Grand Gulf Affair

Grand Gulf Nuclear Generating Station is a nuclear-powered electricity-generating station on the eastern bank of the Mississippi River downstream from Vicksburg, Mississippi, near the town of Port Gibson. Issues surrounding the financing of the station convulsed politics in Arkansas for the last two decades of the twentieth century and continued to create legal controversy into 2022 over the financial harm the giant plant did to homeowners and other power users in Arkansas, Mississippi, and Louisiana. The state of Mississippi reopened the controversy before the Federal Energy Regulatory Commission in 2017 by alleging that Entergy had greatly overcharged Mississippians and others, perhaps by billions of dollars, and the other states eventually joined the litigation. Mississippi accepted a sizable settlement offer by Entergy but by the summer of 2022, regulatory agencies in Arkansas and Louisiana had not.

Between 1985, when the power station began producing electricity, and 2012, customers of Entergy Arkansas, Inc., and its predecessor, Arkansas Power and Light (AP&L), had to pay $4.5 billion—about $6,500 per customer—to operate the Mississippi plant and subsidize Louisiana ratepayers under the terms of old agreements among the four utilities in Arkansas, Mississippi, and Louisiana owned by Middle South Utilities, a holding company based in New Orleans, Louisiana.

The prospect of Arkansas’s people and businesses paying billions of dollars for electricity that Arkansas did not need turned Grand Gulf into a major political issue starting in 1980, when Governor Bill Clinton first revealed the looming threat of soaring electricity bills to pay for two huge nuclear plants in Mississippi that people in Arkansas had never heard of. It contributed indirectly to his defeat in 1980 and also to the revival of his political career in 1982. It was an issue in a series of elections for state and congressional offices in the 1980s and early 1990s.

The state government and AP&L tried to extricate Arkansas from Middle South Utilities’ System Agreement and Availability Agreement, the two documents that committed Arkansas to bear a substantial share of the cost of two nuclear-powered boiling-water generation plants at Grand Gulf, each with a planned capacity rating of 1,250 megawatts. (The second unit was canceled unfinished in 1984.) The president of AP&L, Jerry W. Maulden, succeeded in getting the agreements amended to remove Arkansas’s obligation, but both the Federal Energy Regulatory Commission (FERC) and federal courts ultimately ruled that the original agreements had to be enforced. Grand Gulf issues went to the U.S. Supreme Court three times, although the last was dismissed after a 1985 settlement and before the Court ruled.

Building New Power Plants
About 1970, when the demand for electricity was rising sharply every year, Middle South planned the two units at Grand Gulf, which were to be built at the site of a Civil War battle in General Ulysses S. Grant’s Vicksburg campaign, and another big nuclear station, called Waterford III, on the Mississippi River west of New Orleans. Following a seventeen-minute public hearing before the Mississippi Public Service Commission in 1973 that resulted in approval of its construction in that state, work on the first Grand Gulf station began in 1973 and on Waterford III and Grand Gulf II in 1975.

However, the demand for electricity slackened following the oil-price shocks of the 1970s, and by 1980 the old forecasts of soaring power demands were far off the mark. The states did not seem to need the new capacity anytime soon. Both the electricity prices and the building costs of the nuclear plants had soared, and Middle South Utilities found itself with a huge debt load in a period of very high interest rates and inflation, financial perils, and a political imbroglio in all three states over the prospects of big rate increases associated with bringing the new nuclear plants online.

While the Mississippi and Louisiana nuclear stations were being planned for the southern part of the Middle South system in the 1970s, AP&L embarked on a campaign to replace its old oil- and natural-gas-powered generating stations with more reliable and more productive baseload coal and nuclear plants—two nuclear units at Russellville (Pope County), along with two coal-fired plants, White Bluff Generating Station near Redfield (Jefferson County) and Independence Steam Station near Newark (Independence County).

Each time one of the units went online, its building costs went into AP&L’s rate base, and electricity bills went up to compensate the utility for the costs of the plant and a return on the investment.

