Decision to Close Pilgrim

Reasons and Impact

[text in this color is developer notes]
I had ‘Reasons and Impact’ in the title of this page, but page titles are used in Menus and long ones are problematic, so shorter titles are best, perhaps w subtitles, kinda like above.

THIS PAGE WAS IMPORTED TO WORDPRESS FROM A .docx FILE.
D.A. comments on imported content…

  • the following headings seem kind of redundant (esp ‘Pilgrim’)
  • are those headings supposed to be links to content below? Or are they an overview of all the content on this page (if so, I think that should be explicitly stated).
  • the following is as-imported (excepting red text).
  • the footnotes are as-imported (not using the – pretty cool – footnote plugin that IS USED here). At a glance, these footnotes seem okay, ‘tho they should all be changed to open ‘in a new window’ – that’s a little tedious, but easily doable – and easier than using the plugin.
  • PILGRIM – ECONOMICS – COULD NOT COMPETE WITH CHEAPER ENERGYall caps isn’t the best way to go, best to use styles. more on this later
  • Economics: Pilgrim Could Not Compete With Cheaper Energy (better?)
  • PILGRIM POOR MANAGEMENT & OVERSIGHT LED TO HIGH OPERATING COSTS

IMPACTS CLOSURE

  • PILGRIM- SIGNIFICANCE TO PLYMOUTH’S AND S.E. REGION’S ECONOMY
  • PILGRIM- DO WE NEED PILGRIM’S POWER TO KEEP THE LIGHTS ON?
  • PILGRIM- SIGNIFICANCE TO ADDRESS CLIMATE CHANGE

Decision To Close Pilgrim – Economics

Entergy Press Release: Entergy to Close Pilgrim Nuclear Power Station in Massachusetts No Later than June 1, 2019[1]

Decision driven by low energy prices, little expectation of near-term market structure improvements and increased operational costs

This should have a date:

NEW ORLEANS – Entergy Corporation (NYSE: ETR) announced today that it will close its Pilgrim Nuclear Power Station in Plymouth, Mass., no later than June 1, 2019, because of poor market conditions, reduced revenues, and increased operational costs. The company notified the independent system operator of the electric grid, the ISO New England Inc. (ISO-NE) that as of that date Pilgrim would not participate as a capacity resource in the market. The exact timing of the shutdown depends on several factors, including further discussion with ISO-NE, and will be decided in the first half of 2016.

“The decision to close Pilgrim was incredibly difficult because of the effect on our employees and the communities in which they work and live,” said Leo Denault, Entergy’s chairman and chief executive officer. “Our people at Pilgrim are dedicated and skilled, a wonderful blend of young professionals and seasoned, experienced veterans, who for decades have been generating clean power and contributing millions of dollars of economic activity to the region. But market conditions and increased costs led us to reluctantly conclude that we had no option other than to shut down the plant.”

Please click here for the full press release.

Please click here for the press conference audio recording from October 13, 2015.

Please click here for the presentation slides from the press conference.

Entergy Questions & Answers[2]

When will Pilgrim Station close?

Our intent is for Pilgrim to meet our ISO-NE capacity obligations through May 31, 2019 and then no longer participate as a capacity resource in the market.

Factors that could lead us to shut down earlier than 2019, such as at the end of our current operating cycle in 2017, include: 1) increased cost of regulatory recovery, 2) any additional regulatory challenges stemming from operational issues, and 3) potential opportunities to find economically viable sources of capacity to replace that which Pilgrim is obligated to supply. The exact timing of the shutdown also depends on further discussion with the ISO-NE, and will be decided in the first half of 2016.

As we have always stated, the company regularly evaluates its portfolio of assets and considers all options to determine what’s best for each, and the company and its stakeholders. We use a disciplined approach of constantly evaluating our portfolio of assets to determine next steps, which could include retaining, selling, or closing facilities.

Why was this decision made?

We intend to shut down Pilgrim because low current and forecast energy prices and a distorted wholesale energy market, along with increased costs, make the plant’s continued operation not economically viable.

