ECONOMICS VY Yankee's financial prospects seen grim

By Susan Smallheer
Staff Writer | January 06,2013

BRATTLEBORO — A financial analyst who follows the nuclear industry said that while financial information on the Vermont Yankee nuclear plant indicates it is not making money for owner Entergy Nuclear, the company may be leery of shutting the 41-year-old reactor down because it would set a dangerous political precedent.

Julien Dumoulin-Smith of UBS Securities LLC said likewise that Entergy may have calculated that shutting it down would cost more than keeping it running.

“The issue is what’s the alternative and what is the liability to retire it? Is it better to run it as a loss?” he said Friday.

Dumoulin-Smith said that Entergy, and the nuclear industry as a whole, were closely watching the Vermont regulatory fight, but that the bigger issue was the future of the Indian Point nuclear plant, which is located on the Hudson River about 40 miles north of New York City. Indian Point is also owned by Entergy Nuclear.

“It’s really all about Indian Point; Indian Point is what matters more,” he said.

The nuclear industry is being adversely affected by the “revolution” in shale gas, and the growth in the natural gas industry, he said.

Entergy spokesman Robert Williams issued a statement in response to the UBS report, and declined further comment.

“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.”

Dumoulin-Smith issued a report last week that raised serious questions about the future operation of Vermont Yankee, given its low cash flow, and he said that Entergy’s wholesale nuclear fleet showed “modest to negative cash flows” until 2016. Vermont Yankee is a member of Entergy’s wholesale fleet.

In a recommendation to potential Entergy investors, Dumoulin-Smith wrote: “We believe both its New York Fitzpatrick and Vermont Yankee plants are at risk of retirement given their small size.”

Dumoulin-Smith’s report remained officially “neutral” on a recommendation to buy Entergy stock.

Vermont Yankee’s legal future will be debated next week at two court hearings: first Jan. 14 at the Second Circuit Court of Appeals in New York City, and two days later at the Vermont Supreme Court. Vermont’s high court will take up a motion by the New England Coalition, an anti-nuclear group, to shut down Yankee because it is operating without a current state certificate of public good.

Yankee’s financial health has recently posed a big question mark, as Entergy Corp. chief executive officer Wayne Leonard said in 2011 during a quarterly earnings call with analysts that Yankee wasn’t even covering its capital costs.

And Entergy is known to be facing a major investment in the future when it comes to Yankee in the form of its aging condenser, a large piece of equipment estimated to cost about $100 million to replace.

Dumoulin-Smith said his report didn’t take into account the condenser issue in its financial calculations.

He did take into consideration about $80 million to be spent at the Pilgrim nuclear plant in Massachusetts for dry cask storage and re-licensing, and $130 million for wedge wire screens at Indian Point.

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.

Dumoulin-Smith said the continuing low price for natural gas and the explosion of the shale gas industry was spelling financial doom for the nuclear industry, particularly the smaller, marginally profitable nuclear plants such as Vermont Yankee.

And while Dumoulin-Smith put Entergy’s other small nuclear plant, the Fitzpatrick plant in upstate New York, in the same financial category as Vermont Yankee, politics could keep Fitzpatrick online if push comes to shove.

Dumoulin-Smith said that property taxes in New York are much higher — and thus more important — to their host communities, and those communities would fight harder to keep the plants online.

He said the new generation tax, adopted by the 2012 Vermont Legislature and being fought by Entergy, could push Yankee over the financial edge.

Entergy lost the first round in its court battle over the new $12 million tax, but has appealed a ruling by U.S. District Court Judge Christina Reiss.

“We’re looking for what creates value for Entergy shareholders,” said Dumoulin-Smith.

“The question of viability of nuclear is in doubt for small units like Vermont. Vermont Yankee is one of the smallest operating nukes in the country,” he said. “Natural gas is clearly overtaking coal, and nuclear is the next wave of potential victims.”

He added: “Nuclear is under attack.”