Buying nuclear plants a gamble, Entergy says
Investing in the nation's aging nuclear power plants is a lot like investing in casinos -- it's a gamble.
"We think of it like casinos think of their business," Wayne Leonard, chief executive officer of Entergy Inc., told employees Tuesday in a meeting at Arkansas' Excelsior Hotel in Little Rock. "We are trying to stack the odds in our favor."
Entergy's strategy to buy nuclear plants has raised some eyebrows in the investing community. Many of the plants were built in the 1970s and are nearing the end of their predicted life expectancies. Current owners of the plants are selling them for as little as 10 percent of the cost of building them.
Last year, New Orleans-based Entergy bought the first nuclear plant ever sold in the country. The company paid $80 million for the Pilgrim nuclear plant near Plymouth, Mass., buying it from Boston Edison, which built it in the mid-'70s. Only $13 million of the price was for the facility and the 1,600-acre plant site. The remainder of the price was for the nuclear fuel.
Leonard acknowledged the skepticism about the purchase.
"It's basic risk management," Leonard said. "We are betting on the odds. The more you play, the more you win."
Entergy always ensures that a plant has an agreement to sell all the power generated at the plant and a reserve fund that would pay the cost of decommissioning the plant, if necessary. And most of the plants are in locations that could support more conventional natural-gas-fired plants if the nuclear plant is closed.
"You could theoretically shut the plant down and make money on it," because there is more money in the decommission fund than it costs to close the plant, he said.
Entergy plans to continue buying nuclear plants, Leonard said. Currently, Entergy is in exclusive negotiations with New York Power Authority to buy two more nuclear plants. Entergy already owns five nuclear plants, including Arkansas Nuclear One's two reactors near Russellville.
Entergy announced plans last week to bid on two more nuclear plants that Consolidated Edison of New York Inc. plans to auction later this year. The two reactors are adjacent to the Indian Point One plant that Entergy is negotiating to buy from the New York Power Authority.
"We want to buy as many as we can operate safely and efficiently," company spokesman Carol Clawson said at the time.
Leonard called Entergy the leader in nuclear technology. Entergy is the only company ever hired to decommission a nuclear reactor for another company. Entergy is decommissioning the Maine Yankee reactor in Wiscasset, Maine, and the Millstone 1 plant in Waterford, Conn.
Leonard also discussed the company's plans for competing in a deregulated electric utility market. The company has sold about $5 billion in assets during the past two years and used the money to pay down company debt and improve infrastructure.
Entergy's strategy in a deregulated environment will be to focus on the wholesale production of electricity and selling it on the open market.
Leonard acknowledged that Entergy's service levels in 1999 "were totally unacceptable," not only in Arkansas but throughout its service area.
In response, he said Entergy has hired 1,700 more workers to trim tree limbs near utility lines, which will reduce power failures created by the limbs falling on the lines.
The company has hired 75 people for a "reliability council" to find ways to improve the company's delivery of electricity to customers and 120 people to staff phone centers that take customer complaints.
Specifically, he addressed the rolling power blackouts that Entergy used July 23 to prevent overloading of the power grid.