Despite regulatory approval through 2032 and investments worth
$400 million over the last 10 years,
) intends to shut down its Vermont Yankee nuclear power plant in
the fourth quarter of 2013.
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This crucial decision came on the wake of shale gas induced
supply glut that has lowered the wholesale energy prices, high
costs for the plant relative to its size, and wholesale market
design flaws that led to artificially low energy and capacity
prices in the region.
Entergy has sufficient time to properly plan for a safe and
orderly shutdown and prepare filings with the Nuclear Regulatory
Commission regarding shutdown and decommissioning. The company
plans to set up a decommissioning planning organization that will
be responsible for planning and execution for efficiently
dismantling the facility. Post shut down, the workers will
de-fuel the reactor and place the plant into SAFSTOR. This is a
process under which a nuclear facility is placed and maintained
in a condition that allows it to be safely secured, monitored and
The plant had begun commercial operations in 1972 and was
acquired by Entergy in 2002 from Vermont Yankee Nuclear Power
Corp. In Mar 2011, NRC had renewed the station's operating
license for an additional 20 years until 2032.
Post shut down, Entergy expects to incur an after-tax impairment
charge of approximately $181 million in third quarter of 2013.
Going forward, the company expects to incur charges in the range
of $55 million to $60 million related to the future severance and
employee retention costs through the end of 2014.
The company expects operational earnings from the plant to
breakeven in 2013 and decline going forward. Moreover, the
company expects cash flow to increase approximately in the range
of $150 million to $200 million through 2017. The amount required
to meet the NRC minimum for decommissioning financial assurance
for license termination is $566 million.
We note that tightening regulation, shale gas induced supply glut
and a sluggish economy have put tremendous pressure on the power
companies with significant exposure to coal and nuclear power,
resulting in a series of recent high-profile nuclear plant
) announced to cease operations at the Hatfield's Ferry Power
Station in Masontown and Mitchell Power Station in Courtney. The
decision comes in the wake of more stringent environmental
policies being implemented in the U.S. Earlier in June,
) decided to permanently shut down Units 2 and 3 of its San
Onofre Nuclear Generating Stations in Calif. as a result of
mounting maintenance charges along with regulatory impediments
and investigations faced by the company.
However, natural gas prices might not stay as low as they are
today. Per the U.S. Energy Information Administration, supply
growth has begun to rise and if this continues, the closure of
the plant would act as an upside for the companies like
) which is the largest operator of commercial nuclear plants in
Entergy is well positioned due to its geographically-diverse mix
of regulated and merchant operations, along with strong balance
sheet. However, price fluctuations in the wholesale power markets
and pending regulatory cases remain matters of concern. The
company presently retains a short-term Zacks Rank #3 (Hold).