N.Y. nixes Entergy spinoff

Posted
Friday March 26, 2010

ALBANY, N.Y. -- New York utility regulators on Thursday rejected Entergy Corp.'s plan to spin off its six nuclear power stations into a separate company.

The state Public Service Commission acted after its staff determined the deal wasn't in the public interest, primarily because the resulting company -- Enexus Energy Corp. -- could be financially shaky.

New Orleans-based Entergy had offered concessions that would have reduced the spinoff's initial debt and restricted dividend payouts, among other things.

But that wasn't enough to overcome the commission's concerns.

Entergy operates the James A. FitzPatrick station in Oswego County, N.Y.; two units at the Indian Point Energy Center in Westchester County, N.Y.; the Pilgrim Nuclear Station near Plymouth, Mass; Vermont Yankee in Vernon, Vt.; and the Palisades Power Plant in Covert, Mich. Entergy bought the reactors between 1999 and 2007.

The commission said its rules allow the power provider to ask for a re-hearing or file a new petition.

"We are disappointed in the commission's decision," said Michael Burns, an Entergy spokesman. "We believe our petition, as amended, met the legal standard in New York that applies in this proceeding, and the spin was in the best interest of all stakeholders."

He said there would be no further comment until management meets with the company's board next week.

Greenpeace Vermont applauded the New York PSC's decision.

"Today, the New York State Public Service Commission determined that Entergy's plan to spin off five plants, including Vermont Yankee, was not in the public interest due to the excessive debt of the new company -- despite Entergy's claims to the contrary," stated John Deans, Greenpeace's Rutland-based Field Organizer, in a press release.

While Entergy shareholders would have walked away with $3.5 billion, he stated, Vermonters would have been saddled with "all of the risk of the badly aging reactor."

The pressure for Yankee to perform in order to cover its debt would likely have undermined safety measures, stated Deans.

Entergy's shares were trading at 79.64, up 44 cents in early afternoon trading on the New York Stock Exchange.

Under the $3.5 billion deal proposed in late 2007, Entergy shareholders would have gotten 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.

PSC staff told the commission on Feb. 11 the deal should be rejected in large part because Enexus would be have too much debt. They said that because three New York plants cover 15 percent of the state's energy consumption, they're "too big to fail." If the company became insolvent and couldn't operate the plant, the public would be affected because the energy market would have to scramble to replace that power, and rates would go up.

Entergy responded by offering to cut the spinoff's initial long-term debt by $500 million to no more than $3 billion. It also offered to restrict dividend payouts to shareholders until Enexus received a credit rating of at least BB+ by Standard & Poor's or Ba1 by Moody's Investors Service, or the new company obtained a debt-to-capitalization ratio of 50 percent or lower. There also was a promised payment of up to $300 million to New York's energy efficiency fund to protect some consumers if future power prices exceed certain levels.

Entergy also needed approval for the deal from the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and the Vermont Public Service Board. FERC and the NRC gave initial approvals in 2008. Hearings in the Vermont case ended in 2008, but the Vermont Public Service Board hasn't taken final action.


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