A flawed market design and the fall of natural gas prices are among the contributors nuclear power facility owners cite when prematurely closing facilities. That has been no different with Entergy, a power company that announced the closures of three plants in 2014-15: Vermont Yankee, FitzPatrick, and Pilgrim.
Consensus from the surrounding communities over the value of these plants isn’t always the same. In New York, officials have made repeated attempts to save the FitzPatrick, which provides 600 jobs to the community and 16 percent of the state’s energy. Despite the steady flow of offers involving clean energy initiatives and nuclear tax credits, Entergy has remained firm that it’s too late to save the plant.
There is no “clarity in what the [state’s] plan is,” according to Steven Scheurich, Entergy’s vice president of nuclear decommissioning, “so that you can even formulate what the quantification is, and we’ve made a decision to shut down based on a lot of factors that go into the economics of a shutdown and the ability to sustain a level of economic productivity over the life of a unit, and the gap’s just too large.”
The company’s Entergy Nuclear subsidiary owns, operates, and manages 11 nuclear reactors at nine U.S. locations. In addition to the three closed or closing sites, the company oversees Arkansas Nuclear One, Grand Gulf, River Bend, Waterford 3, Indian Point, Palisades, and Cooper.
Scheurich spoke with RadWaste Monitor recently and discussed market forces that play into unplanned shutdowns and the future of the nuclear industry. He was joined by company spokesman Marty Cohn.
Why is nuclear energy important?
Scheurich: Fuel diversity is critical. It’s our energy security of the nation, and nuclear plays a big role in that from a public perspective. The reliability, the capacity, functionality of nuclear energy, and the predictability of the unit’s availability. And also the role that nuclear plays in clean energy is critical to our nation’s environmental aspirations. As you know, nuclear provides near-zero emissions and is also relied upon for as a highly reliable unit to provide energy in the market meeting customer needs.
Speaking of the market, does the current market offer enough incentive for nuclear?
Scheurich: As you know there are some regulated areas of the nation that have base mechanisms that provide compensation based on the cost. We now have four (operating units) in the northeast, and we’ve announced shutdowns. We’ll have Indian Point plant, Palisades plant operational beyond 2019, and those operate in what we call merchant markets. They’re not in a regulated environment – retail rate-based mechanisms, so obviously the economics in those areas have been very tough. The markets are flawed. They tend to not adequately recognize or compensate nuclear generators for their benefits, but they provide for the area, such as diversity and fuel and the climate-related advantages that I mentioned earlier.
If the market remains unchanged, what’s America’s nuclear industry going to look like in 20 years or 50 years?
Scheurich: If it remains unchanged, you’re going to continue to see nuclear facilities struggle. There are multiple factors that cause nuclear reactors in merchant areas to struggle. The market flaws are one. The cost structure is another area. The decline in natural gas prices has been a big blow to the area, and that has impacted the nation … positively for consumers, right? Because the bills at the pump and their gas bills for heating at home have gone down dramatically, but there are economic implications to that. Over the long run, or even in the near term, there are several nuclear units that are off the margin, you probably read about them in the media, that are struggling in the current structure and the current environment; and if that is sustained over a longer period, you will continue to see nuclear units, especially the smaller units, the single units, struggle and perhaps not survive.
It seems like every week there was some kind of attempt by a New York official to save the James A. FitzPatrick Nuclear Power Plant or keep it in operation. What would it have taken to keep the plant in operation?
Cohn: What it would have taken was an understanding of the financial factors that went into the closure of the plant. All the talk that New York state has said about what they could do really came too late and didn’t address the primary factors for closing. As Steven had mentioned earlier, what we’re talking about is the sustained low current and long wholesale energy prices that were driven by the low natural gas prices, especially due to the plant’s proximity to the Marcellus (Shale) formation, reduced (FitzPatrick’s) revenues. And that wasn’t going to change with what New York state was proposing.
