Thursday, August 29, 2013

Questions I Frequently Ask Myself about Vermont Yankee Closure

Well, we have the press release and the FAQs from Entergy.  And we have lots of opinions about Vermont Yankee closing, printed in lots of newspapers.

Here are the questions I ask myself about the closing, and the answers I give myself.

Is Vermont Yankee really closing?

Yes.  They are filing with the NRC to end their license.  This isn't some kind of chess game vis-a-vis the state of Vermont.

Did it have to close?

If Entergy says it has to close, it has to close.  Nobody asked me. Certainly, grid prices were at historic lows in New England last year.  Grid prices feel from an average price of $46 MWh to a price of $36.
From ISO-NE report 


Without underestimating the strain that this implies, I don't think the plant had to close.

Gas Prices and Vermont Yankee

When I look at the Bloomberg article about the plant, Bloomberg says: "The reactor was expected to break even this year, with earnings declining in futures years." Doesn't sound like a crisis to me.  Also, I personally expect higher natural gas prices and higher grid prices in future years, so I think Entergy is betting wrong on this one.  But I don't know the whole story.

I do note that the Entergy stock price barely moved with the announcement (see Bloomberg article above). This means that the stock market isn't expecting a big jump in Entergy profitability from this closure.  It didn't strike me as a plant that needed to close, and the stock market seems to agree with my assessment. If the stock market had thought--wow, they are finally getting rid of that DOG---the Entergy stock price would have jumped.

I hope this is not seen as an attack on Entergy management and their decision, because clearly they have more facts than I do. I don't have all the information they have.

Still,  I have some facts. I definitely have opinions.

So why this announcement right now?

Entergy had to order fuel now for the 2014 refueling. Their forward projections of profitability were negative, and they decided not to refuel in 2014.

Honorably, as soon as they made the decision not to refuel, Entergy informed all and sundry about it.  For most of us (including me) it came as a bolt from the blue, since Entergy had just won their court case, and most of us thought they had every reason to be confident of getting a Certificate of Public Good (CPG)  from the Public Service Board (PSB).

My opinion is that it might have broken the PSB's little heart to give that certificate. (The PSB had so much fun, in my opinion, with holding out to the last minute to grant a CPG for the back-up diesel. The drama!  The grandstanding!) But I thought the PSB would give Vermont Yankee their certificate anyway. As I saw it, the PSB had no legitimate reason to deny a CPG to Vermont Yankee. At least  they had no reason that would stand up in a court of law. So I figured Vermont Yankee would soon be fully approved, CPG in hand.

Therefore Entergy's forward projections of losing money and requirement to close the plant...came as a huge surprise.

So the opponents won?

Not really.  The opponents  didn't win. Entergy was ahead in the confrontation with plant opponents.  The opponents were licked in court, and they knew it.

It's more like the game was called because of rain.

Weren't you just being Pollyanna, Meredith?  Vermont Law School and some rating services were predicting this closure forever.

Yeah, well about those predictions: even a stopped clock is right twice a day.  The plant is still breaking even according to Bloomberg.  I think it was a very tough call for Entergy, not the slam-dunk obvious decision that the opponents claim it was.  And the opponents have been claiming the same thing for years.  According to some of the opponents, solar energy is totally cost-competitive with nuclear.

What happens is what happens, and sometimes it agrees with a prediction, especially if you don't put a time limit on the prediction.

So you expect gas prices to rise, and think Entergy management made a bad call?

Well, sort of.  You know, Entergy listed three reasons they were closing the plant, and I have only talked about the gas price/grid price one.  If that was the overriding reason, yes, I think Entergy made a bad call.

But I don't know enough about the economic consequences of the other reasons.

What were the other reasons?

There were two others reasons listed in Entergy's press release and FAQ:
1) the high cost structure of running a small stand-alone plant,
2) wholesale market design flaws that keep prices artificially low.

So those two were important in the decision, also? Small stand-alone plant and grid market design?  Let's start with the stand-alone plant...

