Entergy takes nuclear road

1 October 1998

Faced with deregulation and growing competition, utilities are restructuring their businesses with several looking to sell their nuclear plants. Entergy is going in the opposite direction – taking the path less travelled – and actively looking for additional nuclear plants to purchase. This strategy underscores what many in the industry believe: in the right hands, nuclear plants can be potent and competitive power producers – and is just the sort of commitment needed for a healthy industry.

Nuclear plants in the US have steadily improved performance over the years, posting higher capacity factors, lower production costs, and greater safety. Today industry restructuring is presenting nuclear generators with a new opportunity: the chance to compete with other generation options on the open market. And there, unlike the monopolistic era of yesterday, the market will set the price.

Entergy is one of the first in the US to announce it will buy nuclear units, and has set up a national nuclear company to acquire and operate plants. The company has predicted for a long time that a few successful operators will run most of the nuclear plants in the US, and Don Hintz, chief executive officer of Entergy’s nuclear companies, wants Entergy to be one of them. Hintz has recently appointed his top nuclear officer, Jerry Yelverton, as the new president and chief operating officer of Entergy Nuclear, Inc. Yelverton has led Entergy’s own nuclear fleet to record performance levels.

Entergy’s bullish attitude toward nuclear power is shared by others. A number of market analysts view the new trend toward nuclear acquisitions as promising, although the market is certain to be more volatile. Nevertheless, they appreciate that, as the actual [marginal] cost to run a nuclear plant is basically cheap, there should be room for three or four big players.

Industry production cost figures support that analysis. Leigh Ann Marshall, spokesperson for the Nuclear Energy Institute, says that the most recent year for which figures are available show nuclear costs at 1.91 cents/kWh, coal at 1.83, natural gas at 3.42, and oil at 4.14. “Market clearing prices are driven by regional factors, but we’re generally seeing 2.5 to 3.5 cents,” Marshall said. This puts nuclear generation squarely within the competitive market.

However, it will not be easy. Acquiring nuclear plants and positioning them to operate competitively in the open market takes nuclear expertise and business savvy. But the prize, notes Yelverton, not only goes to nuclear operators who compete successfully in the open market – their success will also benefit the nuclear industry as a whole.


Buying and selling nuclear plants in a deregulated environment calls for tenacity and creativity. Carolyn Shanks, Entergy Nuclear’s vice president of finance and administration, is a veteran deal-maker who pioneered Entergy’s presence in the market.

“In this business, each potential acquisition has several stakeholders,” Shanks said. “You may be negotiating with multiple plant owners. Each plant has its own set of federal and state regulators with jurisdiction over its activities. Each business venture is put together differently.”

In some cases, industry restructuring is making plant purchases possible, even probable. Most of the 50 states in the US are looking at new legislation or other arrangements that will give customers the ability to choose their electric supplier. The rules vary from state to state. Some states are requiring utilities to divest transmission, power marketing, and generation businesses – including nuclear generation.

In a few, regulations that loosen the bonds of stranded costs and assure decommissioning funding are giving nuclear plants room to breathe. Stranded costs, the difference between a utility’s investment and the lower value of the investment in the market, usually consist of forced power contracts at higher-than-market prices and nuclear plant investments.

Mapping a nuclear business strategy on top of an evolving market is an entrepreneurial exercise that takes a keen business sense, and a certain amount of chutzpah. Shanks has navigated these waters before: Entergy signed a contract with Maine Yankee in 1997 to operate the company’s 810 MWe PWR. Shortly after the team arrived, new economic and regulatory concerns prompted the owners to shut down the plant, and Entergy was hired to manage decommissioning activities. On its own turf, Entergy has set up two operating companies and transferred five NRC licences for its own units, experience that Shanks said is proving valuable in the new environment.

We are focusing on utilities that are divesting assets and have fully-funded decommissioning, Shanks said. “But almost every plant is a potential acquisition – we’re committed to growing our business, and we’re creative. Our experience in operations and decommissioning gives us a broad perspective. We can see the whole picture – and the potential is remarkable.”


Although many reactors were manufactured by the same vendor, the units are basically custom-built – no two are exactly alike. Lacking the benefits of a standardised design, nuclear plants in the US have been building friendly relationships with each other, sharing best practices and information through industry groups such as the Institute of Nuclear Power Operations and the Nuclear Energy Institute.

But to compete, nuclear plants will have to do more than develop best practices, Yelverton said. “One unit demands a lot of energy, focus, and financial resources from a small corporation. The single units don’t get the synergism and economies of scale enjoyed by multi-unit or multi-plant corporations.”

