Tags: US | Entergy | Nuclear | Spinoff

Entergy Corp. Runs Into Hurdles With Spinoff Plan

Friday, 26 Feb 2010 03:17 PM

Power provider Entergy Corp.'s proposal to spin off its wholesale nuclear power plants into a separate company has run into snags long past the time it had hoped to close the deal.

New York regulators may tighten conditions for creation of Enexus Energy Corp. — if they approve of the deal at all. In Vermont, the state Senate voted Wednesday to block operation of Vermont Yankee, one of the nuclear plants that would change owners in a spinoff, after its license expires in 2012. That action could still be reversed.

Entergy says it intends to go ahead with the plan, announced in 2007, to separate its regulated utilities in Louisiana, Mississippi, Texas and Arkansas from six nuclear generating units that sell power on wholesale markets where prices are set by supply and demand — not by public regulators.

Enexus would own five nuclear operations: Pilgrim Nuclear Station near Plymouth, Mass.; the James A. Fitzpatrick station in Oswego County, N.Y.; two units at the Indian Point Energy Center in Westchester County, N.Y.; Vermont Yankee in Vernon, Vt.; and Palisades Power Plant in Covert, Mich. Entergy, based in New Orleans, bought the reactors between 1999 and 2007.

Entergy shareholders would get 80 percent of Enexus stock. The remaining 20 percent would be in a trust and shareholders could later exchange Entergy stock for Enexus stock in a tax-free deal.

Entergy CEO Wayne Leonard said the company's current mix of regulated and wholesale power does not go together. Prices on the nonregulated spot market — though offering potential for greater profits — can fall as quickly as they rise, leading to credit downgrades and higher interest costs, Leonard said.

Opponents say the plan would enrich Entergy stockholders at the expense of consumers while failing to guarantee the new company will have the cash needed to eventually shut down and dismantle the nuclear plants.

New York regulators have concerns about the financial stability of the spinoff. In Vermont, Entergy has run into strong anti-nuclear sentiment, compounded by its stumbles in dealing with a radioactive leak at Vermont Yankee.

Entergy said last year it will increase the amount of unrestricted cash left with Enexus and reduce the new company's long-term debt.

Earlier this month the New York commission staff recommended rejection of the spinoff, telling regulators that Entergy's proposal is not in the public's best interest, because the new company would be saddled with too much debt.

The staff said Entergy should reduce Enexus' debt to maintain the new company's bond rating, and Enexus should have restrictions on dividends and stock repurchases.

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