I noted the first reason in a blog post earlier, about the layoffs by the end of the year,  A small plant has higher overhead.  Double-unit plants are intrinsically more cost-effective, which everyone actually knows already. Comparing two Entergy plants, I wrote:
  • Vermont Yankee is 620 MW and employs 650 people.
  • Indian Point (two units) is 2050 MW and employs 1,100 people (from Wikipedia) 
So it is more expensive, per kWh, to run a smaller plant.  That is part of the issue.

What about that wholesale market design flaw reason?  What does that mean?

I have been working on aspects of this for several weeks.  I'm not quite there yet, but...Here are the three factors I have found so far:

1) ISO-NE is now allowing negative bidding.  

This is a change from the past, when the lowest bid was zero (take our power for free).  Now the lowest bid allowed is minus $150 MWh (take our power, and we will pay you up to 15 cents per kWh to take it). I wrote ISO-NE about this several weeks ago, and called them.  I am still unsatisfied with their answer on this (which was off the record, but very polite).

Here's part of my note to ISO-NE (edited, of course):  

This bulletin
says that negative bids will now be allowed, up to minus $150 per MWh.  
ISO also says (various planning documents) that one of ISO's goals is to reduce local dependence on natural gas.
My question is the following:
Won't negative pricing availability hurt baseload plants (coal and nuclear) far more than it will hurt natural gas plants? Won't negative pricing end up giving natural gas a competitive advantage?
The answer was that ISO-NE feel that negative pricing will allow power plants to bid in more rationally, and the decision on what plants run will then be purely economic.  However, base load plants will be losing far more money in times of low demand, which undoubtedly factored into Entergy's decision, looking forward.  

Furthermore, it's even worse.  The wind tends to blow at night, and wind energy gets two types of supplements for its power:  One is a 2.2 cents per kWh production tax credit, and the wind farms can also sell their Renewable Energy Certificates (RECs)  for about 6 cents per kWh.  That's 8 cents per kWh, before they get paid a penny for the actual power.

So when the wind comes up on a spring evening, wind can bid into the market at NEGATIVE 8 cents kWh (-$80 MWh) and basically break even.  Other plants, to underbid wind and get their power on the grid, would lose a lot of money.  In other words, the subsidies for wind are now directly aimed at the ability of baseload plants to function.  

There's more wind in the Midwest, and this problem is more prevalent there. The president of Exelon talked about this issue about baseload plants in a speech a year ago.  Sorry, my friends...this post is too long already. Someone else will have to look up his comments.

2) ISO-NE Offers Financial Support for Oil Generation But Not Nuclear

ISO-NE noticed what happened last winter, when a cold snap meant that gas turbines couldn't come on-line to meet demand because they could not get the gas to run the turbines.  ISO-NE needed fuel diversity for the coming winter.  But what fuel?  Well...how about oil?

Yes, it is true. ISO-NE is paying $78 million to oil-fired generators to have oil available if it is needed in the winter.  Read about it yourself in this ISO Newswire: ISO-NE receives sufficient bids for implementing new winter 2013/2014 reliability program; results filed with FERC for final program approval  ISO had a bidding process open to oil-fired generators, dual-fired generators that can switch to oil, and demand response bids. They have accepted bids of nearly 2.3 million MWh, of which about 3 thousand MWh is demand-response and the rest is oil.  They will pay the generators $78 million dollars, the vast majority of which goes to the oil-burners, of course.

ISO-NE isn't paying an extra penny for the reliability that nuclear power gives them all winter.  In other words, all fuels are equal, but some fuels are more equal than others. Some fuels really get rewarded for being available in the winter.

Again, this is new on the grid.

3) Transmission Upgrades to Ensure Grid Reliability Without Vermont Yankee

In many news reports, such as this one in the Burlington Free Press, the Vermont Electric Power Company (VELCO) who manages the transmission system, VELCO, has made statements about how the grid is going to be okay without Vermont Yankee.

