Entergy CEO concerned about ITC spin/merge delay, fate of nuclear plants, other efforts

Entergy (NYSE:ETR), the 100-year-old company serving nearly three million customers in the South, clearly has lots of irons in the fire.

During its 3Q13 earnings call Oct. 29, the company’s CEO discussed the delay in the ability to close the proposed spin/merge of its transmission assets to a subsidiary of ITC Holdings (NYSE:ITC) by the target date of Dec. 31, the closure of one nuclear power plant, the pending relicensing of a second, the integration into the Midcontinent ISO (MISO) and, oh yes, third-quarter earnings.

In September, Entergy and ITC refiled their joint application with the Public Utility Commission of Texas (PUCT), and Texas commissioners have agreed to hear the matter directly in November, with briefings to end in December. That delay, as well as delays in other jurisdictions while proceedings in Texas were pending, pushed the closing beyond a critical date specified in the merger agreement.

“Clearly, that puts any closing after December 31, after which our definitive agreement with ITC may be terminated by either party if the transaction has not been consummated,” Leo Denault, Entergy CEO, said during the earnings call. 

However, he indicated Entergy remains committed to consummating the transaction.

“While our operating companies are fully capable to own and operate the transmission system, we know ITC’s independence, broader regional planning and sole focus will improve the reliability of the grid, reduce congestion [and] attract new generating resources other companies may be hesitant to build today,” he said. “We continue to believe this strategic imperative to execute on the ITC transaction will result in optimal value for all stakeholders.”

For its part, ITC agreed that the transaction would deliver benefits to the region and the customers within the region, and indicated a willingness to work within the new timeline.

“Although we recognize closing in 2013 is no longer feasible, we believe it is important to achieve regulatory certainty as close to year end as possible in order to accommodate a closing as early as possible in 2014,” a spokesperson for ITC Holdings told TransmissionHub Oct. 29.

Orders regarding the proposed transaction are now pending in Mississippi and Missouri. A revised procedural schedule was set in Louisiana and will conclude briefing on Nov. 8. In Arkansas and New Orleans, Entergy is working with the parties to develop a new schedule.

“These schedules, once set in each of the jurisdictions, will provide more insight about the potential timeline for the transaction,” Denault said. “A revised closing date in 2014 has not been settled upon. It will take at least 60 to 90 days after all regulatory approvals are received to close the transaction.”

Denault also addressed the company’s decision, announced at the end of August, to close the Vermont Yankee nuclear power plant in Vernon, Vt., at the end of next year and what he called the uncertainty over the license renewal for the Indian Point Energy Center in Peekskill, N.Y.

“I can tell you the board of directors and the executive management team thoroughly reviewed all alternatives in coming to this difficult decision,” he said of the move to close Vermont Yankee. “We know the closure will be devastating to the community, including millions of dollars in taxes and other payments annually.”

A certificate of public bid application to operate through Dec. 31, 2014, is now pending before the Vermont Public Service Board.

Denault said the plant has played – and continues to play – an important role in meeting the Northeast’s energy needs.

“In the decade of our ownership, Vermont Yankee has averaged a 92.4% capacity factor, and it is currently in its fourth breaker-to-breaker run in that 10-year period,” he said. 

Not shuttering the plant immediately, he said, will allow the communities to begin planning for a future without Vermont Yankee as an operating asset, and it allows Entergy to plan for an orderly shutdown and decommissioning process.

Another area of uncertainty that is likely to continue for some time is the license renewal for Indian Point.

Indian Point filed a timely application in 2007 at the NRC, and as such is authorized to continue operating Unit 2 under the NRC’s “timely renewal” provisions while license renewal matters remain pending, Denault said. The same will be true for Unit 3 after December 2015 if license renewal is still pending at that time, as the company expects, he said, though he was candid about expectations for a rapid resolution of the company’s renewal request.

“Given the number of issues and parties involved, we currently project final resolution of Indian Point’s license renewal application to take until 2018,” he said, noting, “Indian Point continues to be a vital component of the region’s power supply, and we are committed to its continued and safe operation. We continue to believe it meets all the requirements for a renewed operating license.”

Personnel matters were also an area of concern. Denault noted that the company had completed an organizational redesign in July, and is in the process of adjusting its staffing levels to meet the company’s redefined needs.

The process, he said, “is providing many employees opportunities to expand their knowledge, skills, and experience,” but noted that the company also expects to eliminate approximately 800 positions, most by the end of the year.

Other initiatives aimed at improving cash flows and reducing risk are also occupying the company’s senior leaders, including the plan to have the company join MISO.

“We remain on track to being operating in MISO on Dec. 19, which we estimate will produce $1.4bn in customer savings in the first decade,” Denault said.

With regard to its earnings, the company reported 3Q13 “as-reported” earnings of $239.9m, which compared to $337.1m in 3Q12. On an operational basis, Entergy’s 3Q13 earnings were $430.4m compared with $347.7m in 3Q12. On an operational basis, the earnings computed to $2.41 per share, ahead of Wall Street’s expectations of $2.29 per share.