Hugh McDonald certainly has seen plenty of changes in his 16 years as president and CEO of Entergy Arkansas.
There will be plenty more changes in the energy industry in the years to come, but McDonald won’t have a front-row seat after he retires in 2016. He’s OK with that.
“I’ll miss it, but I’ll get over it,” said McDonald, 57. (He’ll be replaced by Rick Riley, currently group vice president and the subject of Entergy’s Rick Riley on Keeping Costs Low, Power Lines High.)
There will be a lot to miss.
“It seems like the past 20 years of my career the industry has been going through dramatic change,” McDonald said. “It’s certainly going through dramatic change today. We expect those changes will continue to press not only Entergy Arkansas but the entire industry. We’ve really been planning for a number of years in Arkansas to be positioned in a good place long term. I think we are positioned very well.”
That proper positioning is the result of some serious capital expenditures. In the past six years, Entergy Arkansas purchased natural gas power plants in Sterlington, Louisiana, and Malvern for approximately $500 million.
Entergy Arkansas recently gained approval for a 500-acre solar plant in Stuttgart, and the company is awaiting approval on the $237 million purchase of a third natural gas plant in El Dorado.
The acquisitions are part and parcel of Entergy Arkansas’ $2.4 billion investment in improvements in generation, distribution and transmission projects through 2017.
Pricing Out of Coal
Buying existing natural gas plants makes better economic sense than building new ones, McDonald said. Natural gas is becoming increasingly popular in energy production because it’s cleaner and, in the long run, cheaper than coal.
“We’ve effectively been able to replace a third of our generation facilities in the past six years,” he said. “We’re doing it at cents on the dollar compared to what it would have cost us to build new ones. We’ve probably saved $750 million buying existing assets instead of building new ones.”
EPA regulations are also making coal less feasible as a fuel source. Entergy Arkansas recently announced it wants to cease production at its White Bluff plant in Redfield in 2027 and 2028 rather than spend $1 billion to install scrubbers to comply with recent regulations.
“It’s the future as we see it today,” McDonald said of natural gas production plants. “The cost of renewable — wind and solar — has also come down dramatically the past several years. With technology it is more efficient, more economic, so you’ll see more and more renewables, in my opinion. No one is filling coal plants any more. That’s because of economics.”
A 2013 study by the Environment America Research & Policy Center in Boston put two of Entergy Arkansas’ coal plants on its list of the 50 most polluting plants in the nation. White Bluff was No. 42, and the Independence plant in Newark was No. 35.
Entergy Arkansas officials have said those rankings are more reflections of the size of those plants than their dirtiness. McDonald said Entergy Arkansas has one of the cleanest portfolios in the country.
He doesn’t think coal is worthless as an energy source — “I never want to say coal is dead,” McDonald said — but the trend in energy is definitely moving away from coal. McDonald said coal once produced about half of the nation’s energy, but that percentage has slumped to about 35 percent. That’s not a problem for Entergy Arkansas, which gets approximately 70 percent of its production from nuclear units in Russellville.
Coal will never go away, McDonald believes, because there is still an abundant supply of it and it is a very efficient fuel source. A focus on research and development of cleaner burning techniques could eventually bring coal back to a place of prominence, he said.
“It has served the country extremely well in terms of low price,” McDonald said. “It’s important to continue to invest in that [research]. But the next 10-20 years, coal is certainly the lesser choice.”
Eggs in Energy Basket
Entergy is by far the largest electric utility operating in Arkansas. It generated $1.74 billion in Arkansas-only revenue in 2014, according to the annual report filed with the Arkansas Public Service Commission. Its 1,160 employees provided 31 million kilowatt hours of electricity to more than 700,000 customers.
McDonald used a financial investment analogy to illustrate Entergy Arkansas’ generation portfolio. You shouldn’t invest all your savings in one stock, and you shouldn’t rely on one fuel source for all your energy needs.
To that end, Entergy Arkansas uses nuclear, natural gas and coal, with a dollop of solar coming soon. Entergy also has a small amount of hydro production.
The Stuttgart solar plant is expected to provide electricity for 13,000 customers, but the 81 megawatts of production is a small percentage of Entergy Arkansas’ 5,000 megawatts of capacity.
“You don’t want to have all of your generation in one fuel,” McDonald said. “You want to have a diversified fuel mix to the extent that you can. We’ve had nuclear, coal, natural gas and a little bit of hydro. We will see less coal with all the EPA regulations.”
Planning for Arkansas
Entergy Arkansas is also in the early stages of two moves it made off the grid, so to speak.
In 2005, Entergy Arkansas announced it was leaving the system agreement that tied its operations with other Entergy subsidiaries. That was finalized in December 2013.
“That system agreement became very litigious the past 30 years,” McDonald said. “Much of that litigation harmed Entergy Arkansas customers. It became an effort of shifting costs from [one] operating company’s customers to another operating company’s customers. We now, Entergy Arkansas, plan our own system on behalf of Entergy Arkansas customers as opposed to the way we had been doing it for the past 50-plus years, planning as a system. That has provided us more latitude and autonomy.”
Around the same time, Entergy joined the Midcontinent Independent System Operator to have MISO handle the transmission of its electricity. MISO uses technology to track electricity use in real time to then best manage energy operations.
McDonald said MISO is a great energy saver because production is ramped up immediately when needed but slowed down when it’s not.
“We no longer dispatch our own plants,” McDonald said. “They tell us which plants to run. They tell us on a daily basis; actually they do it on a minute-by-minute basis. They determine what is the most economic plant to operate.”