Recently, I have found these statements more interesting, or perhaps, more ominous than I would have expected.  Here's the main statement, echoed in many articles, but extracted from the Burlington Free Press article above with emphasis added by the blogger: 

Christopher Dutton, president and chief executive officer of Vermont Electric Power Co. Inc., or VELCO, which manages the state’s electric transmission system, said his organization has been anticipating Vermont Yankee’s closing since 2010.

“From both a transmission grid reliability perspective and from a generation reliability perspective, Vermont Yankee’s closure will not have any adverse effect,” Dutton said.

VELCO and ISO New England, responsible for the wholesale electricity market throughout New England, identified about $30 million of projects that needed to be done to compensate for Vermont Yankee’s closing, Dutton said. He said all of those projects, except for a small upgrade on five miles of transmission lines in the southeast corner of Vermont connecting to Massachusetts, have been completed.


So, of all the gin joints in all...I mean, in all the possible transmission projects that VELCO could have done, they did this one.  For VELCO, getting ready for Vermont Yankee to close took a very high priority.  Interesting.  And this started pretty much when Shumlin began his heavy campaign against Vermont Yankee, and when Green Mountain Power (owned by Gaz Metro, and a strong supporter of Shumlin) began to dominate the VELCO decision-making (VELCO is owned by the various utilities).

At the time the utilities were merging in Vermont, with Green Mountain Power (Gaz Metro) buying Central Vermont Public Service, there was a great deal of concern about Gaz Metro dominating VELCO. There were fears that this dominance would lead to transmission planning that hurt the smaller Vermont utilities (mostly cooperatives). The answer (not much of an answer really) was some kind of citizen-representative on the VELCO board.

At any rate, concerns that VELCO is not-always-above-suspicion are not unique to me.

Look, I know.  All these things are just coincidence.  But who would blame Entergy for thinking maybe the grid and the market weren't being totally fair to them.

So, what's it all mean?

Just on the basis of gas/grid prices, I think Entergy made a bad call.  However, it would take a real utility-analyst to understand the financial implications for Vermont Yankee of negative pricing, $78 million to support oil next winter, a grid that has been designed to not-need Vermont Yankee, etc.

Frankly, it would take more than technical analysis (IMO) to figure out why oil gets supported and nuclear gets the short end of the stick, and the economics of it all.

Conclusion, I don't know what it all means.

Is that all of your FAQs to yourself, Meredith?

Of course not.   But that is it, for now.






14 comments:

Robert Hargraves said...

Can Vermont Yankee keep its license in SafeStore? In two years, if power prices rise and natural gas prices rise, can Entergy restart Vermont Yankee?

Meredith Angwin said...

Vermont Yankee can either be in SafStor (part of the decommissioning process) OR keep its license, not both. To keep its license, it would have to keep paying license fees to NRC and being inspected and have to have many of the employees working and available. In other words, it's expensive.

As I understand it, Entergy begins the process to surrender their license and start the decommissioning-license process within a few weeks. They won't give up their operating license in a few weeks, but they will officially announce their intention to do so, ask NRC what the steps are for beginning the decommissioning process, etc.

That is my understanding.

Meredith Angwin said...

Another note. This blog post was long enough, but there are of course other factors I could have mentioned. The lack of a power purchase agreement made VY more vulnerable to the grid prices. For all nuclear plants, there's an unknown cost out there, as NRC continues to look into Fukushima upgrade requirements. Etc.

The unknown-cost-business is true for all nuclear plants, but I don't know if a power purchase agreement would have made a difference for VY. It might have. For political reasons, GMP purchased from Seabrook instead of VY.

There will be much more to discuss, for certain.

Anonymous said...

I believe that Meredith is correct (for all of the reasons she cited): for example, the currently rising price of natural gas may well soon end its huge price advantage. An additional point is the need from a point of view of long term energy policy to preserve a diverse array of energy choices and contributors to our total energy needs. However, the wisdom from a national policy perspective does not necessarily translate into good business sense for a single corporate entity (even a large one). My best guess is that there will someday be regret over the decision, but the regret will probably be by consumers paying more (and, indeed, they may not even realize at that time that their "regret" ties back to this decision. It is quite likely that Entergy executives will NOT feel any such regret (at least not to a large extent) since they will be about the business in the future of providing energy from the resources that they have available at that time (which is, after all, the reason they are in business).
--- Sam Hobbs

jimwg said...