Political Implications
As Arkansas attorneys general, both Bill Clinton and his predecessor, Jim Guy Tucker, had questioned Middle South and AP&L executives about the Mississippi nuclear plants at hearings of the state Public Service Commission in the late 1970s, and they received what they thought were assurances to the effect that since Arkansas would have far more power than it needed for many years as a result of its own coal and nuclear plants, Arkansas consumers would not be expected to bear any of the costs of the Mississippi and Louisiana plants. By 1980, a year into Clinton’s first term as governor, the anticipated construction cost of Grand Gulf I alone had soared from $1.5 billion to $3.5 billion.

In the spring of 1980, four young staff members in Clinton’s newly created Department of Energy wrote a paper for the governor based on their research and analysis of the impact of the relationship between the Middle South affiliate that was created to own and build Grand Gulf—Middle South Energy, Inc.—and the Middle South operating companies, including AP&L.

Later that summer, as he faced reelection, Clinton, along with the Energy Department officials, wrote a 7,700-word article exposing the Grand Gulf arrangements. The article recorded the Arkansas rate increases that had gone into effect as the new coal and nuclear plants in Arkansas had begun generating power and other rate increases that would soon come along as the other stations were finished. Clinton’s Energy Department staff members had obtained copies of the Middle South agreements, which made it clear that, on top of the rate increases for Arkansas plants, AP&L ratepayers would bear a huge part of the costs of both Grand Gulf units and perhaps Waterford III, although Arkansas would have no conceivable need for additional power for many years.

Originally, Grand Gulf was to be built by Mississippi Power and Light Co., but because no single operating company had the ability to finance and construct such a large facility, Middle South had in 1974 created Middle South Energy as a separate subsidiary to build and operate the Grand Gulf units. Clinton warned of serious economic consequences for Arkansas if the state could not rectify the agreements to protect Arkansas. Because Middle South Energy was a wholesale affiliate with no retail customers and whose only asset (Grand Gulf) would produce energy purchased entirely by the four operating affiliates, FERC ultimately decided that no state had the authority to determine how much its own state-regulated affiliate would be responsible for purchasing. FERC thus allocated the entire cost of Grand Gulf among the affiliates and forced AP&L to purchase thirty-six percent of Grand Gulf.

The article was to be published in the Sunday editorial and feature section of the Arkansas Gazette during the early summer of 1980, under Clinton’s byline. Before the article appeared, Clinton shared it with Maulden, the AP&L president. Maulden pleaded with Clinton not to publish the article because he hoped to extricate Arkansas from the agreements and feared the article might jeopardize his efforts. Clinton first tried to stop the article’s publication, but the four Energy Department staff members who had done the research and principal writing insisted that it be run in the public interest, as did the editor at the Gazette. Titled “Grand Gulf: A Corporate Haze that Spells Trouble for Arkansas,” it appeared August 31, 1980, under the byline of the four: Walter W. Nixon III, Scott C. Trotter, Basil L. Copeland Jr., and James Strangways.

Frank White, a Republican, defeated Clinton in the general election in November, thanks partly to generous financing from utility officials, shareholders, and contractors. White’s first act after taking the oath on January 13, 1981, was to return to the governor’s office and order the Energy Department to fire Nixon, Trotter, Copeland, and Strangways. He also called for abolishing the Energy Department, which the legislature promptly did in the same month.

But Governor White soon soured on Grand Gulf and Middle South, and in 1982, he publicly ruminated about the state government taking over AP&L and running it as a state utility if that was the only way to protect people from Grand Gulf’s costs. He thought the high rates would deter industries from moving to Arkansas. Clinton easily defeated White that year, partly by tying White to Grand Gulf, trumpeting his own involvement in writing the Grand Gulf exposé in 1980, and putting Nixon and Trotter on the Clinton campaign trail. (White would argue for a state takeover more vociferously in another losing race for governor in 1986.)

