by Andrew Stein March 21, 2013 vtdigger.org Thursday marked the one-year anniversary that Vermont Yankee’ s initial 40-year operating license expired, and the aging nuclear plant finds itself on rough financial footing.
In a November 2012 filing with US Securities and Exchange Commission, Entergy Corp. informed investors that in March of last year the company estimated that the fair value of its Vermont Yankee plant had dropped to $162 million ‘ three times less than the carrying value of $517.5 million.
The fair value is ‘ based on the price that Entergy would expect to receive in a hypothetical sale of the Vermont Yankee plant,’ the filing says. The cash flow projections ‘ depend on pending legal and state regulatory matters, as well as projections of future revenues and expenses.’
The news of Vermont Yankee’ s devaluation was brought to light almost a year later. The Rutland Herald’ s Susan Smallheer spotlighted the issue on Thursday’ a day after the federal Nuclear Regulatory Commission (NRC) asked Entergy for additional information on its finances.
‘ The NRC staff requires further information to insure that the licensee is meeting NRC requirements for financial qualifications,’ wrote Richard Guzman, NRC project manager, roughly a year after his agency renewed Vermont Yankee’ s federal operating license.
NRC spokesman Neil Sheehan said the financial qualifications place a precedent on safety.
‘ We want to make sure the owners of nuclear power plants have the financial wherewithal to properly and safely operate a plant as well as decommission it when the time comes,’ he said.
Does Vermont Yankee currently have the ‘ financial wherewithal’ to operate safely?
‘ We don’ t know that at this point,’ he said. ‘ Typically, we do these kinds of financial reviews when there’ s a license transfer ‘¦ but we also keep our eye out for other developments that could affect a plant’ s financial qualifications, and the SEC filing raised some questions about where the financial picture stands for Vermont Yankee.’
The NRC is not sure how long it took Entergy to officially notify investors of the plant’ s fair value, as the estimation reportedly came in March, and it wasn’ t reported until November. The agency is investigating this discrepancy, Sheehan said.
Entergy would not comment on the matter other than to say it would respond to the NRC within the allotted 45-day time frame.
NRC’ s letter was sent out two days after a coalition of anti-nuclear activists petitioned the NRC to enforce federal regulations. The group filed a petition on Tuesday morning that accused Entergy of no longer meeting the financial qualifications to legally operate Vermont Yankee and the NY Fitzpatrick plants.
‘ Entergy’ s financial problems must not become nuclear safety problems,’ Tim Judson, president of Citizens’ Awareness Network and one of the petition’ s authors, said in a public statement. ‘ Unfortunately, that may already be happening, and the NRC must act now. Entergy is in this business to make a profit, and the pressure on the company to cut costs, delay maintenance, and drive these plants to the edge is just too great.’
On Wednesday, Gov. Peter Shumlin fielded questions from reporters about the plant. He was hesitant to talk about it, as the state is tied up in litigations with Entergy in front of the Vermont Supreme Court, the Vermont Public Service Board and the U.S. Court of Appeals.
The governor did, however, address the plant’ s financial status, suggesting the economic pressures may result in the plant’ s closure.
‘ It’ s one of the smallest generating nuclear plants in America’¦ and it’ s a tough business to be in right now because of natural gas prices,’ Shumlin said. ‘ I just continue to hope that the economics will work in our favor. If not, I hope that the second circuit (court of appeals) and the Public Service Board will work in our favor. It’ s well past time to shut down that aging ‘¦ nuclear power plant.’
The NRC’ s inquiry into Vermont Yankee’ s finances comes one month after the Swiss financial services firm UBS Securities downgraded Entergy’ s stock from ‘ neutral’ to ‘ sell.’
UBS released a report earlier this year that suggested Entergy could improve its financial outlook if it closed Vermont Yankee.
But as Vermont Business Magazine first reported, Entergy went ahead with its planned refueling on schedule in March. A Vermont Yankee official told VBM that the refueling would keep the plant operating for another 18 months, or until the fall of 2014. The last time the plant was refueled, the pricetag was estimated at upwards of $100 million, between the cost of the enriched uranium, the installation and the maintenance that is typically done when the plant is shut down for refueling.
UBS, the global financial services firm based in Switzerland, had suggested in early February that Vermont Yankee owner Entergy might shut the plant down this year, because it isn’ t generating enough cash. In short, it might be cheaper for Entergy to close it rather than keep it open.
What the NRC is suggesting now is that the plant might not be financially viable enough to cover the cost of safely operating the 605 megawatt plant.
UBS had said that the Vermont Yankee nuclear plant and other older plants in the Entergy fleet, such as New York Fitzpatrick and Indian Point, 40 miles up the Hudson River from New York City, could become burdens to Entergy in the next few years. Already, Entergy has taken a charge on earnings against the uncertainty of Vermont Yankee’ s future. UBS suggested that shareholders may not be happy with a continued drain on the value of their company.
On February 14, UBS Securities downgraded Entergy Corp’ s stock from ‘ neutral’ to ‘ sell.’ Following that report, its stock price, which had been down the last six months, fell a few points lower to its 52-week low of $61.09 (the high of $74.50 was reached last summer). It closed March 21 at $62.92 down $1.05 for the day.
In its fiscal 2012 annual report, Entergy stated: asset impairment ($1.26 per share) of the Vermont Yankee nuclear power plant recorded in the first quarter of the current year contributed to the as-reported decrease.’ Entergy finished the year with earnings of $4.76 per share versus $7.55 per share in 2011.
Julien Dumoulin-Smith of UBS Securities LLC said January 4 in a report that, "We believe both its New York Fitzpatrick and Vermont Yankee plants are at risk of retirement given their small size." He questioned whether operating such plants at a loss made sense. UBS has said that Vermont Yankee is the most ‘ tenuously positioned plant.’
After Vermont Yankee committed to refueling that plant, Dumoulin-Smith told Vermont Business Magazine in February that he wouldn't speculate on why Entergy decided to refuel Yankee, but said, ‘ It’ s clear that management has committed to operate the plant at a cash negative.’
VBM Editor Timothy McQuiston contributed to this report.