Morningstar | We Remain Confident Entergy's EWC Exit Will Be Cash Flow Neutral
We are reaffirming our fair value estimate of $96 per share and narrow moat rating after Entergy announced it closed the sale of the Vermont Yankee nuclear plant to subsidiaries of NorthStar Group Services.We expected the announcement after the Vermont Public Utility Commission approved the sale on Dec. 6. NorthStar is essentially assuming all decontamination responsibilities for the site in exchange for the portion of Entergy's nuclear decommissioning trust fund, or NDT, designated for the plant.
Entergy will be taking a charge to earnings in the 2018 fourth quarter that is consistent with the previous guidance provided for its exit from its nuclear merchant business, Entergy Wholesale Commodities, or EWC. Although a material portion of the charges associated with wind down of EWC are non-cash impairments, we have estimated cash charges associated with severance, retention, and nuclear fuel will total $750 million from 2018-22. These cash charges are included in our discounted cash flow model and are reflected in our fair value estimate.
The sale of Pilgrim and Palisades nuclear plants are pending following their planned shutdowns in May 2019 and May 2022, respectively. The Nuclear Regulatory Commission filing in November for the Pilgrim transaction with Holtec International indicated an adequate balance in the NDT for decommissioning, and we expect the same will be true for Palisades.
We remain confident that the EWC exit will be cash flow neutral. The three reactors at Indian Point are the remaining units without agreements with a decommissioning specialist. However, the balance of Indian Point’s three NDTs totaled almost $2 billion at Sept. 30, 2018, versus an estimated asset retirement obligation of $1.7 billion. We expect an agreement with a decommissioning company before Indian Point 2 closes in April 2020.
For more detail, see our report, "Entergy on Path to Remove Nuclear Plant Albatross."
Entergy is a holding company. Through its subsidiaries, the company is an integrated energy company engaged mainly in electric power production and retail distribution operations. The company owns and operates power plants. The company has two segments: Utility, which generates, transmits, distributes and sells electric power to retail and wholesale customers in Arkansas, Louisiana, Mississippi, and Texas; and Entergy Wholesale Commodities, which includes the ownership, operation, and decommissioning of nuclear power plants, located in the northern United States, the sale of the electric power produced by its operating plants to wholesale customers, and also provides services to other nuclear power plant owners.
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