In 1984, Grand Gulf was a boiling issue in several races. Clinton’s Republican opponent that year, Woody Freeman, blamed him for Grand Gulf. Congressman Ed Bethune blamed U.S. senator David Pryor, whom he was opposing that year, because Pryor was elected governor when Grand Gulf began to be built and did nothing. There was talk about congressional action to block implementation of the agreement. Pulaski County sheriff Tommy Robinson was elected to Bethune’s seat in the House of Representatives, his campaign heavily fueled by contributions from scores of Middle South officials and directors, as well as officials and employees of numerous national contractors that supplied everything from the reactors to the paint for Grand Gulf. Once in office, Robinson did nothing about the matter.

Despite its financially complicated nature but owing to its emergence as a political issue, Grand Gulf was a perpetual news story in the decade of the 1980s. Arkansas Gazette political cartoonist George Fisher gave it the popular sobriquet “Grand Goof,” which resurfaced in news accounts in 2022.

Going to Court
Under the original System Agreement, Arkansas was obligated to buy thirty-six percent of Grand Gulf’s capacity, the largest amount of the four utilities. A one-page sales agreement negotiated at Maulden’s insistence and signed by him and his fellow operating-company presidents left Arkansas out altogether and required the other utilities to divide Grand Gulf’s capacity, with Louisiana Power and Light assuming the largest share, 38.6 percent, and Mississippi Power and Light and New Orleans Public Service somewhat smaller shares.

Louisiana and Mississippi officials protested. The dispute went before FERC, which ordered the original allocation of costs among the four utilities. The federal agency said state regulatory commissions had no authority to interfere in an interstate contractual arrangement and ratified the terms of the original agreements on sharing the plants’ capacity, leaving Arkansas to bear thirty-six percent (later reduced to thirty-two percent as the result of a settlement agreement between AP&L and the parties to its Grand Gulf rate case).

A lawsuit brought by the Mississippi attorney general and the Mississippi Legal Services Corporation against Mississippi Power and Light and the Mississippi Public Service Commission, along with another suit filed in Louisiana, eventually settled all the contentions, including Arkansas’s. The U.S. Supreme Court overruled the Mississippi Supreme Court, which had invalidated the rate increase approved by the Mississippi regulatory commission to cover the Mississippi power company’s Grand Gulf costs. In two of the cases, in 1988 and 1989, in opinions written by Justice Antonin Scalia, the U.S. Supreme Court essentially ruled that the states and local governments could not interfere with federally approved pooling arrangements among utilities. The Court found that the 1980 agreement negotiated by Maulden with his counterparts giving Arkansas a zero allocation of Grand Gulf was not a valid and enforceable contract. Ironically, the Court held that the affiliated operating companies could not operate at arms’ length with each other, despite the fact that the same four companies had negotiated the original terms of the Grand Gulf allocation in 1973, the agreement that FERC ultimately approved.

FERC, the District of Columbia Court of Appeals, and the Supreme Court all dismissed Arkansas’s arguments for exemption from the pooling agreements as wholly unmerited. On September 9, 1985, the Arkansas Public Service Commission signed an order allowing the utility to increase its rates to recover thirty-two percent of Grand Gulf’s costs, but the order carried the unusual language, “We hate to approve this settlement,” and made it clear that the commission was forced to order the rate increase against the public interest because of the likelihood of reprisal by the federal courts if it failed to do so.

In December 2005, Entergy Arkansas—the subsidiary formerly known as AP&L—gave the required eight-year notice that it would withdraw from the System Agreement on December 18, 2013, when the utility expected to join another power pool. Ratepayers of Entergy Corp. in Louisiana, through more litigation at FERC by the Louisiana Public Service Commission, continued to benefit from hundreds of millions of dollars in annual payments from Arkansas ratepayers under the System Agreement and court decisions. Louisiana sought to continue the payments from Arkansas after Arkansas left the agreement and entered another power pool.

