By Tom Kleckner

Citing market conditions that have changed “substantially” and the availability of “more economic alternatives,” Entergy announced Thursday it intends to shut down its Palisades nuclear plant on Oct. 1, 2018.

Entergy said a power purchase agreement between the plant, located in Covert Township, Mich., and Consumers Energy would be terminated four years early in 2018. Consumers will pay Entergy $172 million for terminating the PPA. According to Entergy, the termination will also save Consumers customers $172 million in costs over four years.

The companies entered the 15-year PPA in 2007, when Entergy bought the plant from Consumers parent CMS Energy for $380 million. However, the agreement’s prices exceed market prices and escalate each year, reaching $61.50/MWh in 2022.

“We determined that a shutdown in 2018 is prudent when comparing the transaction to the business risks of continued operation,” Entergy CEO Leo Denault said in a press release.

In its most recent 10Q, Entergy said the “fair value of the Palisades plant would have been, and currently would be, significantly lower in the absence of the power purchase agreement that is scheduled to expire in 2022.” It also pointed to the drop in energy prices in MISO, in which Palisades operates.

The early termination payment “will help assure the plant’s transition from operations to decommissioning,” Entergy said. The plant will be refueled as scheduled next spring and then operate through the end of its fuel cycle.

With Palisades’ closure, Entergy will have only one nuclear generating facility in its Wholesale Commodities business, the 40- and 42-year-old Indian Point units near Manhattan. Like other plants in the portfolio, Palisades is older (1971) and smaller (811 MW) than later-generation nuclear units.

In February, Entergy estimated the plant’s fair value and related long-lived assets at $463 million, compared to a carrying value of $859 million. It said last month the wholesale business lost $13 million in the third quarter as compared to the previous year because of lower-realized wholesale prices.

In recent years, the company has shut down or announced the closure of its Vermont Yankee and Pilgrim plants in New England. And on Wednesday, FERC approved the sale of its James A. FitzPatrick plant in New York to Exelon. (See related story, FERC Approves FitzPatrick Sale to Exelon.)

“Entergy’s strategy is to manage risks by reducing our merchant power market portfolio and invest in the growth of our regulated utility business,” Entergy spokesperson Val Gent said. Entergy still owns five nuclear reactors in the South as part of its utility generating business.

Reaction

The agreement between Entergy and Consumers is subject to regulatory approvals, including the Michigan Public Service Commission, but the announcement quickly drew pushback from elected officials in the state.

State Rep. Aric Nesbitt (R), who chairs the House Committee on Energy Policy and whose southwestern Michigan district is home to Palisades, called Entergy’s announcement a “punch in the stomach” and said it “puts Michigan’s energy future at greater risk.”

“I call on Entergy to reconsider its decision to prematurely close Palisades and work with the state to find a solution to keep Palisades open and producing reliable, emission-free energy,” he said in a press release. “This announcement further threatens Michigan electric reliability after 2018. This is not just a bad decision for our local families, but it is also the wrong decision for Michigan’s energy future. I demand that Entergy reconsider this poorly made decision.”

Gov. Rick Snyder was more subdued. In a statement issued by his office, Snyder said, “I’m certain the Michigan Public Service Commission will look at this very closely and examine the implications for the reliability and affordability of electricity in Michigan, as well as protection of the environment.

“No matter what the eventual decision is, it is important that we do everything to help the region adapt to a potential future without Palisades,” he said.

For its part, MISO will follow its normal confidential process for generator retirements to determine whether Palisades’ absence will jeopardize reliability. The RTO’s Tariff requires companies to notify it at least 26 weeks before the proposed retirement, which then sets the clock on a study evaluating any reliability issues.

Entergy said it expects to recognize an approximately $390 million non-cash impairment charge ($252 million after taxes) in the fourth quarter and another $55 million in relevant charges through the end of 2018.

The corporation’s stock price, which closed Wednesday at $70.44/share, opened the day at $69.88/share before erasing the early drop. Entergy’s share price climbed to $70.55/share by early afternoon.