STATE OF VERMONT
PUBLIC SERVICE BOARD
Docket No. 7404
Petition of Entergy Nuclear Vermont Yankee,
LLC, and Entergy Nuclear Operations, Inc., for
Approval of an Indirect Transfer of Control of
Each Company, Consent to Pledge Assets,
Guarantees and Assignment of Contracts by
Entergy Nuclear Vermont Yankee, LLC, and
Amendment to the CPG of Entergy Nuclear
Operations, Inc. to Reflect a Name Change,
Replacement of $60 Million Guarantee with $60
Million Letter of Credit and Substitution of $700
Million Support Agreement for Two InterCompany Credit Facilities
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REDACTED VERSION
PREFILED REBUTTAL TESTIMONY OF
CHARLES W. ADEY
ON BEHALF OF THE
VERMONT DEPARTMENT OF PUBLIC SERVICE
July 10, 2008
Summary: The purpose of Mr. Adey’s testimony is to evaluate the technical issues of
Entergy Corp.’s proposed restructuring of its merchant nuclear generating assets to
determine if the transaction will promote the public good of Vermont residents.
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 1 of 8
PREFILED REBUTTAL TESTIMONY OF
CHARLES W. ADEY
ON BEHALF OF
THE VERMONT DEPARTMENT OF PUBLIC SERVICE
July 10, 2008
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Q.
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A.
Please state your name.
My name is Charles W. Adey.
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Q.
of the State of Vermont Department of Public Service (“DPS”).
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Are you the same Charles W. Adey who previously filed direct testimony on behalf
A.
Yes.
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Q.
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Has any information changed regarding your occupation, business address,
professional background, or experience since your direct testimony was filed?
A.
No.
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Q.
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A.
What is the purpose of your rebuttal testimony?
My Rebuttal Testimony responds to technical and operational issues of the
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proposed restructuring transaction contained in the Rebuttal Testimony filed by Mr.
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Joseph P. DeRoy on behalf of Entergy Nuclear Vermont Yankee (also to be known
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as Enexus Nuclear Vermont Yankee, or “EVY”) and Entergy Nuclear Operations,
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Inc., (“ENO” and collectively the “Petitioners”) and discovery question responses
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received 3 July 2008. As with my Direct Testimony, D. L. English Consulting, Inc.
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(“DLEC”), as a subcontractor to Levitan & Associates, Inc., was retained by the
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DPS to determine whether Entergy Corp.’s proposed restructuring of its merchant
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nuclear generating assets will promote the public good of Vermont residents.
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 2 of 8
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Summary of Rebuttal Testimony
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Q.
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A.
Please summarize your Rebuttal Testimony in this matter.
My Rebuttal Testimony presents my findings and recommendations
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concerning the technical and operational adequacy of EVY, EquaGen, and Enexus
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Energy, the new company that will own Enexus Nuclear Vermont Yankee Power
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Station (“VY”) and five other merchant nuclear generating plants. The findings in
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my Rebuttal Testimony are similar to the findings in my Direct Testimony. Some
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of the specific issues that I raised in my Direct Testimony have been satisfactorily
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resolved by the Petitioners’ responses to the DPS’ Information Requests. The
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following summarizes my Rebuttal Testimony:

EVY’s and Enexus Energy’s roles and responsibilities remain incompletely
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defined. However, the Petitioners’ responses to my Direct Testimony and to the
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DPS’ Information Requests indicate that progress is being made and a BEGIN
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CONFIDENTIAL ********************** END CONFIDENTIAL schedule
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exists which identifies the dates to develop and complete the documents with those
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definitions. I have an increased confidence that work is progressing to complete
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the definition of the roles and responsibilities, but not in time for inclusion in this
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Rebuttal Testimony.
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
The Amended and Restated Operating Agreement (“Operating Agreement”) and
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Shared Services Agreements remain in a draft status, and the final “for signature”
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versions are not yet available. Thus the responsibility of administering the
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implementation of day-to-day articles of the Operating Agreement is still unclear.
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
The Petitioners have provided exhibits that reflect the organization and staffing of
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Enexus Energy, thus addressing and satisfying one of my earlier findings.
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Additionally, the Petitioners’ Rebuttal Testimony indicated and presented evidence
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that transition planning has been underway and is ongoing, management systems
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addressing quality have been considered, applicability formulated, and staffing
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needs evaluated. These are all positive developments.
