Is Entergy Moving Out of Nukes?

Is Entergy, once among the most bullish utility systems for nuclear, preparing to get out of its ambitious merchant atomic power program? That’s the view of Julien Dumoulin-Smith, the respected UBS electricity utility analyst.

In a report for his clients in early October, Dumoulin-Smith suggested that New Orleans-based Entergy is “kickstarting the exit process” on nuclear. Specifically, he targeted Entergy’s nukes that must bid into competitive markets.

Mirabile dictu. Just as Dumoulin-Smith issued his prediction of Entergy’s exit from merchant atomic energy, the company announced it would close the Pilgrim nuclear plant on Cape Cod, Mass., by June 1, 2019. Entergy chairman and CEO Leo Denault said in a statement on Oct. 13 that market conditions and increased costs led the company to “reluctantly conclude that we had no option other than to shut down the plant.” The company cited low current and forecast wholesale energy prices, tamped down by cheap natural gas.

In his analysis written before the Pilgrim announcement, Dumoulin-Smith noted that Entergy in early October sold its 583-MW Rhode Island Energy Center combined-cycle gas-fired plant to Carlyle Power Partners for $490 million ($840/KW). Entergy bought the plant at the end of 2011from New England Electric for $364 million ($593/KW), so the utility benefited from the deal.

Why sell? Dumoulin-Smith said the move is the “latest step in corporate strategy away from nuclear.” The sale of the gas-fired station so soon after Entergy bought it, he said, “reiterates our expectations to shut down its only remaining New England nuclear unit, Pilgrim, after a similar decision to retire its Vermont Yankee unit last year.” Dumoulin-Smith said he expects Entergy to explain its decision to abandon nuclear at an Edison Electric Institute meeting in November. He said he anticipates Entergy will junk the Fitzpatrick nuclear plant in upstate New York at that meeting.

Entergy, said Dumoulin-Smith, acquired the Rhode Island gas-fired plant “as part of a risk mitigation effort around hedging its two nuclear units given their relatively higher force outage statistics.” With both Pilgrim and Vermont Yankee closing, the need to hedge the market ended.

In announcing it will close Pilgrim in 2019 Entergy said, “The current and projected market price for delivered natural gas in New England has dropped substantially because of the influx of shale gas and policy-related issues, which in turn has driven down power prices. As a result, current and forecast power prices have fallen about $10 per megawatt hour, an annual loss of more than $40 million in revenues for Pilgrim.” In addition to gas prices, Entergy pointed to subsidies for renewable generation, which,  the company said, “continue to suppress energy and capacity prices in the region, and do not provide adequate compensation to merchant nuclear plants for the benefits they provide.”

Pilgrim, which went into commercial service in 1972, is a General Electric boiling water reactor with a “light-bulb and donut” Mark 1 containment structure characteristic of the earliest GE plants, including the reactors at the Fukushima site in Japan. Boston Edison built the plant for about $232 million and sold it to Entergy in 1998 for $80 million in cash, including ownership of the plant’s decommissioning fund, which today is worth some $800 million and was worth about $500 million at the time of the sale to Entergy. So Boston Edison essentially paid Entergy to take over the plant.

Pilgrim has had a checkered record over the years, including a three-year shutdown for safety reasons in the 1980s. Following Entergy’s announcement this month, Clean Water Action, one of the local groups pushing for closure of Pilgrim, said that “we need to ensure that Entergy cleans up its mess, and that our state accounts fully for loss of tax base and jobs experienced by the community of Plymouth and plant’s workforce. We need adequate decommissioning funds and concrete support for a municipality and workers in transition.”

Entergy owns four nuclear plants in conventional, cost-of-service systems: Arkansas Nuclear One (there is no Two), Grand Gulf in Mississippi, and River Bend and Waterford (both in Louisiana). The company also owns five plants in competitive wholesale markets: Pilgrim, Vermont Yankee, Palisades in Michigan, and Fitzpatrick and Indian Point in New York. Entergy also has a contract to operate the Cooper nuclear plant, owned by Nebraska Public Power District.

Reacting to Entergy’s Pilgrim move, Marvin Fertel, head of the Nuclear Energy Institute, the industry’s Washington lobby, said he found it “disconcerting that the Pilgrim plant will be retired prematurely due to electricity market flaws.” Those alleged “flaws” are that nuclear is unable to match gas-fired plants in competitive, auction markets.