Entergy Adjusting Its Electricity Production Portfolio

Leo Denault

Leo Denault

Entergy Chairman and CEO, Leo Denault, has stated that: "The decision to close the merchant nuclear plants was a difficult one, driven by adverse economics, not operating or employee issues."

Denault is outlining growth plans for Entergy's utility segment and a smaller footprint at Entergy Wholesale Commodities (EWC), the home of merchant nuclear plants.

Denault said Entergy will seek to boost reliability, maintain low costs for customers and improve customer satisfaction. He said four stakeholder groups all need to have sustainable value -- shareholders, customers, employees and communities.

In January, the company reached a deal with New York officials to close Indian Point's 1,028-MW Unit 1 by April 2020, and 1,041-MW Unit 2 a year later. New York City gets 25% of its power from the Buchanan-based plant.  The plant will run for several more years to allow New York to replace this important generation resource, but a replacement power source has not yet been identified.

Indian Point supports itself.  It provides a clean source of energy, is a reliable source of power and critical to the financial health of surrounding communities through employment and property taxes.

Entergy has a small window to decide to extend the operation of its 2,069-MW Indian Point nuclear plant in New York if the state has not found suitable replacement power by the time the merchant facility is targeted for retirement in 2021.  Entergy will need to know by the second half of 2018 if the plant's operation should be extended to perhaps to 2024 or 2025. If so, Entergy most likely would want to negotiate a power purchase agreement with the state.

The New Orleans-based company is moving ahead with its strategy to close or sell ts merchant nuclear generation fleet.  Entergy is preparing to close its 811-MW Palisades nuclear plant in Michigan in 2018 and its 688-MW Pilgrim nuclear plant in Massachusetts in 2019.

Later this year, probably in the second quarter, Entergy expects to close on the sale to Chicago-based Exelon, the nation's largest nuclear generator, of its 838-MW James A. FitzPatrick nuclear plant in upstate New York, . Exelon agreed to pay $100 million, including assumption of certain liabilities, plus $10 million in non-refundable fees for FitzPatrick.

Entergy Strategy on Their Portfolio Adjustment

Entergy is transforming its portfolio by replacing some of the merchant generation.   The company is adding more natural gas and renewables to its generation mix.

In late January, Entergy broke ground for the 980-MW St. Charles Power Station, a combined-cycle natural gas plant in Montz, Louisiana. The $869 million facility is scheduled for commercial operation in June 2019.

Entergy is wrapping up permitting and other activities on several other combined-cycle gas plants including 994-MW, $872 million Lake Charles in Louisiana and 993-MW, $937 million Montgomery County Power Station in Texas. They are set for commercial operation in June 2020 and the summer of 2021, respectively.  Entergy also is pursuing the 226-MW, $216 million New Orleans Power Station, a gas-fired combustion turbine project.

Overall, Entergy plans to spend about $10.4 billion from 2017-2019 on its multi-state generation, transmission and distribution system.

The company posted a loss of $1.77 billion, or $9.88/share, in the fourth quarter, reversing a $99.6 million, or 56 cents/share, profit a year ago, largely because of an impairment related to its merchant nuclear plants. Q4 utility revenue was $1.42 billion in the latest quarter, compared with $1.81 billion in Q4 2015.

The strategy is attractive because regulated spending offers a path to a secure rate of return, while many U.S. reactors in competitive markets are struggling amid low natural gas and power prices.

Entergy already shut a nuclear plant in Vermont and plans to shutter two others in the years ahead -- one in New York and one in Massachusetts. Entergy said it is seeking to reduce the risk and volatility in the EWC business.

In terms of non-utility nuclear generation, Entergy is slated to have just the Indian Point station in New York and the Palisades plant in Michigan in a few years. And Palisades has a contract with a utility for a number of years, tamping down worries of volatility.

A couple of years ago EWC accounted for about 35 percent of Entergy's earnings using a certain metric. It's now about 15 percent and may hit less than 5 percent in 2018, and by 2020, roughly all of Entergy's earnings could be from the utility segment.

According to Denault:

There's a roughly $16 billion utility capital program on tap over several years for items such as modernizing the fleet and meeting environmental and reliability requirements. Much of the expected spending is in generation and transmission, and spending in 2018 and beyond could include investments in the distribution or "integrated energy" network. Being an integrated utility means Entergy can invest across the entire footprint from renewables to advanced meters to self-healing networks.  Energy efficiency programs could be expanded. Entergy is pushing ahead with advanced meters, with deployments possibly starting in 2019. Entergy also is exploring potential gas reserve investments associated with its utilities in Louisiana and Mississippi. On the nuclear side, nuclear generation in the utility fleet aids fuel diversity in a time of widespread natural gas use. Nuclear also offers environmental benefits given a lack of emissions. Investments could sustain or help extend the lives of certain plants.

Entergy's core utility business, which operates in parts of Arkansas, Louisiana, Mississippi and Texas. could rise at a clip of roughly 5 to 7 percent a year.  The plan, as Entergy tells it, includes investing in a more modernized grid as customer demands evolve, with regulatory support to recover investments.

Entergy serves 2.9 million utility customers in Arkansas, Louisiana, Mississippi and Texas.

(Platts S&P Global, 2/15/2017, E&E News, 6/10/2016)