Entergy Plans To Keep Nuclear Units

Entergy, after review, decides
to retain merchant units: CEO

Entergy Chairman and CEO Leo Denault said February
11 that after testing the market the company has decided
it will no longer pursue the possible sale of of its merchant
nuclear units in the Northeast and Midwest.
 
“Our conclusion, based on what we know today, is that
we intend to own and operate this [nuclear] fleet for the
foreseeable future,” Denault said during Entergy’s fourthquarter
earnings conference call with securities analysts.
 
“We know there has been a lot of uncertainty on this
point, so we thought it was important to let you know
that, based on our current point of view, we have made no
decision to close any of the plants” beyond its Vermont
Yankee unit, “and are not actively considering selling any
at this time.”
 
Denault added, however, that Entergy could revisit the
issue at some future date, and will continue to track developments
regarding nuclear regulation, Northeast power
market rules, and capacity and energy prices in the markets
where the nuclear units operate.
Entergy Wholesale Operations owns six nuclear units
totaling 5,204 MW at five sites. The units are the 1,067-MW
Indian Point-2 and 1,080-MW Indian Point-3 in New York;
the 849-MW FitzPatrick in New York; the 845-MW Palisades
in Michigan; the 728-MW Pilgrim in Massachusetts; and the
635-MW Vermont Yankee in Vermont. Vermont Yankee is
scheduled to be retired by the end of 2014.
The economics of the units has been challenged by
relatively low prices of electricity and capacity markets for
future generation in the northeastern US, among other
things.
Asked by an analyst whether Denault’s statement on
retaining merchant units represents a change from Entergy’s
past position regarding Entergy Wholesale Operations’
nuclear fleet, Bill Mohl, the subsidiary’s president, replied,
“You did pick up on a change” in the company’s plans.
Mohl said that decision to retain Entergy’s non-utility
nuclear units was not related to the recent run-up in nearterm
power prices in the Northeast. Instead, he said, “it’s
really a function of what we’ve been telling you for a while,
that we were exploring opportunities and … we didn’t
find anything we really liked” regarding offers by others to
acquire the units.
“We like owning them better,” Mohl said of the nuclear
units, adding that Entergy Wholesale Operations for the foreseeable future will work to optimize the economics of its
nuclear fleet through improved management and operation,
hedging and the like.
Denault said Entergy Wholesale Operations is taking
several steps to improve the economics of its nuclear fleet.
“Take hedging, for example. Several years ago we expanded
our use of options and collars that provided downside protection
and offered some ability to receive higher prices [for
the nuclear units’ output] if the market moved up consistent
with our analysis of the markets.”
A hedge is a contract aimed at mitigating the risks associated
with fluctuating power prices. Typically, a hedge contract
locks in the price that a party will pay for power at a
specific time in the future, and they are used by generating
companies to limit the risks of declining power prices.
A collar is a hedge contract that entitles the buyer to
power within a certain range at a specified time.
Denault said as a result of the company’s hedging activity
that “last winter and again this winter we were able to
capitalize on the run-up in power prices. This strategy contributed
to our strong 2013 earnings performance.”
Denault said Entergy Wholesale Operation’s nuclear fleet
also is benefiting from a tightening supply situation in New
York State, where three of the subsidiary’s six nuclear units
are located. And he said two of those units — Indian Point-
2 and -3 — will benefit from the New York Independent
System Operators new Lower Hudson Valley zone, which
will be implemented on May 1.
Because of the supply-demand balance in that zone, prices
for power are expected to be higher there than in other
parts of New York.
Despite recent increases in power prices, challenges
to the economics of the non-utility nuclear fleet remain,
Denault said. “Long-term sustained capacity and power prices
continue to weigh on [the economics of] FitzPatrick and
Pilgrim, and would at Palisades were it not for the power
purchase agreement through early
 
Sean Meyer
Manager, Strategic Campaigns
Global Security Program
Union of Concerned Scientists