Stock Analysts: Vermont Yankee is a "Tough Sell"
Two separate stock analysts today offered little hope that Entergy would find a new owner for Vermont Yankee — citing an unfavorable regulatory and political environment as well as a recent shutdown caused by a leak in a key system pipe.
Vermont Yankee reconnected to the regional power grid early this morning after a three-day shutdown. But, its ongoing leaks and regulatory problems are being noticed by industry analysts.
"The Vermont Yankee nuclear plant that Entergy put up for sale Nov. 4 could have a tough time finding any takers. It has among the most challenging economics of any U.S. nuclear plant, and Entergy is in the midst of contentious negotiations with state and federal regulators to extend the plant's operating license beyond 2012. If regulators or the Vermont legislature deny the license extension, the plant will shut down," writes Morningstar analyst Travis Miller. "Even if the plant continues operating, Entergy management earlier this year told analysts the plant is not earning its cost of capital and probably would not cover its operating costs in 2011 and 2012. At the time, the disclosure was meant to de-emphasize the potential financial impact on Entergy if the plant closed. It now could backfire."
Miller called Vermont Yankee an "albatross" around Entergy's financial neck.
Another analyst, writing on 24/7 Wall Street, Energy Editor Paul Ausick wondered just who would want to buy Vermont Yankee given the tritium leaks earlier this year into the groundwater and bedrock.
"Now, Vermont’s governor-elect says the plant should be shut down on schedule in 2012. And anyway, who does Entergy think will buy a the plant? A nuke that’s leaking radioactive material into the groundwater? It’s probably impossible to overstate the dimness of the bulb that wants to buy Vermont Yankee," noted Ausick.
In his Morningstar analysis, Miller notes that Entergy has good reason to dump Vermont Yankee when it can — largely because the while the power deal may be good for Vermont, it's not good business for Entergy.
The power purchase agreement with Vermont's utilities adjusts annually with inflation up to a maximum $45 per megawatt hour in 2012. If it were to be relicensed, per the sales agreement, Entergy must share with Green Mountain Power and Central Vermont Public Service 55 percent of any revenue the plant earns above $61 per megawatt hour if the plant receives a license renewal. That special revenue sharing agreement is good between 2013 and 2022, Miller notes.
That leaves Entergy only 95 megawatts of power that it can sell on a truly merchant basis, Miller notes. Current low energy prices make it hard for Entergy to make up the difference of any below-market power deals it cuts with Vermont utilities.
"The political backlash in Vermont after a tritium leak in early 2010 and Entergy's failed nuclear spin-off lead us to believe the plant has a good chance of shutting down in 2012. Thus, we're not surprised Entergy wants to be rid of the albatross. But who will buy it?," asks Miller.
Miller said Entergy management told analysts at a November 2 conference that the new owner would likely be an owner of other Northeast-based nuclear power plants.
That narrows the field to Constellation Energy, which owns New York's Ginna plant; Dominion Resources, which owns Connecticut's Millstone plant; and NextEra Energy, which owns New Hampshire's Seabrook plant, noted Miller.
"We doubt Constellation or Dominion would be interested, given their current strategic focuses. NextEra might be interested, but we think management prefers renewable energy. Exelon, the largest U.S. nuclear operator, has a strong capital position and history of turning beleaguered plants profitable with its best-in-class operating procedures. However, it owns no plants in the Northeast, and the plant's small size probably offers little incremental profit from operational improvements. Given these factors, we think any price Entergy receives will be a poor representation for the value of other U.S. nuclear plants," Miller added.
After a shutting down Sunday to fix a leaking pipe in the feedwater system — the closed-circuit piping system that carries slightly radioactive water between the turbines and the reactor — the plant went back online at 5:18 a.m. this morning.
"The minor leak was found to be from a weld on a one half inch metal access plug in the pipe. The access plug was used for radiography of pipe welds during the original construction of the plant. Technicians have replaced the seal weld with a more substantial weld to the plug," said Larry Smith, a VY spokesman. "The minor leakage, estimated at 120 drops per minute was collected via a floor drain and returned to the reactor. There was no threat to public health or safety or to plant personnel at any time."
Prior to the shut down on Sunday, the 650-megawatt plant had been operating continuously for 163 days.
As a result of the shutdown, Greenpeace has renewed its call on Entergy's CEO J. Wayne Leonard to heed a vote in the State Senate earlier this year and shut down Vermont Yankee as scheduled in 2012.
"Entergy continues to pursue a renewed license for Vermont Yankee and within hours of the election announced that the reactor was up for sale," writes Jim Riccio of Greenpeace. "Selling the reactor will not change the fact that Vermont Yankee has been denied a certificate of public good and it will not change anyone’s mind that it is time to begin shutting down this old nuclear plant."
Regulators continue to debate, however, whether the state has the authority to shut down Vermont Yankee or deny it a license, citing federal preemption rules. There is plenty of speculation that Entergy could simply take Vermont to federal court for denying it a license renewal, arguing that such renewals are solely under the purview of the U.S. Nuclear Regulatory Commission.