Thanks for the breakfast, Meredith. Very painful.

There's another less fiscally complex but deeper question to me:

In just standing by and watching our nukes shutter down, I wonder just how serious are governments are about climate change or is this "peril" REALLY all it's cracked up to be? If our -- and other governments REALLY felt this was a civilization-altering issue, logically and pragmatically they ought be husbanding every nuclear plant around the plant, whether by subsidy or complete takeover. I mean this IS supposed to be a human survival issue, right? If it's not then it's time to resolve this issue once and for all and save LOTS of dough and hang a lot of charlatans, or maybe like today find ourselves shooting our own life rafts from the decks of the Titanic.

James Greenidge
Queens NY

Anonymous said...

James, you're right, if they are serious, it should be a national policy issue. But as far as nukes go, nobody on the political side will touch it. It's too unpopular, or just isn't on the radar.

As far as the business aspects go, I think we may see in the nuclear business what we have seen in manufacturing. There will be "friendly" states or regions, and unfriendly ones. The friendly regions will be happy to have these facilities and the jobs they bring, while the unfriendly ones will run them out of town on a rail and think they can get by with either importing electricity or making it "some other way". Either way, they can shove it, and I wish them nothing but shortages and hardship.

Meredith Angwin said...

I have a change in policy on comments.

I will no longer publish comments that denigrate nuclear plants or the people who work at nuclear plants. I never liked those comments, but I published some of them.

With all the pain at Vermont Yankee I decided:

If someone wants to say bad things about nuclear plants or the people who work at nuclear plants, that person can go to some anti-nuclear blog and write the comment. Such comments will not be published here.

David said...

I am angry and deeply saddened by this. However, I have been expecting this result - though not specifically at VY.

I have long long long felt that Global Warming / Climate Change was an excuse to sell more power at a higher price to the benefit of those already in power. Especially the Fossil fuel industry. I enjoy and use fossil fuels and I have doubted climate change. Why? Because the solution to CO2 became obvious to me once I understood nuclear power.

The numbers were so obvious, the potential flexibility so great, the safety factor so wide that the only reason to NOT use Nuclear power was that SHAZAM it would take market share away from existing power companies!!! (excuse me while in insert a few more) !!!!!!!!!!!!!!!! (Hum, a few short of the hundreds of billions of potential dollars lost but perhaps I am close to the point).

I could see the scam. I hate scams. I deeply hate scams. I hate them even more when they are foisted on me by legal decree.

One of the best summaries of the responsibilities of Government .....

From the Magicians Nephew, by CS Lewis

Between Aslan and a London Cabby who was to be King of Narnia,

"Well," said Aslan,"can you use a spade and a plough and raise food out of the earth?"
"Yes, sir, I could do a bit of that sort of work: being brought up to it, like."
"Can you rule these creatures kindly and fairly, remembering that they are not slaves like the dumb beasts of the world you were born in, but Talking Beasts and free subjects?"
"I see that, sir," replied the Cabby. "I'd try to do the square thing by them all."
"And would you bring up your children and grandchildren to do the same?"
"It'd be up to me to try, sir. I'd do my best: wouldn't we, Nellie?"
"And you wouldn't have favorites either among your own children or among the other creatures or let any hold another under or use it hardly?"
"I never could abide such goings on, sir, and that's the truth. I'd give 'em what for if I caught 'em at it," said the Cabby. (All through this conversation his voice was growing slower and richer. More like the country voice he must have had as a boy and less like the sharp, quick voice of a cockney.)
"And if enemies came against the land (for enemies will arise) and there was war, would you be the first in the charge and the last in the retreat?"
"Well, sir," said the Cabby very slowly, "a chap don't exactly know till he's been tried. I dare say I might turn out ever such a soft 'un. Never did no fighting except with my fists. I'd try -that is, I 'ope I'd try - to do my bit."
"Then," said Aslan,, "You will have done all that a King should do. Your coronation will be held presently."

