More on Entergy’s financial outlook

A few days ago we reported news of a negative financial outlook for Entergy Nuclear, and its possible implications for future operation of Vermont Yankee. There was much more on the subject in Sunday’s edition of the Mitchell Family Organ, available in print at your local library or online here for subscribers.

Reporter Susan Smallheer interviewed UBS analyst Julien Dumoulin-Smith, who issued the report on Entergy’s tight finances, and he added some important information.

First, the reason for Entergy’s cash crunch is that the newly-abundant supply of natural gas is hitting the nuclear industry hard.  

Natural gas is clearly overtaking coal, and nuclear is the next wave of potential victims.

This trend has the greatest impact on smaller reactors like Vermont Yankee.

Next question: If Dumoulin-Smith’s analysis is correct, and Entergy could actually ease its cash crunch by closing VY, why is it fighting so hard to keep the plant open? He provides two reasons, neither of which have anything to do with providing safe, clean, reliable blah blah blah, or any commitment to the great people of Vermont.  

First and foremost, Entergy is looking beyond VY to a pending battle over the Indian Point reactor in New York state. “It’s really all about Indian Point,” he told Smallheer, who elaborated:

New York environmental officials have been battling with Entergy over the environmental effects of Indian Point’s water withdrawals from the Hudson River, with state officials saying cooling towers were needed to mitigate the environmental impacts of such large water withdrawals.

Apparently Entergy fears that if Vermont wins its bid to close Yankee, it could set a precedent in the battle with New York over Indian Point. Dumoulin-Smith said “the nuclear industry as a whole [is] closely watching the Vermont regulatory fight.”

Nice to know that Yankee is nothing more than a pawn in a game that doesn’t involve Vermont at all.

Second, Dumoulin-Smith says that even though operating Yankee is a financial drain, it’s not as big a drain as closing and decommissioning would be.

One more little nine-figure detail: his analysis didn’t take into account the impending necessity of replacing Vermont Yankee’s aging condenser, which carries a $100-million price tag. And makes continuing operation even more of a drag on Entergy’s bottom line.

But with far bigger stakes at risk, Entergy is willing to go all-out in its legal battle with Vermont, even through its actual interest in VY is limited or nonexistent.

Oh by the way, the official response? Entergy spokesflack Robert Williams fired up his Bumph-O-Mat, which barfed out the following:

“Our nuclear units are important sources of clean, reliable power, and we remain fully focused on the safe operation of the plants,” he said. “As a matter of policy, Entergy does not comment on the financial performance of individual plants.”

And he refused to answer any of Smallheer’s questions, natch. Nice to have such a public-spirited corporation Managing Our Nuclear Future.  

18 thoughts on “More on Entergy’s financial outlook

  1. And provides a window into their seemingly desperate situation.

    Cuomo Takes Tough Stance on Nuclear Reactors


    Published: June 28, 2011

    ALBANY – One of Gov. Andrew M. Cuomo’s top advisers met with the operators of the Indian Point nuclear plant last week and told them that the governor was determined to close the plant.

    Mr. Cuomo has repeatedly taken the position in speeches that he wants to close the plant. But his administration had not delivered the message so directly to the company, or in such strong words, and company officials left the meeting alarmed[..]

    Looks like NY is trying to do the same thing VT is:

    At the same time, the licenses for Indian Point’s two reactors expire in 2013 and 2015. The state can derail the process by refusing to provide permits related to the plants’ use of water from the Hudson River as a coolant. Last year, the State Department of Environmental Conservation rejected a crucial permit application from Entergy; the company is challenging the move.

    For the Cuomo administration, closing Indian Point would be a major step toward reshaping the state’s energy policy. Replacing the plant would take years and require a long-term energy strategy.

    Public worries about the plant, in Buchanan, about 35 miles north of Midtown, flared after the recent catastrophe at the Japanese nuclear plant in Fukushima, and after a report highlighting the Indian Point plant’s proximity to a fault line.

    Entergy needs a water quality permit from New York as part of the federal relicensing of Indian Point. Last year, the administration of Gov. David A. Paterson denied the permit, but Entergy has requested an administrative hearing, which will take place this year. The company is also contesting the state’s denial to the Nuclear Regulatory Commission. The Cuomo administration will preside over the endgame of this process at a critical phase, as Entergy seeks relicensing for Indian Point.

    And in about a week 2nd circuit court of appeals in NY will rule on Murtha’s decision re VY.

  2. Gov. Cuomo has never been a fan of the Indian Point Power Plant, and now he has new evidence to support its closure.

    A report released by the Union of Concerned Scientists showed the Indian Point had many engineering vulnerabilities, which, they claim, the Nuclear Regulatory Commission have largely ignored. An MSNBC analysis of NRC data suggested that, of American plants, the Hudson River facility is the most vulnerable to a quake because one of its reactors is on a fault line, a report which irked New York’ governor.