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Charles W. Adey
Docket No. 7404
July 10, 2008
Page 3 of 8
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EVY Roles and Responsibilities
Q.
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You have restated that the EVY roles and responsibilities are incomplete. Why do
you continue to be concerned?
A.
My concern is twofold. First, the incomplete condition of the draft versions
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of the Operating and Service Agreements and Enexus Energy business procedures,
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practices, and standards prevents me from completing my review and reaching a
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conclusion that would allow the Board to reach a well-supported decision on
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whether or not to issue a Certificate of Public Good. Second, these shortcomings in
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the Operating and Services Agreements and business procedures, practices, and
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standards do not permit me to determine EVY’s and Enexus Energy’s preparedness
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for assuming the work and defining responsibilities. I note that the Petitioners have
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presented evidence that these documents are being developed, and a detailed
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project schedule has been provided which identifies the needed documents and
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provides the development times and completion dates for these documents.
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Q.
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A.
What is the status of defining EVY’s roles and responsibilities?
The BEGIN CONFIDENTIAL ********************* END
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CONFIDENTIAL Gant Chart schedule provided by the Petitioners shows that the
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anticipated documents will not be completed until after the filing of this rebuttal
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testimony.
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Q.
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Does the current unavailability of these documents impose an adverse impact on
the reorganization?
A.
Not necessarily. Based on the quality and thoroughness of the technical and
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operations information provided to date, I would expect the balance of the
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documentation to be of equal quality and thoroughness. However, there is always
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value in performing an independent review of this information to identify areas that
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may have been overlooked or to highlight areas for improvement. In addition, this
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information will provide the State of Vermont with a clearer picture and
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 4 of 8
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understanding of exactly what is required by the employees and contractors of the
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Petitioners.
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Q.
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Do you believe this documentation will be prepared and implemented by the
Petitioners?
A.
Yes. Industry performance reporting requirements will require EVY and
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Enexus Energy to have such procedural documentation and also require that it be
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subject to audit.
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Amended and Restated Operating Agreement
Q.
Mr. DeRoy in his Rebuttal Testimony indicates that (i) he does not concur with
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your concern that EVY does not have a contractual avenue to approve or
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disapprove the assignment of personnel to the VY and (ii) EVY does not currently
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perform that function. Is the fact that EVY does not perform this function
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justification for excluding the approval / disapproval provision from the contract?
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A.
I fully appreciate that the decision on what to include in any contract is the
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responsibility of the parties involved. Choosing not to provide this provision
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appears to satisfy the contracting parties’ interests but doesn’t address Vermont’s
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interests. I maintain my position and recommend that such a provision be
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incorporated.
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Q.
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A.
Why do you continue to recommend such a provision?
The simple reason for recommending this provision is that the Operating
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Agreement is between EVY and EquaGen, and it defines the roles and
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responsibilities for working together to achieve the desired objectives. Where the
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issue of personnel assignment review and approval / disapproval is typically
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considered a day-to-day operation function, the responsibility should be assigned at
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the day-to-day operations level and should be identified as such. The approach of
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 5 of 8
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bringing day-to-day operation issues to Enexus Energy for inter-company
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negotiation and resolution gives the impression that a functionally integrated and
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business coordinated arrangement may not be viewed by EVY and EquaGen as a
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priority. This process also appears to prolong and delay decision-making, thereby
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needlessly slowing down continuous improvement initiatives.
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A secondary reason for recommending this is that Mr. DeRoy presents the
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position and justification that is not reasonable for a new and independent
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organization when he says: “Specifically, with respect to an avenue for EVY to
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approve or disapprove the assignment of EquGen personnel to the Vermont Yankee
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plant, no one at EVY today carries out that function. Today the vetting of assigned
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personnel takes place solely at ENO.” In the current scheme EVY and ENO are
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subsidiaries of the same parent, thus maintaining overall responsibility under a
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single group. In the proposed reorganization, EVY and ENO / EquaGen will not
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answer to the same parent and are financially independent. With this
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independence, more specific contractual definition of responsibility and authority at
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the appropriate operations level is recommended.
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Q.
The Petitioners’ response to Q.DPS:EN.3-76 indicates “Enexus will have the
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contractual right to terminate the Operating Agreement …” How does this
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statement impact your understanding of the Operating Agreement?
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A.
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It creates some uncertainty with regard to who is responsible for the
Operating Agreement, Enexus Energy or EVY
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Q.
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A.
