Entergy Corp. (NYSE: ETR) in 2014 shut one nuclear plant, and will shut and/or sell two more, but has confidence at this point in two remaining nuclear plants in New York and Michigan, the company said in its Aug. 4 quarterly Form 10-Q report.
The market price trend presents a challenging economic situation for the Entergy Wholesale Commodities plants, Entergy noted. The severity of the challenge varies for each of the plants based on a variety of factors such as the market for both energy and capacity, their size, their contracted positions, and the amount of investment required to continue to operate and maintain them safety, including the estimated asset retirement costs. In addition, currently the market design under which the plants operate does not adequately compensate merchant nuclear plants for their environmental and fuel diversity benefits in their regions.
In October 2015, Entergy determined that it will close the Pilgrim and FitzPatrick plants. The decisions to shut down the plants were primarily due to the poor market conditions that have led to reduced revenues, the poor market design that fails to properly compensate nuclear generators for the benefits they provide, and increased operational costs. The Pilgrim plant is expected to cease operations on May 31, 2019. The FitzPatrick plant is preparing to shut down at the end of its current fuel cycle, which is planned for late January 2017. Entergy announced in July 2016, however, that it is in discussions with another company, Exelon (NYSE: EXC), for the possible sale of FitzPatrick.
Entergy previously shut down Vermont Yankee in 2014, and, after the closure of Pilgrim and the closure or sale of FitzPatrick, will have two remaining nuclear power facilities in operation in the Entergy Wholesale Commodities business, Indian Point and Palisades.
Unlike the three facilities that Entergy has decided to shut down, Indian Point is a multi-unit site, with both Indian Point 2 and 3 in operation, that sells power into the New York ISO Zone G, which is a key supply region for New York City. In addition, Indian Point 2 (1,028 MW) and 3 (1,041 MW) are significantly larger plants than Vermont Yankee (605 MW), Pilgrim (688 MW), or FitzPatrick (838 MW). The Indian Point units, however, are currently involved and face opposition in extensive licensing proceedings.
Palisades (811 MW) in Michigan is similar in size to FitzPatrick, is also a single-unit site, and the Midcontinent ISO market in which it operates has also experienced market price declines over the past few years. At this time, however, most of the Palisades output is sold under a 15-year power purchase agreement, entered at the plant’s acquisition in 2007, that expires in 2022. The power purchase agreement prices currently exceed market prices and escalate each year, up to $61.50/MWh in 2022.
Related to Indian Point, in January 2016, Entergy filed suit in the U.S. District Court for the Northern District of New York challenging the New York State Department of Environmental Conservation’s objection to Entergy’s withdrawn Coastal Zone Management Act consistency certification on federal preemption grounds. Entergy’s complaint requests a determination that the objection, which cites nuclear safety concerns, is preempted and thus invalid. The New York State Department of State filed a motion to dismiss Entergy’s lawsuit in March 2016, and Entergy filed its response in May 2016.
Also, during the scheduled refueling and maintenance outage at Indian Point Unit 2 in the first quarter 2016, comprehensive inspections were done as part of the aging management program. Inspections of more than 2,000 bolts in the reactor’s removable insert liner identified issues with roughly 11% of the bolts that required further analysis. Entergy replaced bolts as appropriate, and the unit returned to service on June 16, 2016. In addition to the repair costs, Entergy lost net revenue due to the plant being offline. Entergy estimates the negative effect on earnings was approximately $51 million pre-tax in second quarter 2016. Entergy is evaluating the scope and duration of Indian Point 3’s next scheduled refueling outage planned for 2017. Based on the results of that review, Entergy could modify its plan for that outage and currently expects that the outage will be extended.