Nuclear Spin-off Dies in NY

New York regulators said they remained concerned about the proposed debt levels and likely non-investment-grade credit profile at Enexus even after Entergy had altered its proposed Enexus capital structure twice to address regulators' concerns. Entergy's latest proposal included a 50% debt/total-capitalization ratio at Enexus, and New York regulators preferred a 40% ratio. Further reducing the leverage at Enexus eliminates nearly all of the incremental value to shareholders from the transaction. With the possibility that New York rate payers would be stuck with billions of dollars of decommissioning liabilities if the plants ran into financial trouble, regulators ruled the transaction was not in rate payers' best interests. With three of its six nuclear plants in New York, regulatory support there was essential.

Entergy also was having difficulty convincing regulators in Vermont to support the spin-off. However, Entergy management had recently stated it planned to move forward with the spin-off excluding the Vermont Yankee plant if Vermont regulators remained opposed to the spin-off. Apart from the spin-off negotiations, Entergy remains in discussions with Vermont regulators and politicians regarding an operating license renewal at Yankee. State senators voted in late February to deny a certificate of public good required to obtain a license extension, however this does not end the discussion. Renewal or no renewal, we see little incremental value in the Yankee plant for shareholders based on its relatively high cost, small capacity, and onerous power purchase contracts that we expect to persist for at least another decade. We think a decision to shut down Vermont Yankee when its license expires in March 2012 would not have a substantial impact on our fair value estimate.