As the U.S. electric power industry unbundles, the industry and its regulators grapple with two big questions concerning the degree to which distribution services should be unbundled. First, what...
- to the Nuclear Regulatory Commission estimates to decommission these facilities reveals a benefit for NYPA of approximately $3 million.
- Other Potential Payments. These would include possible revenue sharing based on an agreed-upon schedule of prices vs. actual market prices for plant output after 2004. This analysis omits such payments as too speculative.
According to this analysis, Entergy's net price for the plant and fuel is $393 million, or $217 per kilowatt.
Dominion's Competing Bid
The offer from Dominion Resources was based on Entergy's bid, but topped Entergy's reported price by $75 million.
- This additional payment at the closing would increase the present value of the future payments to $518 million ($468 million + $50 million).
- By excluding NYPA's transfer of cash to cover employee benefits, Dominion's offer, unlike the Entergy proposal, would not reduce the net to NYPA for the facilities.
- Such payments would include possible revenue sharing based on a schedule of prices lower than those in Entergy's initial offer, and payments contingent on Dominion acquiring other nuclear plants in New York state. These payments are excluded from the analysis as too speculative.
Our analysis indicates that Dominion Resources' total net price for plant and fuel is $468 million, or $259 per kilowatt.
The Counter Bid
The counter offer from Entergy added payments for plant decommissioning, as well increasing the purchase power agreement.
- Entergy would pay eight annual installments of $11.5 million beginning in 2008. When discounted, these future payments have a present value of $15 million.
- Under this agreement, NYPA would purchase the balance of the FitzPatrick plant's output at $29 per megawatt-hour through 2004. When considered against a projection of market rates, the present value of the purchase power agreement represents an $11 million benefit to NYPA (for purchasing power below market price).
- Other payments would include possible revenue sharing based on a schedule of prices lower than those in Entergy's initial offer, and payments contingent on Entergy acquiring other nuclear plants in the state. Again, these amounts have been excluded from the analysis as too speculative.
This analysis indicates Entergy's revised total net price is $419 million, or $232 per kilowatt.
Entergy's Commitment Made for a Winning Hand
On a pure dollar basis, Dominion's offer represents more value than Entergy's (see table, "Bid Price Analysis"). But, as mentioned, the complexity of the offers and the speculative nature of many components suggest NYPA based its choice of a winner as much on confidence in the bidder as on price.
Indeed, as reported in Nucleonics Week, "NYPA's board of trustees agreed March 28 to sell the two units to Entergy after Dominion declined to match Entergy's offer to pay the tax consequences on realized gains on the decommissioning fund if the IRS decides the trust transfer is a taxable event."
What is significant about the NYPA sale, then, is that the real price per kilowatt paid, although not as high as the announced price, is nearly three times the average price paid for nuclear assets in the past. The jump in the real price per kilowatt can be explained not