why do you disagree? 

The analysis clearly illustrates a greater benefit in joining MISO. MISO is twice the size of SPP and serves many utilities, large and small, in 13 U.S. states and a Canadian province. The vast majority of the benefits identified in the analysis come from the operation of the Day 2 market. MISO has a mature, operating Day 2 market, whereas SPP does not yet have a Day 2 market. However, even assuming SPP had an operating Day 2 market, the projected cost savings to customers are 25 percent greater in MISO than they would be in SPP.

What incentives do investor-owned utilities like Entergy Arkansas have to encourage conservation? 

It's often said that the cheapest kilowatt-hour of electricity is the one that's not used. Recently, many forward-thinking states across the country have been changing the regulatory framework to align customer interests with the interests of both conservation and utilities. Kudos to the Arkansas Public Service Commission for ruling in July to do the same when it approved new programs that will encourage utilities to promote conservation at levels never experienced in Arkansas while at the same time not financially penalizing the utilities for doing so.

Are there technological developments on the horizon that will change the average American's relationship with his electric utility?  Absolutely. Through the use of Smart Grid technology we will be able to have a much more collaborative relationship with our customers, giving them unprecedented influence over their utility costs. For example, we are operating for the third summer an irrigation load control program where farmers receive discounts in exchange for allowing Entergy to control usage during certain periods of the day and providing them real-time updates via email and text messaging. We plan a similar program for residential customers. 

Bio: Hugh McDonald

Current position: President and chief executive officer of Entergy Arkansas since 2000. Originally hired in 1982 at Entergy's Waterford 3 nuclear plant near New Orleans.
Education: B.S. in construction management from North Dakota State University, MBA from the University of New Orleans.

Civic: Past board member of the United States Chamber of Commerce and past chair of the Arkansas State Chamber of Commerce. Chair of the Arkansas Research Alliance Board and the Little Rock Regional Chamber of Commerce. Member of the boards of Fifty for the Future, the University of Arkansas Sam Walton College of Business Advisory Board, the UALR College of Business Advisory Council and the UAMS BioVentures Advisory Board.