  3. I have wondered for several years why Entergy keeps fighting so hard to keep VY open, given explicit acknowledgements by its CEO and others that, at best, the plant has been operating as a break-even proposition for several years now.

    Still, I have doubts about both arguments proposed by Dumoulin-Smith’s analysis.

    1) Many have suggested that Entergy’s real concern is the precedent closing VY would have for the rest of the industry, just as Domoulin-Smith does here.

    But no one has suggested anything even close to a parallel situation elsewhere which would make the VT case a precedent for any other.  Indian Point, in particular, is QUITE different.  The plant is larger, newer, presumably more profitable, and located in a higher-priced (and much harder to serve) market (i.e. NYC).  

    None of the legal issues Entergy has raised in Vermont — mostly surrounding issues of federal preemption — have any bearing that I can see on Indian Point, where the main legal issue is a water permit. (There is a parallel VT case about a water permit, but it has been quite low profile, at least so far).  In particular, I can see no way the issues raised in Judge Murtha’s court about 2 Vermont laws would have any bearing on Indian Point at all.  Ditto, the tax issues in Judge Reiss’s court.  

    So, before I believe this particular analytic point, I’d need to see precisely HOW losing VY in any of these fora would impede Entergy’s efforts to keep Indian Point (or any other plant)open.

    2) Similarly, the expense of decommissioning may come as news to this analyst, but it is hardly a new issue for anyone who has followed nuclear issues for any length of time.  Entergy has on hand only roughly 1/2 of the funds THE COMPANY says decommissioning will require, and independent analysts have suggested that their estimates are WAY too low.  But that’s old hat, and since they haven’t added to the decommissioning fund in the 10 years since they’ve owned the plant and have no intention of doing so in the future, it’s unclear how any of this would push them to operate the plant at a loss.  Instead, their strategy from the beginning is to put the plant in mothballs and pray that money will fall out of the sky or that decommissioning costs will suddenly plunge.  Keeping the plant open longer would improve the situation ONLY if the plant were making money, and then, only if Entergy were to allot some of that profit to decommissioning.  But it is completely clear that neither of these conditions pertains here.

    Personally, I’m not at all convinced that Entergy’s posture has ANY basis in rational thinking, but to the extent it does, here’s my best guess. As has been the case repeatedly in the past, my guess is that Entergy has grossly overestimated the future prices in the New England market and thus its ability to collect future revenues, and therefore believes that, if VY just holds on long enough, it will become profitable, even after requiring hundreds of millions of dollars in new investments (condenser and transformer.

    And there, the analyst is certainly correct: this argument depends entirely on a RISE in the price of natural gas, precisely at a time when gas prices have fallen through the floor.  Exelon and Dominion Resources have both read the writing on the wall and closed old nukes.  Perhaps all Entergy needs is new glasses.

  4. First, the legal point.

    Clearly, VT and NY both want to shut (some of) their nuclear plants.  Actually, you can add MA to the list as well.  The difference is that NY and MA are trying to do so through the federal process: NRC, Clean Water Act (NPDES permits), etc. followed by court appeals, whereas VT did so legislatively.

    There is no preemption issue at all in any state participating in the federal process.  VT has been doing this for MANY years.  The preemption issue arises in the nuclear arena because federal law clearly preempts states from regulating nuclear health and safety, leaving that responsibility entirely in the hands of the federal government.  States can and do regulate nuclear plants for NON-nuclear, NON-safety related matters.  While on their face, Vermont’s laws did precisely that, Entergy has argued that VT’s legislation, which never mentions nuclear safety or health is nonetheless preempted because some (5)legislators, in the course of hearings and/or floor debate, mentioned the topic. Judge Murtha bought that incredibly specious argument.

    In any case, my point, simply, was and is that closing VY, even under pressure from VT authorities, would do nothing for Cuomo’s attempts to close Indian Point or MA’s attempts to see that Pilgrim is not re-licensed.  It would NOT be a precedent.

    Second, “Stardust” refers to a worker “exodus.”  Obviously, if the plant is closed, fewer workers will be needed and many will leave the area.  In arguing for the injunction that Judge Murtha did not grant them, Entergy tried to argue that just having a pending legal case would lead to worker loss at VY.  An examination of the actual employment record showed virtually no basis for this fear.  While one or two exit interviews mentioned the issue of how long the plant would continue to operate, most did not, nor was there any other evidence presented.

    It’s not real hard to understand why.  While many of these workers could get jobs at other plants, there are no other plants within commuting distance and few workers want to leave the area, especially those with families.

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