Low current and forecast wholesale energy prices — brought about by record low natural gas prices, driven by shale gas production — significantly impacted Pilgrim’s revenues. The market price for delivered natural gas in New England has dropped substantially because of the influx of shale gas and policy-related issues, and that in turn has driven down power prices. Current and forecast power prices have fallen about $10 per megawatt hour, an annual loss of over $40 million in revenues for Pilgrim.

Wholesale energy market design flaws continue to suppress energy and capacity prices in the region, and do not provide adequate compensation to merchant nuclear plants for the benefits they provide. These benefits include onsite fuel storage, reliability, carbon-free, and large-scale 24/7 energy generation. Efforts to correct these market design flaws are too slow in coming to reverse the harm. Looking ahead, unfavorable state energy proposals include efforts to subsidize renewable energy sources at the expense of Pilgrim, provide above-market prices for hydro power to utilities in Canada serving about one-third of Massachusetts’ electricity demand, and a recent order which would further lower the price of natural gas and increase the region’s reliance on it.

We have already invested hundreds of millions of dollars to improve the plant’s safety, reliability and security but face increased operational costs and enhanced NRC oversight. While we will always make needed investments at any plant, we also consider the effect on our stakeholders of operating over the long-term if it is not economically viable to do so.

What are the factors in your decision on whether to shut down prior to 2019?

Pilgrim has an agreement with the ISO New England to be available to supply electricity (a Capacity Services Obligation), either by operating Pilgrim or via some other mechanism, until May 31, 2019.

While we intend to meet our current capacity obligations to ISO-NE, based on several factors we could determine it makes the most sense to our broad group of stakeholders to shut down the plant at the end of its current operating cycle, in 2017.

Factors that could lead us to shut down earlier than 2019, such as at the end of our current operating cycle in 2017, include: 1) increased cost of regulatory recovery, 2) any additional regulatory challenges stemming from operational issues, and 3) potential opportunities to find economically viable sources of capacity to replace that which Pilgrim is obligated to supply.

If Pilgrim operates until May 2019, it will need to conduct a refueling outage in the spring of 2017. We will decide by the first half of 2016 whether to proceed with the 2017 refueling outage (and thus continue to operate until 2019).

By what date would the company need to decide on whether to refuel in 2017?

We will decide in the first half of 2016. Pilgrim refueled in 2017.

Massachusetts electricity deregulation and retail access officially began back in March of 1998. Before deregulation, Pilgrim was owned by Boston Edison and was part of a utility-owned network of power plants. In a regulated market, utilities passed along their combined costs to consumers in a single monthly charge.

Entergy believed that they could make a large profit buying up reactors in newly deregulated markets and purchased Pilgrim and other reactors. But in deregulated markets generators must compete on a stand-alone basis by selling electricity to utilities and other suppliers through daily auctions that tap the cheapest resources capable of satisfying grid needs. In recent years, plunging natural gas and wind prices have forced wholesale power prices down, making it hard for reactors in deregulated (competitive) markets to compete. This is especially so for older reactors facing rising operating and capital costs related to age and Nuclear Regulatory Commission post-Fukushima required fix-ups. Vermont Yankee, operating in the same market as Pilgrim, closed when it became unprofitable to operate. Entergy announced in 2015 that economics was driving its consideration of closing its Fitzpatrick reactor in New York and announced closure of Pilgrim by June 1. 2019 on October 13, 2015.

Pilgrim’s closure- Handwriting was on the wall: September 24, 2015 UBS downgraded Entergy Corp to sell, noting that Entergy’s stock has fallen 30% this year.[3] UBS said that, “After the latest disclosures of potential early retirements of Fitzpatrick (838MW) and Pilgrim (688MW) we are increasingly concerned about the unregulated plant value… (and)… Following the NRC’s downgrade of the Pilgrim plant we see a potential material increase in compliance/remediation costs as increasing discussion of early retirement into the next refueling in Spring 2017.” The UBS report, The Nuke Retirements are Coming (September 2015) estimated that Pilgrim is slated to lose $25 million this year and about $60 million during the next four years.[4]

Will Entergy Invest in Pilgrim now it announced a closure date? Will the parent corporation or its subsidiaries pitch in? No, Entergy is a web of limited liability companies.

