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Study questions Dominion nuclear plant need for out-of-market help

Dominion Resources Inc.'s Millstone nuclear power plant is highly profitable and will remain so even at current market conditions, contends that a new analysis released as Connecticut lawmakers consider out-of-market measures to strengthen the facility's economics.

Estimating after-tax income earnings of around $760 million over the past five years, Energyzt Advisors LLC's new report dismissed talk that Millstone nuclear plant is at any financial risk of an early shutdown. Instead, it claims that under a projected "worst-case scenario" the plant will break-even if electricity prices stagnate and generate almost $45 million in after-tax cash flow from 2018 through 2021.

The report's April 5 release was hosted by the Stop the Millstone Payout coalition, a group representing power generators opposed to Senate Bill 106, which is waiting to be heard in both chambers of the Connecticut General Assembly. The legislation seeks to prevent the early retirement of the 2,100-MW two-unit nuclear plant in Waterford, Conn., by allowing the facility to bid half of its generation towards a state-supervised power supply contract set aside solely for ISO New England nuclear plants that are relicensed to operate through 2029 or later.

"This financial assessment does not see any reason why there needs to be out-of-market support from Millstone," said Tanya Bodell, executive director of Energyzt and author of the study, during a media briefing. "Any legislative mandate that would force ratepayers to transfer any money into a contract with Millstone would simply be a transfer of wealth from the ratepayers to the equity shareholders of Millstone."

At an estimated $40/MWh to $45/MWh break even point, Bodell said Millstone has been "very profitable" over the last five years, despite energy prices dropping due to a supply glut of cheap natural gas. Bodell said the plant's after-tax net income exceeded $150 million last year alone, and the plant has produced an average annual rate of return above 25% for Dominion.

Looking forward, even under an unrealistic worst-case scenario of wholesale electricity prices staying at 2016 levels through 2021, she said Millstone will remain profitable enough to cover its costs and debts while returning a "very reasonable" return on equity for its investors.

Looking at future capacity prices in ISO New England along and reasonable energy price projections, the report said Millstone should earn close to $400 million in after-tax income over the next five years or $80 million annually. After 2021, the grid operator's price projection results in closer to $200 million a year in after-tax income for the plant through 2030, the study said.

Bodell claimed the state-supervised power supply contract tied to 8.3 million MWh of electricity a year could raise wholesale electricity supply costs as much as $300 million per year or 15% to 20% above current prices if it bids up to a possible $85/MWh. Under such rate increases, an average residential consumer using 700 kWh per year would pay an additional $90 per year in electricity bills, she said.

"If they think we're that profitable, ...I would say they have fiduciary responsibility to their shareholders to make a bid to buy it from us," responded Dominion spokesman Kenneth Holt in an interview. "This report is filled with gross assumptions and preposterous claims about Millstone; contains little or no real data."

For instance, Holt said the report failed to consider Millstone has two different units, and used industry averages of cheaper-to-operate nuclear power plants in the regulated southeast instead of the northeast where operation costs are higher.

Holt stressed any bid by Dominion for the proposed contract would have to be in the interest of consumers and be approved by state's attorney general, consumer counsel and finally by the Public Utilities Regulatory Authority. "We'd be laughed out of the room if we came in with a bid of [$85/MWh]," he added. "The standard offer is [$81/MWh]. Why would we come in with something that's higher?"

Holt said the generators interests behind the report -- Calpine Corp., Dynegy Inc., NRG Energy Inc. and the Electric Power Supply Association -- would benefit from price volatility brought on by the loss of Millstone. "If Millstone closes down and stops operating then their old plants all of a sudden have a renewed life and value," he said. "That is what's driving this report more than anything."

In a statement, EPSA said the "well-researched" study ought to be a warning to policymakers in other states where "quite profitable" plant owners are demanding subsidies and out-of-market payments.