Low Energy Prices Prompt Entergy to Pull Plug on Pilgrim Plant

PLYMOUTH, MA—Lower energy prices, a flawed wholesale energy market and some onerous regulatory proposals were some of the factors that led New Orleans-based Entergy Corp. to decide to close its Pilgrim Nuclear Power Station here by no later than June 1, 2019.

The nuclear power plant, which first went into operation in 1972, generates 680 megawatts of electricity, enough to power more than 600,000 homes. Entergy acquired Pilgrim in 1999.

Leo Denault, Entergy's chairman and CEO, said the decision announced on Tuesday to notify the Independent Service Operator New England of its intent to shutter the plant was “incredibly difficult” due to its impact on its more than 600 workers and the economic impact the closure will have on affected communities. However, he said, “market conditions and increased costs led us to reluctantly conclude that we had no option other than to shut down the plant."

The decision to close the plant comes less than five months after Entergy completed a $70-million investment to upgrade, replace, overhaul and inspect hundreds of pieces of equipment. Control room operators at the plant reconnected Pilgrim to the grid in late May after a 35-day planned shutdown to renew components and refuel the reactor.

A company spokesman tells Globest.com that the key drivers in its Pilgrim plant closure decision were revenue challenges due to lower natural gas prices, along with ongoing issues with a poorly designed wholesale market. Those factors contributed to make Pilgrim “not economically viable.”

A lesser factor was the recent decision by the Nuclear Regulatory Commission to place Pilgrim in Column 4 of the Reactor Oversight Process Action Matrix and mandate additional oversight of the Pilgrim plant that is expected to add millions of dollars to the plant's operational costs.

Entergy estimates that current and forecast power prices have fallen by approximately $10 per megawatt hour, resulting in an annual loss of more than $40 million in revenue for the Pilgrim nuclear plant.

The company states the preliminary estimate of direct costs of the plant's response to planned NRC enhanced inspections ranges from $45 million to $60 million in pre-tax operational and maintenance expense. That estimate does not include any potential capital investment or other costs to address issues that may arise in the NRC inspections, the company notes. Prior to its decision to shut down the Pilgrim plant, Entergy estimated that the plant was expected to incur annual after-tax net operational losses ranging from approximately $10 million to $30 million for 2015, 2016 and 2017.

After the plant's shutdown, Pilgrim will transition to decommissioning the plant. The Pilgrim nuclear decommissioning trust had a balance of approximately $870 million as of Sept. 30, 2015, which was $240 million above NRC mandated levels of financial assurance for license termination activities. A Pilgrim spokesman says it is premature to discuss the possible decommission cost or the timeline for the project to be completed.

Entergy officials are also studying the possible closure of the James A. FitzPatrick Nuclear Power Plant in Oswego, NY. The company states that it intends to make a decision by the end of this month on whether to refuel the 800-megawatt nuclear plant.

Massachusetts Gov. Charlie Baker in a prepared statement said that his administration will work with Entergy and the ISO to make sure the closure is managed as safely as possible. “Losing Pilgrim as a significant power generator not only poses a potential energy shortage, but also highlights the need for clean, reliable, affordable energy proposals which my administration has put forward through legislation to deliver affordable hydroelectricity and Class-I renewable resources,” he said. “The closure of Pilgrim will be a significant loss of carbon-free electricity generation and will offset progress Massachusetts has made in achieving the 2020 greenhouse gas emission reduction goals, making it more challenging to hit these targets.”

ISO New England, in response to Entergy's Pilgrim closure request, notes that Energy retired its 620-megawatt Vermont Yankee Nuclear Power Plant in December 2014. The ISO reports that in 2014 nuclear power generated 34% of the power generated in New England, while natural gas had a 44% market share. The other nuclear power plants in New England are the Millstone Power Station 2 (884 megawatts) and the Millstone Power Station 3 (1,227 megawatts) in Waterford, CT and the Seabrook Station (1,295 megawatts) in Seabrook, NH.

The market forces that fueled Entergy's decision on the Pilgrim plant are pushing other older energy generators toward retirement, according to the ISO. “Even before Pilgrim's announcement, more than 3,500 megawatts, or approximately 10% of New England's generation, has recently retired,” the ISO New England states. The Pilgrim plant closure will raise the recent and pending plant retirements in New England to 4,200 megawatts by June 1, 2019. The ISO states that there are 11,000 megawatts of proposed new generation facilities—two third will use natural gas and most of the rest would utilize wind to generate power.