How will Entergy's closure of its Vermont Yankee nuclear facility affect energy markets in New England? During today's OnPoint, Bill Mohl, president of Entergy Wholesale Commodities, discusses his company's rationale behind closing the nuclear station and its future strategy for nuclear investments. Mohl talks about Entergy's plans for the decommissioning of Vermont Yankee, including the "safe store" option. He also discusses the state of the Northeast energy market.
Monica Trauzzi: Hello and welcome to OnPoint. I'm Monica Trauzzi. Joining me today is Bill Mohl, president of Entergy Wholesale Commodities. Bill, thanks for joining me.
Bill Mohl: Thank you very much for the opportunity, Monica.
Monica Trauzzi: Bill, the big news coming out Entergy last month of course was the closure of your Vermont Yankee nuclear facility. What was the rationale behind closing a plant that provides such a critical supply of energy to New England?
Bill Mohl: Well, it's really three key things. The first was what we've seen is just lower overall natural gas prices that have contributed to lower energy prices in the market. We've seen increasing costs associated with cumulative regulation of nuclear facilities, and, lastly, we've seen low market prices as it relates to the power markets that that unit participates in. So we believe there are clearly some market design flaws. So Monica, it was very simply put. It was costs exceed revenues as we looked at it in the long run, and made the plant not financially viable.
Monica Trauzzi: So following the announcement, the U.S. Energy Information Administration released an analysis of the impacts of the closure on New England, and they said that energy markets in the Northeast would be challenged by your company's move. How would you qualify the state of northeast energy markets?
Bill Mohl: Well, the bottom line is we don't think those markets are sustainable in the long run, and that the overall market design needs to be revisited to ensure that you've got a balance portfolio as you go forward. You don't want an over-reliance on any type of single fuel or any single technology, and clearly New England has shown some vulnerability as it relates so that even if you look back at what happened this last winter.
Monica Trauzzi: And what technology specifically do you believe that there is reliance on, or that they are heading in the direction of? I know we have natural gas, renewable…
Bill Mohl: Right. It's really, the over-reliance appears to be on the natural gas side. Approximately 50 percent or more of their total power requirements are met by natural gas. And while natural gas is an abundant resource, and currently it's very cheap, you have to be very careful as you plan a power supply portfolio to make sure that you've got a balanced supply of resources to make sure you can ensure reliability, to ensure it's environmentally sustainable, and to ensure that it's economically sustainable both for customers and investors.
Monica Trauzzi: This is the fourth nuclear plant retirement announced this year. The timing was also quite interesting because it came just a few weeks after you won a long-fought court case. Why did you continue to fight that case if you knew that ultimately this facility would be closing down?
Bill Mohl: It's a great question. You know, as you can appreciate, business conditions are dynamic. And so we have, I believe, done a very good job of defending our possession of being able to operate the Vermont Yankee facility. We have been through a number of different cases of litigation, and those have been ongoing. We simply got to the point, Monica, where we looked at the financial viability of that asset, and as we looked, we said in the foreseeable future, costs are going to exceed revenues. It doesn't make sense to continue to operate that plant, but we still intend to operate our larger nuclear portfolio because we think nuclear is a key component to the nation's energy supply.
Monica Trauzzi: So the issue here then, if I understand it correctly, is that the problem is with this region specifically. I mean has you, has Entergy's view on nuclear shifted, at all, and how do you plan to handle your other facilities?
Bill Mohl: We still remain committed to nuclear generation as part of our portfolio. We operate two distinct businesses. We have a regulated utility business in the south that has nuclear generation; we have our merchant portfolio in the Northeast. I think I've been pretty clear that a number of our plants in the Northeast, the single unit boiling water reactors, which would include Vermont, Pilgrim, and FitzPatrick, have all been challenged in these market conditions. You have to keep in mind VY, Vermont Yankee, is the smallest of those facilities, had the least economies of scale, and was pretty clear it wasn't financially viable. At our other facilities, we are working to take steps to be more efficient, and also work with the markets to improve market design in the long run, similar to what we did in New York with the lower Hudson Valley.
Monica Trauzzi: So should we expect those other facilities to stay open?
Bill Mohl: We currently have not made any decision to shut down any of our other merchant nuclear facilities.
Monica Trauzzi: What does the nuclear industry need to do to stay competitive and relevant, especially against those low natural gas prices?
Bill Mohl: Well, a couple of things. The bottom line, the foundation for that business is you have to have safe and reliable operations. So you've got to operate efficiently. What we are also promoting within the industry is that when we look at steps that have be taken to improve these facilities, or address issues such as Fukushima, that any of those steps or any of those upgrades be analyzed on a cost benefit basis to make sure that we're taking the most efficient steps to address the issues and the risks that need to be addressed to maintain safety to the public.
Monica Trauzzi: Natural gas prices could very well go up in the near future. Why not wait it out? And are you sort of opening the door to some other companies to make big profits down the line from nuclear?
Bill Mohl: Well, you know, we look at that very closely. And our point of view is that we are going to see sustained lower natural gas prices into the foreseeable future, so we took that into consideration as we made this decision. Between lower natural gas prices, we see no immediate actions taken on a national carbon policy, which also nuclear units benefit tremendously because of their zero emitting resources, and market design, we made the decision to shut the facility.
Monica Trauzzi: I want to talk about the actual decommissioning process. You've indicated, Entergy has indicated you'd like to put the plant in safe store, but there is serious opposition to that, including from members of Congress. Why wouldn't you try to decommission the plant as quickly as possible?
Bill Mohl: Well, it's a fair question. When we bought that plant, we clearly got approval from the state to use the safe store option. Really, it's very difficult to address that question in general until we complete a site-specific study. So the next step that we will take as we, you know, we are going to work through the ramp down of that facility through the end of 2014, shut down the facility. In a parallel path, we're going to be looking at a detailed site analysis of what it really takes to decommission. Right now, we have some estimates, but we really need a more comprehensive site study. Until we have the results of that study, we understand what the costs are, some of the timing issues. We really can't say exactly how this process will work. But what we have said is that we're maintaining safe store as an option.
Monica Trauzzi: Should the Vermont Yankee closure be viewed as a win for anti-nuclear activists?
Bill Mohl: You know, I certainly hope not. I know a lot of folks are taking credit for that. You know, I really think if you take a step back though and you think about the value that nuclear generation provides to the nation's power supply portfolio, we're going to regret that these type of facilities shut down in the long run.
Monica Trauzzi: All right. We're going to end it right there. Thank you for time. Thanks for coming on the show.
Bill Mohl: Thank you very much, Monica.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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