Scheurich: And these numbers have been dated, right? We announced (closure) last year, and the market continues to get worse, not better. But back when we announced FitzPatrick, that we were shutting it down, the current forecast and power prices had declined by about $10 per megawatt hour, due to increased shale gas production. As you may or may not know, that area is in close proximity to that Marcellus (Shale) formation, and there’s a tremendous amount of gas being produced and stored and driving gas prices down, both near and long term. And what that equated to was a loss of more than $60 million in revenues for FitzPatrick. I haven’t seen that figure updated, but I would suspect that that figure has grown to be a bigger number. On the flip side, you’ve seen the state’s (attempt) to interject with some approach to try and stave off the shutdown, but there’s been no clarity in what the plan is, so that you can even formulate what the quantification is, and we’ve made a decision to shut down based on a lot of factors that go into the economics of a shutdown and the ability to sustain a level of economic productivity over the life of a unit, and the gap’s just too large.
At the Vermont Yankee Nuclear Power Plant, was it a similar situation, or how was it different?
Scheurich: It’s very similar, although the state part of it was different. For Vermont Yankee or FitzPatrick or (the) Pilgrim (Nuclear Power Station), it’s all driven by financial factors, not operational factors. When you look at the history of nuclear plant closures in the U.S., if you think about it broadly there are three reasons why a nuclear unit can shut down. It can come to the end of its useful life, which I’m not aware of any that fall into that bucket. Then you have catastrophic failures, and those failures can either be mechanical, naturally occurring mechanical errors, or human error, and there are a few of those in the U.S. And then you have a handful that are economic and financial factors. Our three units fall into that last category. There were no operational issues with those plants.
As far as Pilgrim goes, how has Entergy responded to the increased oversight and the current process with the NRC?
Scheurich: On the operations side of the business, we’ve been working very closely with the NRC. We’ve got plans, very proactive plans, in place and milestones and inspections, and we’ve got resources dedicated to addressing the issues. And having clear and transparent lines of communications the NRC and the public and our stakeholders. I don’t have the specifics, but it’s a high priority for us.
Currently, are there any other Entergy plants that are in danger of shutdown?
Scheurich: We are always assessing our fleet. We constantly assess the economics of our fleet, and that’s how we came to the difficult decision for Vermont Yankee. Following that a year and a half or so later, we had the announcements of Pilgrim and FitzPatrick, and so we continually operate. How do you get to the decision to shut down a nuclear facility? So one area we talked about is the current, low wholesale power market. … And then you have the flawed market design, which doesn’t recognize or adequately compensate nuclear generators for the benefits they provide, and then the third is cost structure of a single-unit facility. … The final aspect that you have to factor in are locational constraints. Can you move your power around efficiently, cost-efficiently, so that you can sell in areas where there’s higher demand?
Is there anything else you would like to add?
Scheurich: The only other thing I’ll mention is … the (NRC) milestone approach to decommissioning a unit is very predictable. In other words, when you shut down, your risk profile goes down. When you get all the fuel on the pad, your risk profile goes down. There are other milestones in there, but I think you get the picture. Right now the NRC has a process by which all nuclear operators follow when you’re decommissioning, but the process tends to be a little bit inefficient, would be the polite way to put it. But it’s predictable, and so there’s value in the process, but the NRC has issued what they call an advanced notice for public input for a rulemaking. That is a big deal for decommissioning because the more efficient you can make the process while keeping it predictable improves the overall success and ensures the optimization of the trust funds that you have set aside to decommission these plants, so it is very important. And we’re actively engaged in the process. Entergy is very active with the (Nuclear Energy Institute), and rest of the industry and driving change in the rest of the industry with these objectives.
Has Entergy submitted any public comments for the NRC decommissioning rulemaking, or are you planning on it?
Scheurich: We have been working with NEI. There is an NEI steering committee, and we’re very active in the steering committee. I’ve been to D.C. and spoke at the public meetings last year. We’re preparing responses in conjunction with NEI, and we’ll likely provide our own comments, but we’re still assessing that.
