Grand Gulf.

Those two words are infamous in Arkansas’ political lexicon.

They remind regulators, ratepayers, politicians and business leaders of an unprecedented era when one of the most high-profile energy rate cases in Arkansas history dominated news headlines, political agendas, corporate board rooms and court dockets.

As a matter of fact, for three years in a row in the early 1980′s, the notorious energy case was voted the top Arkansas news story by the Associated Press.  That’s how dominant it was. Editorial writers lampooned the controversy as "Grand Goof" or "Grand Gulp."

Grand Gulf refers to the nuclear power plant built on a 2,100-acre site near Port Gibson, Mississippi. Ultimately, federal regulators and subsequent legal actions forced Arkansans to pick up a major share of the costs to construct the $3.5 billion power generator at a time when it made little economic sense for the state’s residents.

But on the 25th anniversary of Grand Gulf’s opening, is it possible that it turned out to be one of the wisest energy investments Arkansas ever made?

UNEARTHING A ‘CORPORATE HAZE’
The Grand Gulf nuclear power plant is located in the territory controlled by Entergy Mississippi, part of a four-entity coalition of New Orleans-based Entergy Corp. properties that operate under a system agreement whereby costs and power are shared between separate state utilities.  Entergy Arkansas is one of those four utility companies.

During the 1980′s, Entergy Mississippi, then known as Mississippi Power and Light, was the state counterpart to Arkansas’ largest electric utility, Arkansas Power and Light. Along with sister electric companies in New Orleans and Louisiana, the four entities were called Mid-South Utilities.

In 1980, a youthful, twenty-something consumer advocate named Scott Trotter unearthed a complicated project between the Mid-South partners that he and a fellow researcher, Wally Nixon, determined was "a corporate haze that spelled trouble for Arkansas."

Buried in SEC filings and federal energy documents and because of the power companies’ system agreement, Trotter and Nixon discovered that Arkansas ratepayers were on the hook for 36% of the costs to build Grand Gulf – about $1.26 billion.  That commitment was estimated to drive up electric bills for AP&L customers as much as 44% – "considerable rate shock," says Trotter, now a practicing attorney who has worked on nearly every major regulatory case for Entergy Arkansas since 1996.

"At the time, AP&L didn’t need that type of baseload," Trotter tells Talk Business today.  Trotter worked in the energy office of the state’s economic development agency during Bill Clinton’s first term as Governor.  He had followed Clinton from the Attorney General’s office where fighting utility companies on behalf of consumers was becoming vogue.  He remembers well when he and his colleagues revealed the big agreement, which led to a five-year political, regulatory and media firestorm.

"The plant, just about any way you analyzed it, wasn’t needed at all to fill the needs of customers and there was this rate shock," Trotter added.

Steve Clark, Arkansas’ Attorney General at the time and now the head of the Fayetteville Chamber of Commerce, describes Grand Gulf as a "dramatic saga."

"It had all of the classics of a really good story. Protagonists, antagonists, victims, villians, good guys, bad guys, media intrigue," he recalls.

Clark remembers how the TV stations and newspapers would constantly report on unfolding developments. A utility company spokesman would make an economic argument that without Grand Gulf they couldn’t meet regional electricity needs. Too little electricity meant factories had to close. Not building the plant would cost construction and engineering jobs.

"’We’ll have to lay off 3,000 people,’ AP&L would say," according to Clark. "Then I’d point out that electric bills would skyrocket, ‘People will have to choose to pay for medicine or pay their utility bills,’ I’d say."

He jokes that the media coverage was so intense that the most dangerous place to be was between himself and a TV camera.

Clark represented Arkansas ratepayers in Grand Gulf as aspects of the planned project moved between the state Public Service Commission (PSC) and the Federal Energy Regulatory Commission (FERC), which was expanding its regulatory reach in the 1980′s.

You had Clark in one corner, along with Arkansas Power & Light, led by its President Jerry Maulden, PSC commissioners with tremendous skill and savvy, and intervenors in the case representing large, in-state industrial customers who could be socked with Grand Gulf’s costs even harder than residential ratepayers.

‘NOTHING GOOD EVER HAPPENS AFTER MIDNIGHT’
A turning point in the drawn-out battle occurred in 1984 when an administrative judge at FERC ruled that AP&L could not back out of its system agreement with Mid-South Utilities to help pay for Grand Gulf. The ruling roiled all involved and brought threats of new and continuing lawsuits.

"It was really consuming the state in terms of its ability to thrive," Clark said.  He also recalled months and months of meetings that rarely produced results and frustrated nearly everyone who participated.

That turmoil brought about a consensus that something proactive needed to occur.

In September 1985, more than a year after the ’84 FERC ruling, Clark and other parties – including Maulden – embarked on an all-night marathon negotiation session to find a better conclusion to the Grand Gulf matter.