***

Pilgrim’s decision to close driven also by Entergy’s poor management and oversight that led to high operating costs[5] Ineffective management and oversight is the surest way to increase operating and maintenance costs unnecessarily. Entergy’s ineffective management and NRC’s poor oversight led to Pilgrim’s performance dropping to Column 4 that was estimated to carry a price tag of $100 to $300 million. The NRC put Pilgrim into Column 4 because its owner, Entergy, “had not adequately evaluated the causes of [unplanned shutdowns] and that some corrective actions had not been completed as intended or were closed out prematurely.” It was ineffective management (by Entergy) and at last good oversight (by the NRC) that cost Pilgrim big money. Entergy could have avoided facing spending millions of dollars remediating poor performance and being offline not generating electricity and money had it maintained its aging reactor all along.

 

Pilgrim’s Closure – Economic Impact Plymouth & Region

Plymouth regards Pilgrim as vital to its economy; Plymouth has not put money aside to cushion the blow when Pilgrim retires so taxes will rise inevitably

The Pilgrim Nuclear Power Station Study A SOCIO-ECONOMIC ANALYSIS AND CLOSURE TRANSITION GUIDE BOOK, Jonathan Cooper, Univ. Massachusetts-Amherst (April 2015)[6] was commissioned by the Town of Plymouth to determine for the town the economic impact of Pilgrim closing. The study did not analyze the economic impact of delayed decommissioning versus Safstor, deferred decommissioning.

 

The report’s significant findings:

Pilgrim Station is a vital part of a regional economy that lags the state in key indicators of economic performance.

Pilgrim Station’s most significant direct impact is the hundreds of well-compensated jobs it provides

As of February 2015, there were 586 employees at Pilgrim Station, with a payroll of approximately $55 million and a weekly wage of $1,805. This represents 2.5% of the jobs held in Plymouth, and 5.3% of the wages paid in Plymouth. The average weekly wage at Pilgrim Station is 50 percent higher than the state average, and more than double the average wages in Plymouth, the OCPC, and Barnstable County. These jobs also provide considerable fringe benefits not included in the payroll total, likely raising the overall compensation value by 40 percent, to approximately $77 million.

Much of the Pilgrim Station workforce lives in the towns closest to the plant, which keeps much of the earned income within southeastern Massachusetts.

Nearly 85 percent of employees live in either Plymouth or Barnstable counties IVERSITY OF Pilgrim Station’s non-payroll expenditures were approximately $77.5 million, and provided a substantial source of revenue to local businesses and municipalities MAS estimated $60 million in procurement spending throughout Plymouth and Barnstable counties. Along with this spending, Pilgrim Station made more than $17 million in state and municipal payments for taxes and emergency preparedness funding. Approximately $10 million was paid to the Town of Plymouth alone, representing over 7 percent of the Town’s total levy of $138.4 million for Fiscal Year 2015.

Pilgrim Station’s operation stimulates additional economic activity in Plymouth and Barnstable counties.

The in-region spending by both Pilgrim Station vendors and plant employees creates an additional $105 million in regional economic output. Nuclear power plant employment is stable and well-compensated, enabling employees to attain home ownership.