-----------

No Favorites!!!

Energy producers should be on a level playing field. If CO2 is really a problem... then forming neutral legislation to allow people to produce massive amounts of low CO2 power should be the real goal.

As I see it the real goal by the "greens" is to replace reliable power with unreliable power that can squeeze more money out of consumers and tax payers.

trag said...

Meredith, thank you for all your effort and heart, fighting this good fight.

Unfortunately, the rug was pulled out from under you, because this fight isn't just about VY, it's being fought on several other fronts as well and events on one of those other fronts (regulatory utility price structures) undermined your good work.

Unfortunately, on those other fronts the foolish side is winning -- in large part because the wise side has no army and no funding. There are a few folks like you doing all they can, but on the national level, pro-nuclear has no voice. There is no one to fund it. No media outlet that will publish it. No popular reporters who go to a knowledgeable nuclear friendly source first for news on these issues.

The situation is frightful.

If someone had told me 20 years ago that the American public could be convinced to demand measures that would make their electricity and water (water depends on electricity) two or three times as expensive and much less reliable without reducing pollution one iota, I would never have believed it. Yet here we are. On that path.

Bah. I digressed. The real point is that I admire your work. I want to say thank you for trying to make Vermont and the world a better place. And we'll all keep on trying.

Mary Gerdt said...

Thanks Meredith, and I would have to add lawyering fatigues a company. They won the battle and lost the war. Sad, even friends do not understand the implications to utility consumers. Now one Canadian owned company will control it all. Vermont Yankee has been a well run plant and my heart goes out to their employees. It is hard to demystify why this happened and you have given it a good try. Still an executive will sleep better knowing a next adverse law or court action will not happen related to staying open. Humans can only take so much adversity. In our town we fight a natural gas pipeline that threatens miles of private property. nG seems to be getting a pass locally and Beyond and in the press while nuclear has been universally demonized. Thanks again.Mary

Anonymous said...

That natural gas gets such a universal passs from everyone, the public, the media, and "environmentalists", is an unbelievably ignorant and sad state of affairs. Just a recent study from NASA Goddard showed that on a per-weight basis, methane is 33 times more damaging to the atmosphere than CO2 when interactions with other gases are accounted for (previously it was 25 times). Go to the websites for gas companies and you'll see maps of where methane is leaking from pipelines buried under most urban areas. I know in my town alone there are over a hundred such sites. And combustion of NG still releases tens of thousands of tons of CO2, just dumped willy-nilly into the air, free to go where it wants, uncontrolled, uncontained, and untaxed. Everyone talks about "potential disasters" from nuclear plants yet ignores actual disasters from natural gas plants. Just read about the explosions and fires at San Juan Ixhuatepec for a real, true-life horror story. But the media never reports anything about it. Its all Fukushima, all the time, never mind there were zero fatalities, zero injuries.

Lindsay Dempsey said...

Thanks Meredith for your post, running a modern power system is a complex business. When people complicate that by subsidising specific projects or forms of generation it gets much more complicated. If carbon free electricity is an objective of the community or the state, there should be open tenders for X GWh/year, let the cheapest generator win, but please make it contestable and for a limited time. The other thing that pops up is how VY won't receive any credit for reducing demands on the grid as a base load generator does, while wind farms don't get charged for cost of beefing up the grid to cope with their variable output.

Last but not least, negative pricing should never be allowed, the market distortions they create are colossal. If there is more renewables or 'must run' capacity than demand then operate a 'must run dispatch auction' where generators pay to generate but the market prices never goes below zero.

Anonymous said...

Just wanted to state a fact. Once a company files it's intent to shut down for good, it is a done deal. No going back with the NRC.

Meredith Angwin said...

Anon:

Yes. That is correct. This isn't a chess game, as I said in the first of "my own FAQs." (The question is near the top of the post.)

VY is closing.