Why are you uncertain?
Up to this point the Operating Agreement identifies EVY as the Owner and
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EquaGen as the Operator. It is my understanding that the only parties authorized to
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terminate the agreement are BEGIN CONFIDENTIAL ****************
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*********************************** END CONFIDENTIAL of the
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Operating Agreement applies. As such, I do not fully understand and appreciate
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the response.
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 6 of 8
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Q.
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Do you have concerns about your uncertainty with who is responsible for
administering the Operating Agreement?
A.
Yes. It raises the question of whether all of the Petitioners’ parties have a
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consistent understanding of the Operating Agreement at this time. It also suggests
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that potential changes to the draft version of the Operating Agreement are being
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considered, of which we have no information.
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Q.
The Petitioners’ response to Q.DPS:EN.3-76 goes on to indicate that “Enexus will
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have the contractual right to terminate the Operating Agreement and, subject to the
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terms and conditions of the joint venture, assume direct ownership of EquaGen
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Nuclear LLC.” Have you reviewed the joint venture agreement?
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A.
Yes, and I have read the referenced Separation & Distribution Agreement.
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However, I have not been able to verify within the Joint Venture Agreement where
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it is stated that Enexus Energy may assume direct ownership of EquaGen.
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Petitioners need to point us to the source paragraph or document describing this
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alternative.
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Q.
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Are there any other issues associated with the Petitioners’ response to
Q.DPS:EN.3-76?
A.
Yes. The Petitioners’ response does not provide an answer to the question
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of how EVY protects their interest should exceptional performers employed by
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EquaGen be “cherry picked” from an EVY assignment and reassigned to another
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EquaGen client.
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Q.
In the Petitioners’ response to the third set of information requests, A.DPS:EN.3-
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77, they indicated that “The agreements continue to be developed and will be
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finalized within Entergy’s timeframe for completing the proposed transactions.”
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How does this impact your evaluation of the reorganization?
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 7 of 8
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A.
As identified in the EVY Roles and Responsibilities section of this Rebuttal
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Testimony and in the immediately preceding question and answer, this is another
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example of why it is not possible at this time for us to review all pertinent materials
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prior to the submittal of my Rebuttal Testimony. Without being able to look at
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some of the final documents, I cannot conclude that the transaction is in the public
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good. I concur with Mr. DeRoy’s responses in A.DPS:EN.2-51 and A.DPS:EN.3-
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73, that “the reorganization in and of itself is not designed for the purposes of
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improving or detracting from the current technical and operational value” of the
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VY facility. Furthermore, I interpret this to mean the VY facility technical
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operation and management perspective, as proposed in the reorganization is neutral
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with respect to promoting the public good of Vermont residents.
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Q.
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Does the Petitioners’ response in A.DPS:EN.3.77 fully answer the associated
question?
A.
The Petitioners’ reply did not answer each of the questions. Examples of
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questions not answered are the identification of the expected time or dates for when
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the agreements would be available, if the schedule had changed, and what version
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of the agreements would reflect the final, ready for approval condition. In addition,
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the Operating and Services agreements do not include all of the Attachments or
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Exhibits.
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Q.
Do you agree with the Petitioners’ response to Q.DPS:EN.3-79 that the term
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BEGIN CONFIDENTIAL ****************END CONFIDENTIAL is not a
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defined term used in the Operating Agreement?
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A.
No, and I do not understand the Petitioners’ response. The Petitioners’
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response indicates that BEGIN CONFIDENTIAL *********************
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***************************************************************
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**************** END CONFIDENTIAL However, the term is used within
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the Operating Agreement, as noted in the section referenced in the Petitioners’
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response to the question.
Charles W. Adey
Docket No. 7404
July 10, 2008
Page 8 of 8
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Q.
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A.
Why is clarifying this phrase important?
Clarifying the term is important because it has a long-standing
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interpretation that the term BEGIN CONFIDENTIAL ************* END
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CONFIDENTIAL has the power to act for the owner in all day-to-day aspects of
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the business without the owner’s involvement or additional approval. This is not
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what is being presented in the Operating Agreement, and a definition of the term is
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recommended. For example, as a minimum the Petitioners’ could include in
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BEGIN CONFIDENTIAL *******************************************
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************************************************************* END
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CONFIDENTIAL Alternately, the term can be removed from the agreement.
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Q.
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A.
Does that complete your Rebuttal Testimony?
Yes, it does at this time.