CMS Energy (NYSE:CMS) has reached a deal with Entergy (NYSE:ETR) for early termination of the Consumers Energy utility contract to buy electricity from the Palisades nuclear plant in Michigan.
The CMS utility used to own the 800-MW nuclear plant, which Entergy now plans to close in the fall of 2018.
“Entergy recognizes the consequences of a Palisades shutdown for our approximately 600 employees who have run the plant safely and reliably, and for the surrounding community, and we will work closely with both to provide support during the transition,” said Entergy Chairman and CEO Leo Denault,. “We determined that a shutdown in 2018 is prudent when comparing the transaction to the business risks of continued operation.”
Consumers Energy plans to ask the Michigan Public Service Commission to approve the early termination of the PPA, effective May 31, 2018.
CMS and Palisades will sign a new PPA under which the plant would continue to operate until Oct. 1, 2018. Entergy will notify the power grid operator, the Midcontinent Independent System Operator (MISO) as well as the Nuclear Regulatory Commission (NRC), of its intent to permanently shut down and decommission Palisades.
Regulatory approval of the agreement is expected to lower customer costs by as much as $172m, as well as drive additional investment by Consumers Energy in clean energy, reliability and customer demand-reduction technologies, leading to further customer savings, CMS said Dec. 8.
Since the power purchase contract began in 2007 as a condition of the sale of Palisades from Consumers Energy to Entergy a number of things have changed. Entergy started to reduce its merchant footprint. At the same time, market conditions have changed and less expensive alternatives are now available to provide affordable power to the region, CMS said.
Under the original 15-year power purchase agreement, Consumers Energy was scheduled to purchase almost 100% of the power generated by Palisades through April 2022. Consumers Energy will seek approval from the Michigan Public Service Commission for early termination of the power purchase agreement in 2018.
Entergy has announced its separate, independent decision to close its Palisades plant on Oct. 1, 2018. Prior to that date, Consumers Energy’s contract with Palisades will support electric reliability in Michigan and be available during the summer months of 2017 and 2018 when demand for electricity is higher. Separately, as part of Consumers Energy’s ongoing talent recruitment efforts, it will consider potential job placements in ensuing years of up to 180 appropriately-skilled employees from Palisades into the utility’s statewide workforce.
Entergy and CMS Energy have agreed to together contribute a total of $10m to support economic development and community transition efforts to compensate for the Palisades retirement.
“We have a comprehensive plan to ensure ongoing reliability and affordability for our 1.8 million electric customers,” said
Patti Poppe, president and chief executive officer for Consumers Energy. That plan includes continued excellent power plant performance by Consumers Energy, robust waste-reducing energy efficiency programs, and adding more renewable energy and clean natural gas-fired generation to the company’s portfolio.
Palisades is a pressurized water reactor (PWR) located in Covert, Michigan.
Entergy will take a fourth quarter charge
As a result of the agreement to terminate the PPA and its intention to shut down the plant, Entergy will recognize a non-cash impairment charge of approximately $390m ($252m after-tax) in the fourth quarter. In addition to the impairment charge, through the end of 2018 Entergy expects to record additional charges totaling approximately $55m related to severance and employee retention costs.
The impact on free cash flow from the agreement is expected to be positive compared to the alternative of closing the plant at the end of the current PPA, Entergy said.
The expected changes in free cash flow include the payment for early termination of the PPA, an expected contribution to the decommissioning trust fund, severance and retention costs and changes in capital expenditures and operating cash flows. The actual amount of the anticipated contribution to the decommissioning trust will be determined later, Entergy said.