The Pilgrim Nuclear Power Station was already facing rising costs, declining revenues, and an energy market increasingly inhospitable to nuclear power. And then the federal Nuclear Regulatory Commission delivered some really bad news.
The commission this month downgraded the safety rating of the 43-year-old plant in Plymouth, which it now rates as one of the three least-safe units among the nation’s 99 reactors.
The multimillion-dollar repairs now required could deal a death blow to Pilgrim, and in so doing, inflict significant damage to the state’s effort to cut its carbon emissions — an effort that now relies heavily on nuclear power.
Entergy Corp., the conglomerate that owns Pilgrim, is now grappling with whether to invest in the needed repairs at a time when analysts are questioning its ability to continue operating its beleaguered nuclear plants across the country.
A report by UBS AG this week estimated that Pilgrim is slated to lose $25 million this year and about $60 million during the next four years.
“The magnitude of the losses is unpalatable,” said Julien Dumoulin-Smith, one of the authors of the investment bank’s report, which noted that Entergy’s stock has fallen 30 percent this year and advised investors to sell. “Wall Street is demanding better.”
Entergy officials acknowledge the problems facing Pilgrim and expect to make a decision about its future in coming months. The plant was refueled last spring, had its license renewed three years ago, and can continue operating until 2032, as long as regulators deem it safe.
Company officials say they have invested more than $500 million in safety upgrades, reliability enhancements, and maintenance since they bought Pilgrim in 1999. But the business climate is tough.
“We’re getting the lowest amount of revenue we’ve ever gotten at a time we’re experiencing increased costs,” said Mike Twomey, vice president of external affairs for Entergy’s division of merchant nuclear reactors, which includes five plants where rates are subject to market forces, not set by government. “If your revenues are flat or declining, and your costs are going up, that’s not a positive trend.”
The authors of the UBS report, “The Nuke Retirements are Coming,” offered what they called a “sobering view” of the future of nuclear power. They suggested that retiring plants may be the best way Entergy can offset the “twin headwinds” of cheaper natural gas and increasing amounts of renewable energy.
Pilgrim operates in an unregulated market in which it is subject to competition from other energy sources. As a result, the plant has suffered in recent years as the rise of hydraulic fracturing in the United States has brought an influx of cheap natural gas to the region.
Many of the company’s other power plants, including their two nuclear reactors in Arkansas, which share Pilgrim’s low safety rating, operate in regulated markets that allow the company to recover its costs from ratepayers.
Those valuable advantages have led Entergy to commit at least $85 million just to prepare the Arkansas plant for rigorous inspections by federal nuclear officials, company officials said. They expect to pay significantly more to cover the costs of required repairs and reforms.
Entergy doesn’t release financial information about its individual plants, but in the most recent quarter, the company posted a $3.5 million loss for its merchant nuclear facilities. Entergy tried to unload the five plants in that division into a separate company, but that was rejected in 2010 by regulators in New York, who were concerned the new firm would carry too much debt.
The UBS report also cited the challenges Entergy — a Louisiana-based company with more than $12 billion in revenue, 13,000 employees, and 2.8 million utility customers in the South — is facing at its other merchant nuclear plants.
Company officials have said they will decide by the end of the year whether to shutter the James A. FitzPatrick plant in Oswego, N.Y., which faces many of the same economic problems as Pilgrim. Their Palisades plant in Covert, Mich., is also more than 40 years old, has faced a similar spate of unplanned shutdowns, and has been undergoing expensive federal inspections. Its reactor vessel has been prone to cracking.
Elsewhere, Entergy has been waging a protracted legal battle in New York to renew its licenses to run the aging reactors at its Indian Point plant in Buchanan, NY. One expired two years ago but is still operating; the other is set to expire in December.
“Bottom line, we don’t have confidence a turnaround is imminent,” the UBS analysts wrote. “We suspect the bulk of nearly all merchant nuclear units remain at risk.”
Since 2008, when cheap natural gas began flowing in significant amounts to New England, the price of wholesale electricity has plummeted. Prices rebounded last winter as a result of the cold and constraints on the region’s supply of natural gas, but wholesale electricity prices were still more than 20 percent below 2008 levels.
Entergy wants the state and officials who administer the region’s electrical grid to consider subsidies or other incentives for Pilgrim to continue operating.
“It’s like they’re taking for granted that we’re going to always be here,” Twomey said.
In addition to providing an average of about 5 percent of the region’s energy, the 680-megawatt plant accounts for about 84 percent of the state’s non-carbon emitting energy, he said.
Closing Pilgrim, which employs 600 people and provides Plymouth more than $10 million a year and other financial benefits, could make it significantly harder to meet the state’s goals of cutting its carbon emissions 25 percent below 1990 levels by 2020 and 80 percent below by 2050.
Twomey said the region’s emissions spiked after Entergy last year closed its Vermont Yankee nuclear plant. (The company cited declining wholesale electricity prices and increasing regulatory costs for its closure.) In the first two months of this year, he said, the region’s carbon emissions were 20 percent higher than in the same period in 2013.
“We’re heading down a path that will lead you to more dependence on natural gas and oil,” Twomey said. “Wind and solar won’t replace them, as a matter of fact. That needs to be part of the conversation, instead of pretending it’s not.”
Renewable energy accounts for only about 2 percent of the state’s energy.
State energy officials said they haven’t spoken to Entergy about providing subsidies or incentives to keep Pilgrim operating.
“We look forward to working with Pilgrim and Entergy to ensure that they meet all safety requirements,” said Katie Gronendyke, a spokeswoman for state executive office of energy and environmental affairs, adding that the plant “plays a significant role in the state’s efforts to achieve a more diverse energy portfolio.”
But some state lawmakers are pushing bills that would add about $55 million to Entergy’s annual expenses. One bill would impose a roughly $30 million charge for the plant’s 3,000 spent fuel bundles; another would require Pilgrim to make a $25 million annual payment to its plant decommissioning fund.
Entergy officials say they have already set aside $900 million for the eventual decommissioning of Pilgrim.
Tim Judson, executive director of the Nuclear Information and Resource Service in Washington, an advocacy group that opposes nuclear power, urged state officials to focus on the longer term.
“The reality is the closure of Pilgrim will free up space on the grid for renewable energy to take over,” he said. “It’s a canard to focus on what happens a year or two after a plant closes.”
The more pressing concern is whether Entergy is willing to pay the costs of improving the plant’s safety performance, others said.
Entergy officials have six months to present the NRC with a detailed plan. Commission officials will then send teams of inspectors to the plant to review the causes of the unplanned shutdowns during the past three years and to determine whether equipment needs to be replaced, among other changes.
Entergy will have to pay for the inspections, which alone will cost nearly $2 million.
“Entergy must prove and NRC must verify that there are sufficient financial resources to operate Pilgrim,” said Senator Edward J. Markey in a statement. “I have deep concerns that Entergy has not dedicated the resources, manpower, and training to guarantee the safe and secure operation of Pilgrim.”David Abel can be reached at email@example.com. Follow him on Twitter @davabel.