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

http://isonewswire.com/updates/2013/7/3/iso-ne-and-nepool-propose-more-flexibility-for-energy-supply.html

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.