BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION ) ) ) ) PREFILED DIRECT TESTIMONY CHARLES MATHIS ON BEHALF OF THE HOSPITALS AND HIGHER EDUCATION GROUP

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1 APSC FILED Time: //0 0:: AM: Recvd //0 0:: AM: Docket -0-U-Doc. BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF THE APPLICATION OF ENTERGY ARKANSAS, INC. FOR APPROVAL OF CHANGES IN RATES FOR RETAIL ELECTRIC SERVICE ) ) ) ) DOCKET NO. -0-U PREFILED DIRECT TESTIMONY OF CHARLES MATHIS ON BEHALF OF THE HOSPITALS AND HIGHER EDUCATION GROUP

2 I. INTRODUCTION... II. PURPOSE... III. PLANNING AND INVESTMENTS RELATED TO THE OPTIONAL INTERRUPTIBLE SERVICE (OIS) RIDER... IV. PROPOSED PHASE-OUT OF THE OPTIONAL INTERRUPTIBLE RIDER AND PROPOSED TERMINATION POLICY... V. CONCLUSION...

3 Page I. INTRODUCTION 0 0 Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS FOR THE RECORD. A. My name is Charles Mathis. My business address is Baptist Health, 0 Interstate 0, Exit, Little Rock, AR, 0-. My address is charles.mathis@baptisthealth.org. Q. PLEASE STATE YOUR OCCUPATION. A. I am the System Director for Facilities Management for Baptist Health (hereinafter Baptist ) based in Little Rock, Arkansas. I am responsible for a number of departments within the Baptist System including Facilities Management, Security, Safety and Architecture. My office is located on the Baptist Health Medical Center Little Rock (BHMC-LR) campus in Little Rock, Arkansas, which includes the Baptist Health Rehabilitation Institute (BHRI). I am responsible for the departments noted above for each of our hospitals and for other departments and/or facilities within the System. Q. PLEASE DESCRIBE YOUR FORMAL EDUCATION. A. I received a Bachelor of Science degree in Mechanical Engineering from the University of Arkansas in Fayetteville, Arkansas, in July,. I have been a registered professional engineer in the State of Arkansas since June,. Q. PLEASE DESCRIBE YOUR WORK EXPERIENCE. A. My professional work experience began in consulting engineering with projects that included commercial, higher education and hospital clients. For those projects, I completed mechanical and plumbing design, including plans and specifications; I was also responsible for the construction administration aspect of projects. These projects

4 Page 0 were completed in various states, including Arkansas, Texas, Colorado and California. My work experience also includes employment with the Arkansas Department of Health in Health Facility Services, where I worked as an Inspection Engineer. My duties there included inspections of hospitals and related institutions to ensure compliance with applicable national codes of participation, national fire codes and state licensure laws. My duties while at the Arkansas Department of Health also included leading the team reviewing proposed plans for new construction and/or renovation of existing hospitals and related institutions. The team included members trained and experienced in clinical aspects such as nursing, and other applicable areas such as infection control, nutrition and food, administrative and other pertinent areas. The team reviewed the plans to ensure at least minimum compliance with national codes of participation, national fire codes and state licensure laws. Q. HAVE YOU EVER TESTIFIED IN A REGULATORY PROCEEDING BEFORE? A. No. II. PURPOSE 0 Q. PLEASE STATE THE PURPOSE OF YOUR DIRECT TESTIMONY. A. I am testifying on behalf of the Hospitals and Higher Education Group (hereinafter HHEG ) with regard to certain aspects of the rate case application filed by Entergy Arkansas, Inc. (hereinafter EAI or the Company ). My testimony provides an overview of the investments made by Baptist Health to facilitate service under the Company s Optional Interruptible Service (hereinafter OIS ) Rider, and describes the impact upon Baptist of the Company s intent to phase-out the OIS Rider for existing

