Vermont Yankee nuclear plant to close in 2014; Entergy cites low cost of natural gas
HOUSTON -- Entergy Corp. will permanently shut its Vermont Yankee nuclear power plant in 2014 after battling for years with state officials to keep the 41-year-old reactor in service.
The decision to shut Vermont's only operating reactor was based on natural gas prices, the high cost of running the single-unit plant and "artificially low" power prices in the region, New Orleans-based Entergy said in a statement Tuesday. Entergy won renewal of the plant's license in 2011, allowing it to operate until 2032, and filed suit that year to prevent the state from closing the reactor, which supplies about three- fourths of Vermont's electricity.
"The plant was no longer financially viable," Entergy Chairman and Chief Executive Officer Leo Denault said in a phone interview. "We did everything we could to try and keep this plant open from a financial standpoint. That's why we fought the battles we fought legally."
Vermont Yankee becomes the fifth U.S. nuclear reactor this year to announce plans to permanently close, the highest-ever annual total, as power prices have slumped amid booming gas production. Reactors also face higher maintenance costs from stricter safety regulations following Japan's 2011 Fukushima nuclear disaster. Nuclear plants in New Jersey, California, Wisconsin and Florida are being shuttered.
More retirements of single-unit reactors may be coming for Entergy and the industry, Julien Dumoulin-Smith and Andrew Gay, analysts for UBS, wrote in a research note Tuesday. Vermont Yankee's cost of producing power was probably about $50 a megawatt-hour, they wrote.
Exelon Corp.'s Clinton facility in Illinois and Entergy's Fitzpatrick plant in New York are among nuclear generators at the greatest risk of shutting down in the higher-cost, lower- revenue environment, according to a July research note by Tudor Pickering Holt & Co.
Entergy also owns the Indian Point nuclear power plant, a two-unit facility north of New York City that some state officials want to close.
"Indian Point is a large, two-unit station in a more favorable market," Mike Burns, an Entergy spokesman, said in an email. "We are committed to its continued and safe operation."
Some Northeast power markets are regulated in such a way that companies aren't paid enough to produce nuclear energy, Denault said. A failure to maintain nuclear generation may leave the U.S. vulnerable to higher prices and volatility if gas production fades, he said.
"Sometimes the people who are setting the rules, implementing the rules, don't think far enough ahead," he said. "That's why you get boom-and-bust cycles and that's why you get volatility in the market."
Entergy filed suit against Vermont's governor and attorney general in 2011 to prevent the state from shutting the 605- megawatt reactor. The company said at the time it had tried and failed to find a buyer for the unit. An appeals court earlier this month ruled the state doesn't have authority to shut the plant, located in Vernon, about 2 miles north of the Massachusetts border.
New England's grid operator will conduct a review of power reliability before the reactor closes, the company said. Entergy will record an impairment charge of about $181 million in the third quarter from the decision to close the plant, which employs about 630 people. The company also expects $55 million to $60 million in future charges from severance and employee retention costs through the end of 2014.
The reactor was expected to break even this year and its earnings would decline during the coming years, the company said. Closing it will increase cash flow by about $150 million to $200 million through 2017.
Entergy said it will cost at least $566 million to close the plant and decommission the site. The company had $582 million in its decommissioning trust fund for the plant as of July 31.