Mississippi reopened the dispute over Entergy’s charges for Grand Gulf’s electricity in 2017, and FERC began an investigation. In thirteen separate proceedings, regulatory commissions in Louisiana, in New Orleans (the city regulated Entergy’s services separately from the state), and in Arkansas joined the litigation. They asserted that Entergy greatly inflated the numbers used to justify rate increases over the years and that $800 million spent on upgrades at Grand Gulf to improve its efficiency and safety and passed on to customers had no such effect. Although it denied any misconduct, Entergy eventually offered settlements with all four regulators—$300 million to Mississippi, $142 million to Arkansas, $95 million to Louisiana, and $116 million to New Orleans—to end the FERC litigation. Mississippi accepted, but Louisiana and New Orleans insisted the settlement offers were absurd. The company said it offered the settlements to end the costly litigation. The Arkansas Public Service Commission also initially rejected the settlement offer, which included nothing for ratepayers in the state, but in November 2023 the state without explanation accepted that same offer after Gov. Sarah Huckabee Sanders had the chance to appoint two of the three commissioners (including making former Republican Party state chair Doyle Webb the chair of the commission). According to a report by the Arkansas Times, one Louisiana official claimed that former governor Mike Huckabee was involved in the state taking the low settlement.

For additional information:
Campbell, Matt. “Why Did Arkansas Accept a Deal with Entergy 15 Months after Rejecting the Very Same Offer?” Arkansas Times, December 20, 2023. https://arktimes.com/arkansas-blog/2023/12/20/why-did-arkansas-accept-a-deal-with-entergy-15-months-after-rejecting-the-very-same-offer (accessed December 20, 2023).

Clinton, Bill, Robert E. Johnston, Walter W. Nixon III, and Sam Bratton. “FERC, State Regulators, and Public Utilities: A Tilted Balance?” Natural Resources and Environment (American Bar Association) 2 (Spring 1987): 11–14.

Copeland, Basil L. Jr., Walter W. Nixon III, and Scott C. Trotter. “Analysis of the Impact on Capacity Planning Decisions and Electric Rates in Arkansas of the Relationship Between Middle South Energy, Inc., and the Operating Companies of Middle South Utilities.” A paper prepared by the Arkansas Department of Energy for Governor Bill Clinton, April 3, 1980. Clinton State Government Project. Butler Center for Arkansas Studies, Little Rock, Arkansas.

Dumas, Ernest. “Grand Gulf Enters Higher Level of Politics.” Arkansas Gazette, October 12, 1984, p. 23A.

Goldberg, Michael. “Mississippi Regulators Reach $300M Settlement with Entergy.” Arkansas Business, June 24, 2022.

Lemons, Terry. “Critics Contend Grand Gulf Debacle Shows Clinton Inept: Special Report: Bill Clinton—Promises & Permanence.” Arkansas Democrat-Gazette, June 29, 1992, pp. 1A, 3A.

Massey, Kyle. “Costly Grand Gulf Returns to the Headlines.” Arkansas Business, July 4, 2022.

———. “PSC Weighing $142M Entergy Settlement Offer on Grand Gulf.” Arkansas Business, July 8, 2022.

Mississippi Power and Light Company v. Mississippi ex rel. Michael C. Moore, et al., 487 U.S. 354 (1988).

Moreau, Andrew. “Arkansas Rejects Entergy $142M Settlement Plan.” Arkansas Democrat-Gazette, August 2, 2022, pp. 1A, 6A. Online at https://www.arkansasonline.com/news/2022/aug/02/arkansas-rejects-entergy-142m-settlement-plan/ (accessed August 2, 2022).

New Orleans Public Service, Inc. v. Council of the City of New Orleans, et al., 491 U.S. 350 (1989).

Nixon, Walter W., III, Scott C. Trotter, Basil L. Copeland Jr., and James Strangways. “Grand Gulf: A Corporate Haze That Spells Trouble for Arkansas.” Arkansas Gazette, August 31, 1980, pp. 1E, 4E.

Smith, David. “PSC Nears Crossroads on State’s Grid Pact.” Arkansas Democrat-Gazette, June 10, 2012, pp. 1G, 2G.

Wald, Matthew L. “Millions Face High Rates Because of Nuclear Plants.” New York Times, February 26, 1984, pp. 1, 16.

Ernest Dumas
Little Rock, Arkansas