5 Page customers. My testimony concludes with some recommendations for the Arkansas Public Service Commission (hereinafter the Commission ) regarding these issues. III. PLANNING AND INVESTMENTS RELATED TO THE OPTIONAL INTERRUPTIBLE SERVICE (OIS) RIDER 0 0 Q. PLEASE DESCRIBE THE PLANNING AND IMPLEMENTATION OF BAPTIST S BACKUP GENERATION CAPABILITIES AT THE MEDICAL CENTER IN LITTLE ROCK? A. During a rebuild of the existing emergency generators at BHMC LR in late 00, necessary parts were so scarce that it was clearly time to prioritize replacement of the existing machines. While considering replacement machines, Baptist investigated its possible options, including the replacement of existing capacity and the addition of more capacity to cover 00% of the facilities (BHMC-LR and BHRI) loads. This option included the OIS Rider, which brought an economic return on investment to the project. Hospitals typically have to prioritize the expense of capital dollars, and hospitals typically justify the replacement and addition of patient care equipment through a business plan that includes a cost/benefit analysis. In 00, BHMC-LR funded a study to investigate options for replacing the facility s aging emergency generators and increasing its standby power generation. Options ranged from replacement of existing engines with no increase in capacities to constructing a new generator building and increasing the standby power generation allowing the facility to maintain redundancy and reliability throughout a loss in utility feed. In 00, the hospital began plans to construct a new generator building containing,000 kw of generating capacity with space and

6 Page 0 0 infrastructure available to add an additional,00 kw. Baptist completed the project during the first quarter of 00. The new energy plant can provide power to both of the BHMC-LR and BHRI hospitals through normal power circuits. This project addressed every concern related to capacity, expandability, redundancy and reliability for the hospitals emergency power generation system. All told, the project cost approximately. million dollars ($,00,000), not including operational costs. Q. DID THE OIS RIDER INFLUENCE BAPTIST S DECISION MAKING PROCESS CONCERNING THE HOSPITALS STANDBY POWER GENERATION? A. Absolutely. The savings obtained from the OIS program provided an economic return on the investment, adding a financial incentive for providing the increased standby power generation capabilities and for adding excess capacity to handle growth projections and offering important redundancy. Q. HAS THE INVESTMENT IN INCREASED STANDBY POWER GENERATION ENHANCED THE HOSPITALS OPERATIONS DURING A UTILITY POWER OUTAGE? A. An actual occurrence provides the most pertinent example of how Baptist s investment in increased standby power generation enhanced the hospitals operations during a utility power outage. During a severe thunderstorm in 00, soon after the energy plant was put on line at the BHMC-LR campus, lightning directly struck EAI s Markham substation, the primary substation for distribution of utility power for the BHMC-LR campus. Since the energy plant was already on-line, it provided 00% of the power for BHMC-LR and BHRI. Although much of west Little Rock lost power that evening, BHMC-LR and BHRI did not see a blink in the power feed to the hospitals due to having previously

7 Page 0 0 moved from the utility feed to 00% generator feed. Due to this proactive approach, Baptist did not experience interruptions in patient diagnostic equipment such as CT and MRI machines, plant equipment such as water chillers, pumps and air handling units, and, more importantly, the procedures taking place using patient care and plant equipment that evening. Since the Markham substation sustained severe damage, the Company contacted Baptist and asked BHMC-LR and BHRI to remain on generator feed and thus not place its load on the secondary utility feed at the Boyle Park substation. Baptist remained on 00% generator feed for approximately hours, as requested by the Company. As Baptist did on that evening back in 00, it continues to run the generators in storm avoidance mode when threatening thunderstorms approach the Little Rock area. Med Flight personnel within the Emergency Department and Facilities Management Powerhouse Operators, both of which are located on the BHMC-LR campus, track these approaching storms. Upon identifying an approaching threatening storm, Baptist brings generator power at the energy plant up to speed, synchronizes the generators to utility power, and moves the hospitals loads seamlessly from the utility to the generators in the energy plant. Again, Baptist can make this switch without experiencing interruptions to patient care procedures. Once the threatening weather moves away from the area, Baptist again synchronizes generator power with the utility feed, and moves seamlessly from generator power back to utility power. Unexpected interruptions in the utility power feed provide another use for the generator feed from the energy plant. In those instances, the generators start and completely absorb the most critical loads in less than 0 seconds. Within less than 0 seconds, the entire facilities at BHMC-LR and BHRI move to generator feed from the energy plant and off of utility feed. Hospital facilities remain on

