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News Analysis

Entergy's Original Bid
Fortnightly Magazine - June 15 2000

only by head-to-head competition, but the fact that the plants are strategically located near both a major load center and other nuclear plants that are for sale. The clear winner in this negotiated-bid-turned-auction is NYPA. Finally, by providing important knowledge to future sellers and buyers of nuclear plants, the sale should help to remove uncertainty about what sale processes and conditions are important. Consequently, look for higher prices for nuclear capacity in the future.

NYPA's Rationale: Reduced Risk Outweighs Cash

No one argues that the New York Power Authority snagged a good deal in March when it approved the sale of its Indian Point 3 and James A. FitzPatrick nuclear power plants to Entergy Corp. By its own account, the $967 million agreement is a record for the U.S. nuclear industry. Yet the Power Authority was quick to point out that there was more to the deal than money.

In a statement announcing its approval of the deal, NYPA noted, "Although Dominion had submitted a higher price for the plants and fuel in net present-value dollars, the Entergy decommissioning payments and several other factors made the overall value of the Entergy proposal far superior."

Entergy's Ability to Close Deal. Chief among the factors supporting that judgment, said NYPA, was the potential for Entergy to close the agreement.

"Entergy agreed to accept the risk of an adverse ruling on the tax status of the plants' decommissioning funds. Dominion declined to make a similar commitment on the ground it was unwilling to have its shareholders exposed to a $250 million risk." NYPA noted it was "unwilling to place this risk on the public."

NYPA's confidence that Entergy actually would close the deal was bolstered by Entergy's completion of the Pilgrim plant acquisition from Boston Edison last year. That point was key in the considerations because NYPA is eager to complete the deal before a refueling outage at the FitzPatrick plant in October. Refueling costs for the plant are estimated at more than $30 million.

New York Headquarters. A final factor in the decision to settle with Entergy was the utility holding company's commitment to establish a Northeast regional headquarters in New York state and maintain it for at least seven years. That was important, NYPA said, because assuring employment for staff and continued service to its customers were among its highest priorities.

Noted NYPA, "Dominion, in contrast, would commit to maintaining a regional headquarters in New York for only one year."

Other Potential Payments. As a bonus, NYPA will receive additional payments should Entergy acquire license extensions for Indian Point 3 and FitzPatrick, or additional nuclear plants in the state. Entergy also agreed to share the profits with NYPA if prices for electricity from the two nuclear plants exceed specified amounts between 2005 and 2015. --R.R.J.

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