Clark said the meeting started at sunset in a conference room at his office and didn’t end until sunrise the next day. "You know, nothing good ever happens after midnight and we stayed up ’til past 5 in the morning," he laughs.

On a diet of coffee, cokes and junk food, the parties fought for an agreement that would hold their respective constituencies.  He recalled that there were several times when different parties and their lawyers would leave the room to discuss section details and return.  By daybreak, they had succeeded.

"It was really Politics 101, the art of compromise," Clark said. With a handshake agreement and an outline, the parties left the AG’s office, freshened up and returned for a mid-day press conference to announce their settlement, which was later reluctantly approved by the PSC.

"While we cannot speak to the thought processes of any of the parties actually at the table of compromise, the Commissioners are fully aware in accepting the stipulation that we have not won nor have the people of Arkansas won; neither have we lost. We have accepted a stipulation which we believe to be in the public interest," wrote PSC Chairman Robert Johnston in the final order.

The settlement included a $487 million rate increase request, of which $286 million was planned for Grand Gulf.  The PSC only approved a total $52 million base rate increase and a separate formula rate to recover Grand Gulf power costs, of which AP&L’s shareholders paid a portion.  AP&L also conceded a variety of stipulations to "conduct its business with more austerity," which included employee productivity improvements, a hiring freeze, a more economical customer billing system, travel and advertising restrictions, and frugality in executive salaries.

A BETTER-THAN-EXPECTED RESULT
While the Grand Gulf case nearly led to a modern-day civil war, as the years have passed, its value to Entergy’s energy portfolio has appreciated considerably.

Nuclear power, the leading low-cost provider of electricity for Entergy, accounted for nearly 70% of all power generated by the company in 2009.  Consider that the country of France – huge proponents of nuclear technology – derives 80% of their nation’s power from nuclear energy.

Nuclear power is not only low-cost, but its proponents argue that it is "emissions-free," causing a smaller impact on the environment than coal-fired plants for instance.  However, there are still long-term consequences of how to handle nuclear waste, which is largely stored at reactor sites at the present time.

The costs associated with Grand Gulf for Arkansas ratepayers have subsided as the plant has depreciated.

Clark says that Grand Gulf "turned out to be a godsend," a sentiment shared by Trotter, who helped ignite the controversy.

Trotter contends there are several reasons why Grand Gulf worked out well.  He argues that Entergy’s nuclear plants – including Arkansas Nuclear One (ANO) in Russellville – have been operated with great efficiency, reliability and safety.  As other fuel costs – like coal and natural gas – have increased, nuclear plants still have low maintenance costs and capital upkeep.  Their useful life will far exceed original estimates, he predicts.

And another important point: Arkansas grew into the need for more baseload, Trotter says.  That was one of the critical arguments for opposing Grand Gulf.

"All of those things have broken in Entergy’s favor," Trotter said. "The long-term economics have proven it to be a good investment."

Despite that affirmation, Trotter has no regrets for his work to stop Grand Gulf back in the ’80′s.  It was the right fight at the time based on the facts that were known, he says.  "I think the greater emphasis was on the sticker shock for a plant that wasn’t needed at that time."

The high-profile case earned Trotter a powerful reputation as a utility hawk. It later brought him courtship from utility companies who knew he’d be a powerful opponent or ally. Today, his law firm, Little Rock-based Perkins & Trotter, is thriving in part due to its utility expertise.

GRAND GULF & THE NUCLEAR FUTURE
July 1, 2010 marks the 25th anniversary of the opening of the Grand Gulf Nuclear Station, and its future would suggest that in 2035, it will celebrate another 25 years of operation.

In December 2009, Entergy officials announced that Grand Gulf would benefit from a $510 million major expansion set for completion by 2012. The project, one of the largest expansions of a nuclear power plant in U.S. history, will make Grand Gulf the largest single-unit nuclear power plant in the country and up its production capacity by more than 13%.

In today’s world of economics, Grand Gulf and other nuclear plants can produce electricity more cheaply than the company can buy power from the open market.

For Arkansas, its nuclear units in Russellville combined with Grand Gulf and other nuclear assets promise decades of lower energy for ratepayers compared to other states around the country.

Entergy Arkansas President Hugh McDonald, who took the reins in Arkansas in 2000 and once worked at the firm’s nuclear plant near New Orleans, notes that nuclear power generates about 20% of the nation’s power and 72% of its carbon-free energy.  "There’s no question that nuclear must play a major role in the country’s future energy policy," he says.

Entergy is the second largest owner of nuclear plants in the U.S., another reason why Grand Gulf, ANO and other plants will remain an increasingly valuable part of the company’s energy mix.

"That’s a key reason why our production costs are so low compared to other fuel sources," McDonald says. "We also have the added advantage of creating a natural hedge for our customers against any future carbon price since they create no CO2 emissions.  Both Grand Gulf and Arkansas Nuclear One have become the crown jewels of Entergy Arkansas’ power generation fleet."