The U.S. economic downturn has hit the bottom line of New Orleans–based Entergy Corp. and its major non-utility nuclear generating company, Entergy Nuclear, which operates 10 nuclear units at eight sites. Based on lower sales at its merchant nuclear plants—a result of unplanned outages and the erosion of the value of its decommissioning funds—Entergy said it is downgrading its second-quarter earnings per share from it original forecast of $1.37 per share in the 2008 quarter to $1.13 per share.
The utility and generation company—parent of several conventional distribution utilities—said in a press release that the weak financial returns were a case of “lower revenue primarily due to additional planned and unplanned outages and recognition of a significant impairment recorded in the current period on certain decommission trust investments” at its nuclear plants. In other words, the nuclear decommissioning trusts tanked, along with many other investments, in a soft investment market.
The company also said the recession has lowered demand for electricity and, as a result, power prices, reducing revenues from power generation.
Entergy also said it hadn’t done a quick-enough job in refueling its Indian Point 3, Palisades, and Pilgrim nuclear units, which totaled 78 days “compared to 18 refueling outage days at Indian Point 2 a year ago.” Entergy has aggressively pursued buying merchant nuclear plants that don’t serve its utility territory in Mississippi, Louisiana, and Arkansas. Indian Point is located in New York, Palisades in Michigan, and Pilgrim in Massachusetts.
The company said in a news release, “As a result of financial market conditions resulting in recognition of additional decommissioning trust impairments, and further decline in power prices for Entergy Nuclear’s open position,” the company knocked down its financial expectations for 2009.
Morningstar, a well-known bond rating service, said it didn’t view the Entergy announcement as a reason to advise investors to avoid Entergy debt. “We had anticipated much of the weakness Entergy has experienced during the first half of the year,” said Morningstar, “especially its nonutility nuclear division. Depressed commodity prices, cooler-than-normal weather, and weak economic conditions in the Northeast have cut power prices by more than 50%. Our 2009 earnings projection had been below the low end of management’s previous forecast and now is within the new range. We could reduce our 2009 earnings projections if we see that cool weather and depressed commodity prices in the Northeast persist through the third quarter, Entergy’s biggest source of earnings.”
Earnings Drop for Exelon
Meanwhile, Exelon, the largest U.S. nuclear generator, reported earnings of 99 cents per share for the second quarter, down 12% from the $1.13 per share for the same quarter a year ago, in part because of lower productivity from its nuclear plants.
The Chicago-based utility giant said its nukes operated at 94% capacity during the quarter, compared to 96% for the second quarter of 2008. That was a result of scheduled refueling operations during the quarter, the company said. During the quarter, Exelon gave up its long-running hostile takeover attempt for NRG Energy, a major non-utility generator.
No New Nukes in Ontario
In Canada, Bruce Power issued a surprising announcement in July that it is dropping plans to build as many as six new CANDU nuclear units at its Bruce site in Ontario. The company, in a news release in late July, said it will scrap plans for 6,000 MW of new nuclear capacity in favor of refurbishment of the existing plants at Bruce A and B in Nanticoke, Ontario. Bruce said the decision to dump new reactors in Ontario has nothing to do with its analysis of building reactors in western Canada, in either Alberta or Saskatchewan, where it remains bullish on new development.
Bruce CEO Duncan Hawthorne said the decisions to scrap the new units in Ontario “reflect the current realities of the market. . . . For more than five years, we examined our options and refurbishing our existing units has emerged as the most economical.”
Waste Handling Remains an Open Issue
As worldwide recession has made the revival of the capital-intensive nuclear generating industry more difficult, the industry has been pushing for government help in dealing with the intractable problem of spent nuclear fuel. The New York Times reported that U.S. nuclear power generators have been lobbying Congress to let them stop paying into the nuclear waste “trust fund,” created in the 1982 Nuclear Waste Policy Act (PDF) and designated in 1987 to fund the Yucca Mountain nuclear waste dump in Nevada. Congress and the Obama administration have decided that the Yucca Mountain project is a technical and political dead end.
The fee on nuclear power generation—which, the Times noted, amounts to about $770 million per year—has accumulated to some $30 billion on the government’s books since the passage of the 1982 law. The government has largely treated this money as it has payments into to Social Security and Medicare program—as general revenues, available for expenditure anywhere in the federal budget.
The Times’s article by veteran energy reporter Matt Wald noted that nuclear utilities have already won court decisions that could allow damages of $20 billion resulting from the federal government’s failure to take title to the civilian wastes under the terms of the 1982 act. Experienced energy lawyers have told me that the court in unlikely to order utility recapture of the waste act dues under any existing statutory authority, and won’t do so by creating a new approach to the law.
Given the likely failure of the Yucca Mountain program and the 1982 nuclear waste law, nuclear utilities are pressing to suspend the fee on nuclear generation (1 mill/kWh) that was established to pay for the waste program. According to the Times, the Nuclear Regulatory Commission (NRC) may vote soon on a proposal that will make above-ground storage easier and allow recovery of those costs in rates. That could trigger a court battle between the NRC and the National Association of Regulatory Utility Commissioners, which believes state regulators should determine the recovery of costs for on-site nuclear waste storage.
—Kennedy Maize is MANAGING POWER’s executive editor.