Closure Impacts, Section 4.3 of the report:

Pilgrim Station’s direct and secondary impacts bring several socioeconomic benefits to Plymouth and the broader region, in the form of jobs, wages, home ownership, business-to-business spending, household spending, municipal revenues, and support for civic institutions. In the Town of Plymouth, direct impacts from wages, benefits, and municipal payments alone surpassed $35 million. Plant closure would immediately reduce many of these impacts. Employment levels would decline by about half in the year following closure, with further reductions in subsequent years until the plant employed no more than two dozen people after five to seven years: a workforce reduction of over 95 percent. Local expenditures would taper off as well, as fewer components would need inspection, maintenance, or replacement. Donations and other charitable contributions would cease, as would the emergency preparedness payments to the state and individual towns. Finally, the PILOT arrangement Entergy and the Town of Plymouth have regarding Pilgrim Station would be revisited, and likely drawn downward substantially by as much as 90 percent in the first year. Meanwhile, other sources of economic activity in Plymouth and the surrounding towns would begin to slow down as well, as the industries closely tied to the operation of Pilgrim Station adjust to decreased demand, and the households directly or indirectly reliant on Pilgrim Station for income revise their budgets.

In summary:

Direct Impacts:

$440 Million – Wholesale value of electricity produced

586 Pilgrim Station workforce

$77 Million – Wages and benefits for plant workforce

$60 Million – Spending for goods and services in southeastern Massachusetts

$17.4 Million – State and local taxes and other payments

$300K – Charitable giving by Entergy and Pilgrim Station

Secondary Impacts:

$105 Million – Additional economic output attributable to Pilgrim Station

589 Additional jobs created by Pilgrim Station

$30 Million -Wages and benefits paid by additional jobs

Town of Plymouth Impacts:

190 Pilgrim Station employees living in Plymouth

$24.9 Million -Wages and benefits paid to plant employees

$58.5 Million – Value of real estate owned by plant employees

$10.3 Million- Municipal revenue from Pilgrim Station

$950K – Municipal revenue from employee property tax payments

$23K – $61K -Municipal revenue from biennial refueling outages Jonathan G. Cooper

Pilot Agreement between Entergy and Pilgrim:[7] Annual payments from Entergy to Plymouth depend on operations.

Pilgrim’s Importance To New England’s Power

We do not need Pilgrim’s power to keep the lights on; ISO New England (the Regional Transmission Organization, serving New England) predicts new and older nuclear generators may be needed in the future during peak winter and summer times without timely investment to expand natural gas or LNG infrastructure.

ISO New England 2017 Regional Electricity Outlook[8] shows the role nuclear plays in the region’s power. In 2016, nuclear contributed 31% of the entire region’s power. (ISO 2017 report at 8)

The report examines the impact of the closure of oil, coal, and nuclear generators in the region. It explained (at 27) that:

About 4,200 MW— an amount equal to almost 15% of the region’s current generating capacity—will have shut down between 2012 and 2020 and is being replaced primarily by new natural-gas-fired plants. The upcoming closures of just two of those resources—Brayton Point Station in May 2017 and Pilgrim Nuclear Power Station by May 2019—will remove 2,200 MW of non-gas-fired capacity. Over 5,500 MW of additional oil and coal capacity are at risk for retirement in coming years, and uncertainty surrounds the future of 3,300 MW from the region’s remaining nuclear plants. (ISO at 27)

Major Generator Retirements Limit the ISO’s Options for Meeting Winter and Peak Demand

Nuclear power typically provides around 30% of the region’s energy. Coal- and oil-fired resources, despite providing only about 3% of the region’s electricity last year, can also make valuable contributions on the coldest days of winter, as well as on the hottest days of summer when demand is very high or major resources are unavailable. For example, on the 2016 summer peak day shown below, a nuclear generator was unexpectedly off line and

  1. http://www.pilgrimpower.com/operational-update/
  2. Ibid
  3. http://www.streetinsider.com/dr/news.php?id=10916708
  4. https://neo.ubs.com/shared/d1TlmFNnvySXa/
  5. http://allthingsnuclear.org/pilgrims-shutdown-little-mo-yields-big-om/
  6. http://scholarworks.umass.edu/cgi/viewcontent.cgi?article=1080&context=larp_ms_projects
  7. http://www.plymouth-ma.gov/sites/plymouthma/files/uploads/2013_08-13_-_pilot_agreement_with_entergy.pdf
  8. https://www.iso-ne.com/static-assets/documents/2017/02/2017_reo.pdf