In recent years, nuclear plants have banded together in organisations like the Utilities Service Alliance and Northeast Energy Alliance to achieve this synergism. Members of the alliance work together to gain economies of scale and share services. Other nuclear units have contracted out for management services with large nuclear operators to bring in additional expertise to improve plant performance.

Consolidation will be an important cornerstone of a successful strategy for competitive generation. If consolidating several different types of nuclear units under one company umbrella looks challenging – that’s because it can be, Yelverton said. But consider this: Entergy operates BWR and PWR units representing three of the four nuclear steam supply systems in the US. The units are configured into single-unit and multi-unit sites and are located hundreds of miles apart. And last year, the average capacity factor for the industry was 76%. Entergy’s units ran at 90%.

Entergy’s breadth of nuclear experience was one of the factors that influenced the company’s decision to enter the market as a competitive generator. “We know we can operate competitively,” Yelverton said. “Nuclear generation is one of our strongest core competencies. No one has folded as many diverse units into a single operating company as Entergy. More importantly, we operate these units in a synergistic fashion and receive the significant economic and performance benefits enjoyed by a multi-unit site. And we’ve done this for a long time. Our strategies work.”

Consolidation will also provide more career opportunities for talented employees. Larger companies will be able to attract and retain top-flight senior executives and develop the management talent that is in-house, Yelverton said. “You just have more to offer your people.”


What do these developing trends in the industry mean to smaller utilities, particularly stand-alone units? Many experts say that a few large nuclear operators running all of the nuclear plants in the US will enhance safety, reduce costs, and improve performance. For small corporations, Yelverton said, this could mean survival in a market that is becoming more competitive every day. “Even if the unit is doing well now, competition in the open market is a different challenge. A stand-alone unit, even one performing well by industry standards, may not be able to manufacture its product at market price. Joining a larger nuclear entity will improve its ability to compete successfully.”

Vendors may also look to larger utilities for partnering arrangements in the future. Rather than vendors making a hundred different bids a year to get a job at a nuclear power plant, an expensive process which drives their profits down, it will make more sense for them to look to larger entities to do business with them. If a vendor can sign one contract for 20 nuclear plants, that may be a one-stop package for them that lets them benefit from economies of scale.

And regarding safety, consolidating smaller units under large, successful operators will increase the safety performance of the industry. “If you look at the top-performing plants in the US right now,” notes Yelverton, “you find that these plants are also doing extremely well from a regulatory perspective. Statistics tell us you have to have both of those to be successful. If you’re good at operating power plants, you’re also good at operating them safely.”


Probably the most important aspect of the new trend toward acquisition and competitive power generation is the commitment larger operators are making to the industry as a whole.

“Keeping the nuclear power option alive and healthy is a world-wide priority, and keeping it alive and healthy in the United States is imperative,” Yelverton said. “And if we’re going to keep nuclear power as an option in the United States, its obvious we will have to renew the licences of operating plants. This is something we are looking at very hard and planning for.”

To Yelverton it is clear that nuclear generation will play a vital role in the energy mix in the US, and licence renewal is a key driver that will move this generation into the next generation of nuclear plants to be built. “You have to be a committed player in this industry to go forward. Right now, Entergy and other major players are also going forward with licence renewal,” he stresses.

In addition to the economic benefits, nuclear energy is also making a contribution to the environment that is becoming more visible.


The new operating companies will also have to develop skills for the last phase of the nuclear operating cycle – plant shutdown and decommissioning.

Entergy entered the decommissioning business in 1997 at the Maine Yankee plant located near Wiscasset. Maine Yankee joins 19 other reactor sites being monitored by the NRC that have ceased operation and are in various stages of decommissioning. Of the 20 sites, 12 have chosen to delay major decommissioning activities. Six units in the United States are presently undergoing immediate dismantlement, including Maine Yankee, and two (Fort St Vrain and Shoreham) have completed decommissioning activities.

This past year, Entergy led a team effort with Maine Yankee employees that completed more major decommissioning milestones in its first twelve months than any other commercial plant in US history.


Will the nuclear industry of the 21st century mirror the promise it held thirty years ago? “It’s not what we thought it would be,” Yelverton said, “but the changes in the industry are allowing us to demonstrate the potential of nuclear energy in a new way, and the result will be a nuclear industry that continues to contribute to the energy mix.”

“In six years, this industry is going to consolidate,” he predicted. “We’ll see continued improvement in performance. Safe operation will be strengthened. And plants will be competitive. We’re going forward.”

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