Initial reactions to Jeffrey Tranen’s pre-filed testimony

Jeffrey Tranen’s 2012 testimony is lengthy and concerns a number of complex topics. I’ll respond here to just his analysis of the revenue sharing agreement — and that, only superficially.

Three years ago, I wrote a lengthy, detailed, and fully documented analysis of my reasons for viewing Entergy’s earlier (2008-2009) claims about the RSA with considerable skepticism.  I have posted that article here, for those who want to read a fuller analysis:

Essentially, the core problem with all of the economic analyses provided by Entergy is their unexamined and always un-conservative assumptions.  When it comes to the RSA, clearly the most important of these is the AESC data for future electricity prices.  Three years ago, that forecast led Entergy to conclude that the RSA would be worth hundreds of millions or even over a billion dollars, depending on which forecaster (Bruce Wigget, Jay Thayer) and which testimony. Clearly, Entergy now recognizes that these claims are no longer credible.

Mr. Tranen’s estimate is considerably more restrained, since the high electricity prices AESC forecasted earlier never materialized.  Indeed, current prices are less than ½ of what the earlier AESC study estimated. While I certainly acknowledge that utilities, regulatory bodies, and others use these estimates all the time to make decisions about the future, it is important to recognize just how poor these estimates have proven to be throughout the years.  Simply put, electricity prices are incredibly volatile, and the “experts” have a proven track record of being MASSIVELY wrong.


In addition, it is worth noting a number of little tricks particular to Mr. Tranen’s analysis.  Tranen is able to show that the RSA will produce income at all only by ASSUMING two price shocks in the next ten years which inflate the prices by 30% on an annual basis over and above the AESC forecast.  While I have not yet had access to Tranen’s data, I’m assuming that he had to do this because the AESC prices, without such adjustments, show that there would be no benefit from the RSA.  What I know already is that none of those who did this analysis 3 years ago – Entergy, GMP, DPS, CVPS made any such adjustments to the AESC data.

This leads to an obvious question which I cannot answer at the moment.  Since the AESC study itself is the source for Tranen’s assumption about price shocks (Tranen p. 18), either the AESC authors built that assumption into their own forecasts or they didn’t.  If they did, then Tranen is making the assumption twice.  If they did not, it would certainly be interesting to know why the authors of the report chose NOT to include this in their forecast.  This kind of sleight-of-hand should put Tranen’s whole analysis under a considerable cloud of uncertainty: it certainly appears to acknowledge the data on one hand, and wave it away with the other.

In a very similar vein, Tranen argues that nuclear fuel prices have been volatile, so instead of using recent data, he opts to go back to earlier data (ah, the good ole days) when fuel prices were less volatile (see pre-filed testimony, pp. 17-18). There’s a lot of fancy footwork in reaching the conclusion that nuclear fuel prices will track the GDP deflator, none of which is backed up with any credible rationale.  Simply put, Mr. Trannen doesn’t like the data he has to deal with, so he waves his hand and makes it disappear, and then conjures an assumption he’d prefer.  This is not the stuff of which credible, conservative analyses are made.

Finally, Tranen, like his predecessors, ASSUMES that VY’s high capacity factor will continue to be maintained even though, the plant’s own longer history provides no warrant for this optimistic assumption and VY’s  age provides obvious reasons for doubting it.  (See my earlier analysis for more on this point).

So far, just this year (the first for the RSA), VY has had to power down several times, due to problems with, among other things, the temperature of the river water and the condenser.  The first of these is clearly associated with global warming and therefore might well be a portent of things to come. Entergy previously testified that it would replace the condenser in 2013 and 2014, which will obviously reduce the capacity factor for those years. Yet, Tranen makes no mention of potential downtime associated with this extensive replacement.  (And, of course, if either condenser replacement were to occur simultaneously with Tranen’s assume price shocks ….)

In sum, while Tranen’s figures are considerably more conservative than Wiggett’s or Thayer’s, there is still vast doubt associated with this analysis.  To make a long story short, there’s no reason to believe it to be more credible than its predecessors.

I’ll close with a bit of perspective. Although it’s clearly a hazardous enterprise to take Tranen’s analysis at face value, Vermont Yankee’s potential economic value to Vermonters will come, with the very best of assumptions, to one or two hundred million dollars.  That sounds like a lot of money, but it is chump change compared to the several hundred billion dollars that a catastrophic accident at the plant could cause the New England economy, not to mention the ensuing environmental disaster.  Shutting down Vermont Yankee makes both economic and environmental sense.

Post-script (7/30/12:

I have now had the opportunity to review the AESC data on which Mr. Trannen based his testimony.  The data shows that, even making all of Mr. Trannen’s implausible assumptions about the strike price, the RSA would have NO value until the first 3 months of 2022 (which are the RSA’s last 3 months), at which time it would be worth no more than $1.6 million, ASSUMING that the strike price does not rise above Mr. Trannen’s highly conservative expectations.  The far more probable figure, as I wrote 3 years ago, is zero.  As noted above, Mr. Trannen’s attempt to adduce price shocks in order to show value is completely unprecedented and unjustified.


As has been the case with all previous analyses – by Entergy, DPS, and others, assigning ANY value to the RSA requires making a series of assumptions, none of which by itself is especially credible and therefore the sum of which is far LESS credible in order to finally conjure a rabbit from the empty hat.  It’s great stage magic, but unconvincing argument.



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