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Entergy CorporationThe Role of Fuel Oil in Power Production
2008 Fuel Oil/Energy Buyers’ ConferenceMiami, Florida
Mark BrodeurSystem Planning & Operations
Entergy Corporation is a large integrated energy company
• Engaged primarily in:– Electric power production– Retail electric distribution operations– Retail provider of natural gas (179,000 customers)
• Owns and operates approximately 30,000 MW of electric generating capacity
• The second-largest nuclear generator in US• Delivers electricity to 2.7 million utility customers in Arkansas,
Louisiana, Mississippi, and Texas• Annual revenues in excess of $11 billion and more than 14,300
employees
Entergy is comprised ofregulated and unregulated entities
Regulated (Entergy Classic) Unregulated (SpinCo) Utilities – regulated separately by their Non Utility Nuclear business State jurisdictions Entergy Texas, Inc. (ETI) Enexus Corporation (5,000 MWS) Entergy Gulf States Louisiana, LLC (EGSLA) Palisades Nuclear Plant – Michigan Entergy Mississippi, Inc. (EMI)* Vermont Yankee – Northeast Entergy Louisiana, Inc. (ELI)* Pilgrim Plant – Plymouth, Mass Entergy New Orleans, Inc. (ENOI)* James Fitzpatrick Plant – New York Entergy Arkansas, Inc. (EAI)* Indian Point Plant – New York * Jointly owns System Fuels, Inc. (SFI) EquaGen LLC (Owned 50/50) by Entergy and Enexus Provides management services to Nuclear plants owned by Enexus and Entergy and also performs management of Cooper Station in Nebraska
Regulated entities are spread across Texas,Louisiana, Arkansas and Mississippi
Mabelvale
Independence
Moses
Ritchie
WhiteBluff
Lynch
Lake Catherine
Couch
ARKANSAS
Natchez
Baxter Wilson Rex Brown
Delta
Gerald Andrus
MISSISSIPPI
Little Gypsy Paterson Michoud
Waterford
Buras
Sterlington
Monroe
LOUISIANA
TEXAS
Lewis Creek
SPO
Nelson
Louisiana Station Willow Glen
Big Cajun
Sabine
Hot Springs
Arkansas Nuclear One
Little Rock
Lake Charles
Baton Rouge
River Bend
New OrleansNine Mile
Grand Gulf
Jackson
Carpenter Dam
Remmel Dam
Toledo Bend
Beaumont
Diversity is the key . . .
Diverse source of electricity for Entergy's regulated customers - 2007
Nuclear
Coal
Gas
Oil
Hydro
System Purchases
QF_Put
Dollars spent to produce or purchase electricity
Nuclear
Coal
Gas
Oil
Hydro
System Purchases
QF_Put
Co-Ow ner Excess
Aux/Other
Natural gas and oil typically compete
$5.00
$7.00
$9.00
$11.00
$13.00
$15.00
$17.00
$19.00
$21.0010
/2/2
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/200
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/200
7
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/200
7
12/2
/200
7
1/2/
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/200
8
$/MMBtu
"Burnertip"Gas Price
"Burnertip" OilPrice
Actual oil burn has varied significantly
Barrels
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
2000 2001 2002 2003 2004 2005 2006 2007
Barrels
Our primary no. 6 oil plants are located inLouisiana and Mississippi
No. 4 Oil Plants Approx. Capacity (in mws) Location Mile Marker TransportationGerald Andrus 740 Greenville, MS 535 Lower Miss River
Baxter Wilson 1200 Vicksburg, MS 435 Lower Miss River Inland Barge
Delta 200 Cleveland, MS N/A Truck
Waterford 800 Taft, LA 128 Lower Miss River
Michoud 500 New Orleans, LA 3 Gulf Intercoastal East
Willow Glen 1000 St. Gabriel, LA 200 Lower Miss River Inland Barge
Nine Mile and Little Gypsy burn no. 4 fuel oil
No. 4 Oil Plants Approx. Capacity (in mws) Location Mile Marker TransportationNine Mile 1500 Weswego, LA 105 Lower Miss River Inland Barge
Little Gypsy 400 Laplace, LA 128 Lower Miss River
Diesel is another option
Diesel Plants Approx. Capacity (in mws) Location TransportationWillow Glen 200 St. Gabriel, LA Inland Barge
Sterlington 190 Sterlington, LA
Buras 12 Buras, LA TruckLynch 5 N. Little Rock, ARK
Rex Brown 7 Jackson, MS
How much oil to retain?
• Factors which are considered:– Distance from market and time necessary to re-supply– The estimated rate of consumption
• At some sites we can easily consume a barge load in 3-4 days
– Is the oil burned because of reliability or economics?– A site like Gerald Andrus is located upstream of many sources of
supply and re-supply could take 7 – 14 days– Size of on- site useable tank capacity could be a limiting factor
• Un-useable inventory is a necessary but unwanted “sunk cost”• Reduction of un-useable may be reduced thru piping modifications
– Tank cleaning program often complicates things• At times we may sell oil to empty a tank
#6 Oil Key Purchase items
• Purchases are on a “delivered” basis– Liability of loss while “in transit” is minimized
• 5-day payment terms after ROI.• +/- 5% volume tolerance is our norm• Quality determined by volumetric barge composite
after loading• Quantity determined by shore tank measurement after
discharge into a “static” tank
Pricing format - #6 oil purchases
• Prompt deliveries are bought at a fixed price • Forward purchases usually compete with natural gas alternatives,
so we price them at a discount to natural gas using the Henry Hub index. Sellers tie the transaction to the NYMEX gas market. – When oil is cheaper than gas, a “basis” relationship between gas and oil
develops and that basis is what is agreed on. Therefore only the basis in known and it is later subtracted from the actual price of natural gas
– To protect against an “upward” tick in the gas market, we may agree to buy an “embedded cap” to establish a ceiling of which the gas would not exceed
– This cap costs something and results in some of the discount being “given up” in the overall transaction
An example of an oil price tied to gas with an embedded cap
• Oil = $26/bbl., or $4.00/mmbtu using a 6.5 btu conversion• Gas = $5.00/mmbtu• Fix the price of oil to the gas price and lock in the current
$1/mmbtu “basis” • If a cap is secured, then cost of such cap is deducted from
that “basis”. Example: if premium of that cap costs $0.10/mmbtu to guarantee gas will not exceed $6.00/mmbtu, then the differential equals $0.90/mmbtu
• Oil price = (gas index minus $0.90/mmbtu) * 6.5• Cap guarantees that oil price will never exceed
$5.10/mmbtu , or $33.15/bbl.
The outlook for oil is very uncertain
Whether or not we burn oil is dependent on:
• Relationship of oil and natural gas prices• The amount of cheaper merchant energy available• Costs required to maintain oil-fired capability• Environmental regulations and policies
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