UBS: Despite ratepayer subsidies, closing Palisades early "could save money for Entergy and also for CMS consumers"

As reported by ElectricityPolicy.com:

UBS reported to clients last week on its latest conference call with the Nuclear Energy Institute to discuss the latest industry plan to bring costs back down to the 2002 level of $28/MWh by 2020, leveraging reductions on capital expenditures (capex), O&M, and nuclear fuel. UBS characterized the goals as aggressive, which many investors view with “justifiable skepticism.”  It noted that capex of almost ~$11B in 2012 could be high, as many plants were transitioning from 40- to 60-year timeframes and upgrading pricy steam generators and reactor vessel heads. O&M, it said, remains an area for significant improvement. It opined that declining nuclear costs will be a key upside driver for the likes of Exelon, PSEG, Entergy, NRG, and Talen, among others. A declining cost trend would benefit regulated portfolios as well, including Dominion, Duke Energy, NextEra, Southern, and SCANA. The bank analysts also focused on Michigan, where Palisades, Entergy’s remaining—and costly—single-unit plant, “continues to run with an above-market contract (in the 40's/MWh) with Consumers Energy. It said closing the unit early could save money for Entergy and also for CMS consumers.” With power prices across much of the country “now trending below $30/MWh—and capacity contributing an additional $5-10/MWh,” it said the implicit value of carbon “remains the key ‘discrepancy’ in justifying the economics of these plants.”  April 15, 2016 (emphasis added)

See the full UBS report, linked here.

It should be noted that, although the previous owner of the Palisades atomic reactor, Consumers Energy, had testified to the Michigan Public Service Commission in spring 2006 that reactor pressure vessel embrittlement concerns needed to be addressed at Palisades, and the reactor lid and steam generators needed to be replaced, none of these have happened since Entergy took ownership in 2007. (CMS is the parent company for Consumers Energy.) Thus, Palisades' woeful uncompetitiveness, and inability to turn a profit, has nothing to do with "upgrading pricy steam generators and reactor vessel heads," as reported above.

The U.S. Nuclear Regulatory Commission (NRC) is complicit, in not requiring Entergy to make these previously promised major repairs and replacements at Palisades.

A year after the Fukushima Daiichi nuclear catastrophe began, the Japanese Parliament's independent investigation into the root cause determined that collusion between regulator, nuclear utility, and government officials was the reason why the reactors were so vulnerable to the natural disasters that melted them down. Such collusion exists in spades at Palisades, between NRC, Entergy, and such government officials as Fred Upton, Chairman of the U.S. House Energy and Commerce Committee. Palisades -- as well as American Electric Power's Cook nuclear power plant, with two reactors -- is located in Rep. Upton's (R-MI) congressional district. Entergy has been a significant campaign contributor.

Tim Judson, Executive Director at Nuclear Information and Resource Service (NIRS), upon reviewing the UBS analysis, as well as the relevant 2007 Michigan Public Service Commission documents, commented:

“Looks to me like the prices in the contract are structured like those for Ginna and Nine Mile Point [nuclear plants in Upstate New York]. There is a base price that is adjusted by monthly and time-of-day factors. The adjustment factors average out to about 1.10 over the whole year. So the average price Entergy will be paid for Palisades’ power this year is 1.10 x $52.50/MWh [Megawatt-hour] = $57.75/MWh. That is by far the highest price PPA [Power Purchase Agreement] I've seen (I guess we knew that much). But if Palisades is losing money at that price that means to break-even, the operating cost has to be at least $60/MWh. Entergy cuts so many costs at their reactors, that means something is seriously out of whack (which we knew).” (emphasis added)

Thus, despite a sweetheart deal blessed by the Michigan Public Service Commission in 2007, locking in above-market prices for Palisades' electricity for 15 years, till 2022, Entergy's problem-plagued atomic reactor is nonetheless losing money, and starkly uncompetitive compared to market rates.

Such "public service" is akin to the MI PSC "serving the public," up for dinner, to Entergy and Consumers Energy.

Regional ratepayers have been forced to pay significantly higher electric rates than the free market would require, in order to fund ever increasing safety risks at the age-degraded Palisades atomic reactor. Apparently, the overriding priority for "the powers that be," including Entergy and Consumers Energy, as well as the Michigan Public Service Commission, is to pad the pockets of nuclear utility shareholders and executives, at ratepayer expense, and public risk. In this sense, the public is being asked to fund, at exorbitant rates, many more years of "radioactive Russian roulette" at Palisades.

In July 2013, Dr. Mark Cooper of Vermont Law School -- based in part of UBS, and other investment firms' analyses -- included Palisades in his short list of a dozen atomic reactors across the U.S. at highest risk of near-term, permanent shutdown, due to a variety of reasons: economic factors such as cost, its old age, its merchant plant status, and that is has less than 25 years of operations left, despite its license extension; operational factors, such as long term outages; and multiple safety issues.

UBS's and Cooper's previous predictions have proved correct, as with the permanent shutdown at Entergy's Vermont Yankee reator in Dec. 2014, as well as the impending shutdowns at Entergy's FitzPatrick reactor in NY in Jan. 2017, and Entergy's Pilgrim reactor near Boston in May 2019 (or hopefully sooner).