Naming a potential for consumer savings and the avoidance of business risks, Entergy announced Thursday that it would shutter the Palisades Nuclear Plant in Covert, Michigan, on October 1, 2018, thirteen years before its operating license is set to expire.
The plant was granted an extended operating license in January of 2007, which bumped its closure date from a 40-year run with a closure in 2011 to a 60-year run with a closure in 2031.
Entergy purchased the plant from Michigan's largest utility, Consumers Energy, the principal subsidiary of CMS Energy, which had agreed, in turn, to purchase nearly 100 percent of the plant's electricity through 2022. Now, however, in parallel announcement on Thursday, the companies said they had reached an agreement to call a halt to that contract five years ahead of time.
Palisades will be refueled in the spring of 2017. It will then run through that fuel cycle and close late in 2018, at which point Consumers Energy will pay Entergy $172 million for the right to terminate the purchase agreement.
The companies said that Michigan consumers would save that same amount with the plant closing: $172 million. In addition, Consumers Energy said that there were now cheaper alternatives for purchasing electricity, which did not exist in 2007, when the contract began.
“Since the power purchase contract began in 2007 as a condition of the sale of Palisades from Consumers Energy to Entergy, a number of things have changed,” Consumers Energy said. “Entergy started to reduce its merchant footprint. At the same time, market conditions have changed and less expensive alternatives are now available to provide affordable power to the region,” according to the press statement.
The decision also affects 600 Palisades employees. The companies said that Consumers Energy would contribute $2 million and Entergy $8 million to a fund that would help employees and the Van Buren County region to transition to other economic options. The companies said they would consult with the Council of Michigan Foundations and local stakeholders as they consider how best to deploy the funds. “The process for reviewing requests for funds and distributing them will be announced later, with a focus on sustained economic development that will broaden the community's tax base,” the companies said. In addition, Consumers Energy said it would consider hiring as many as 180 “appropriately skilled” Entergy workers who lose their jobs at Palisades.
Overall, “the transaction is expected to result in $344 million in savings, $172 million of which is expected to lower Consumers Energy customers' costs over the early termination period from 2018 to 2022,” said Entergy. “And $172 of which Consumers Energy will pay to Entergy for early PPA termination.”
Entergy said it will recognize a non-cash impairment charge of approximately $390 million ($252 million after-tax) in the fourth quarter of 2016. In addition to the impairment charge, through the end of 2018 Entergy expects to record additional charges totaling $55 million related to severance and employee retention costs.
The expected changes in cash flow include the payment for early termination of the Consumers Energy contract, an expected contribution to the decommissioning trust fund … and changes in capital expenditures and operating cash flows, Entergy noted.
Regulatory issues could arise. Consumers Energy plans to request approval of the contract termination through the Michigan Public Service Commission. Entergy, in turn, will notify the power grid operator, the Midcontinent Independent System Operator, as well as the Nuclear Regulatory Commission, of its intent to permanently shut down and decommission Palisades.
Entergy's Chairman and Chief Executive Officer Leo Denault called the decision to close the plant “prudent when comparing the transaction to the business risks of continued operation.”