Entergy to close Vermont's only nuclear plant on low prices
The decision to shut Vermont's only operating reactor was based on natural gas prices, the high cost of running the single-unit plant and "artificially low" power prices in the region, New Orleans-based Entergy said in a statement Tuesday. Entergy won renewal of the plant's license in 2011, allowing it to operate until 2032, and filed suit to prevent the state from closing the reactor earlier.
"The plant was no longer financially viable," Entergy Chairman and Chief Executive Officer Leo Denault said in a phone interview. "We did everything we could to try and keep this plant open from a financial standpoint. That's why we fought the battles we fought legally."
Vermont Yankee is the fifth U.S. nuclear reactor this year to announce plans to permanently close, the highest-ever annual total, as power prices have slumped amid booming gas production. Reactors also face higher maintenance costs from stricter regulations following Japan's 2011 Fukushima nuclear disaster. Nuclear units in New Jersey, California, Wisconsin and Florida are being shut, reducing the U.S. total to 99 from 104.
More retirements of single-unit reactors may be coming for Entergy and the industry, Julien Dumoulin-Smith and Andrew Gay, analysts for UBS, wrote in a research note today. Vermont Yankee's cost of producing power was probably about $50 a megawatt-hour, they wrote. Spot prices for on-peak power averaged $35.27 a megawatt-hour during the past month in New England.
Exelon Corp.'s Clinton facility in Illinois and Entergy's Fitzpatrick plant in New York are among nuclear generators at the greatest risk of shutting down, according to a July research note by Tudor Pickering Holt & Co.
Entergy also owns the Indian Point nuclear power plant, a two-unit facility north of New York City that some state officials want to close.
"Indian Point is a large, two-unit station in a more favorable market," Mike Burns, an Entergy spokesman, said in an email Tuesday. "We are committed to its continued and safe operation."
Some Northeast power markets aren't paying enough for power from nuclear plants, Denault said. A failure to maintain nuclear generation may leave the United States vulnerable to higher prices and volatility if gas production fades, he said.
"Sometimes the people who are setting the rules, implementing the rules, don't think far enough ahead," he said. "That's why you get boom-and-bust cycles and that's why you get volatility in the market."
Entergy filed suit against Vermont's governor and attorney general in 2011 to prevent the state from shutting the 605- megawatt reactor. The company said at the time it had failed to find a buyer for the unit. An appeals court earlier this month ruled the state doesn't have authority to shut the plant, located in Vernon, about 2 miles north of the Massachusetts border.
Some state officials, including Democratic Gov. Peter Shumlin, opposed the federal government's relicensing of the reactor, raising questions about leaks of radioactive tritium at the site and a collapsed cooling tower.
"This is the right decision for Vermont and it is the right decision for Vermont's clean energy future," Shumlin said at a press conference Tuesday. The state's utilities no longer buy power from Vermont Yankee and closing it will offer an opportunity to develop more renewable power sources, he said.
Based on a 2012 study, the region's power grid can be operated reliably without Vermont Yankee, ISO New England said in an emailed statement tUESday. Closing the plant will increase the region's dependence on gas for power. Vermont Yankee generates the equivalent of three-fourths of the state's electricity capacity. Power from the reactor is sold into the New England wholesale market, where prices fell to their lowest levels since 2003 last year.
Contracts to sell electricity to Vermont's utilities expired last year, UBS's Dumoulin-Smith said.
"The region will likely lean on imports to a heavier degree and backfill the lost generation with natural gas," said Teri Viswanath, director of commodities strategy at BNP Paribas in New York. Those imports could come from hydropower plants in Canada, Viswanath said.
Entergy will record about $181 million in costs during the the third quarter from closing the plant, which employs about 630 people. The company also expects $55 million to $60 million in future costs from severance and employee retention expenses through the end of 2014.
The reactor was expected to break even this year, with earnings declining in futures years, the company said. Closing it will increase cash flow by about $150 million to $200 million through 2017.
Entergy said it will cost at least $566 million to shut the plant and decommission the site. There was $582 million in Vermont Yankee's decommissioning trust fund as of July 31.
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