8 Page generator power until the utility identifies and corrects the problem causing interruption. At that time, Baptist synchronizes generator power with the utility feed, and the hospitals move seamlessly back to utility power. Q. DO YOU KNOW THE DETERMINED NONFIRM LOAD THAT BAPTIST HEALTH MEDICAL CENTER PROVIDES FOR INTERRUPTION BY THE COMPANY UNDER THE OIS RIDER? A. As of April 0, Baptist Health Medical Center has, kw in nonfirm load served under the OIS Rider. 0 IV. PROPOSED PHASE-OUT OF THE OPTIONAL INTERRUPTIBLE RIDER AND PROPOSED TERMINATION POLICY 0 Q. HOW WOULD THE COMPANY S INTENT TO PHASE-OUT THE OIS RIDER IMPACT BAPTIST HEALTH? A. As a not-for-profit, faith-based health care organization, Baptist Health has worked hard to reduce non-salary expenses and increase efficiency in every aspect of its operations. Despite this, Baptist Health cannot easily absorb an increase in utility costs in the current economic environment. Unlike many other EAI customers, Baptist cannot easily pass through increased electricity costs, insofar as much of its revenue derives from government and commercial payors with fixed reimbursement rates. The Company s intent to phase-out the OIS rider, should the Commission approve it, would negatively impact Baptist s operational budget by complicating the challenges it already faces from healthcare reform and severe federal budget cuts. Since Baptist already faces severe stresses on its operational budgets and it cannot readily pass through increased costs,

9 Page 0 0 Baptist will have to fund increased electricity costs through reductions in other aspects of its operational budget; in short, if Baptist faces increased electricity costs through the elimination of the OIS Rider, Baptist will have no alternative but to reduce its operational budget in other areas. It certainly will have to reconsider existing plans to expand its services including areas under-served by the medical field. In addition, if the Commission phases out the OIS Rider, Baptist will lose the economic return it expected on investments in its standby power generation, yielding a stranded investment and reducing or negating any benefit to further investments in expansion of Baptist s generation capacity. Q. HOW WILL THE COMPANY S PROPOSAL TO CLOSE THE OIS RIDER TO NEW CUSTOMERS NEGATIVELY IMPACT THE HOSPITAL? A. The closing of the OIS Rider negatively impacts the cost/benefit analyses for providing 00% standby generation to other facilities in the Baptist Health System, and it takes away any economic incentive to provide 00% standby generation for future growth on the BHMC-LR campus, thus increasing costs for the organization to remain fully functional during utility power outages. In the current environment, Baptist Health would have difficulty justifying the added expense of 00% standby generation, even with the added benefit to the surrounding community during emergency operations. Q. HOW DOES THE NEW OIS TERMINATION POLICY PROPOSED BY THE COMPANY IMPACT BAPTIST HEALTH? A. EAI has requested that the Commission provide it with the same option to terminate OIS contracts as that possessed by OIS customers. Baptist Health and other OIS customers, however, disproportionately bear the capital costs incurred from participation in the

10 Page 0 current OIS Rider. If the Commission allows the Company to exercise the same termination option as the customer, it will negatively contribute to the budgetary uncertainty faced by Baptist and other hospitals on the OIS Rider. If the APSC approves EAI s proposal and provides the Company with a termination option, OIS customers could arbitrarily lose their ability to achieve expected returns on their investments. In short, this proposal will sharply increase the risk of stranded investments related to the arbitrary termination of service by the Company. This will further erode the confidence of hospitals when considering investments in standby generation capacity. Since these investments serve the public interest by improving the reliability of medical care, the APSC should reject EAI s proposal. V. CONCLUSION Q. WHAT DO YOU RECOMMEND? A. For the reasons stated herein, I recommend that the Commission reject the Company s requested closure of the OIS Rider to new customers. The Commission should also reject EAI s proposed termination option. Finally, I ask the Commission to reaffirm its continued support for the OIS Rider by rejecting EAI s intent to phase it out. Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY? A. Yes.

BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION ) ) ) ) ) ) DIRECT TESTIMONY BARBARA L. CASEY MANAGER, REGULATORY FILINGS ENTERGY SERVICES, INC.

BEFORE THE ARKANSAS PUBLIC SERVICE COMMISSION IN THE MATTER OF ENTERGY ARKANSAS, INC. S APPLICATION FOR AN ORDER FINDING THE DEPLOYMENT OF ADVANCED METERING INFRASTRUCTURE TO BE IN THE PUBLIC INTEREST