By Eileen O'Grady and Scott Malone
HOUSTON/BOSTON (Reuters) - Entergy Corp will shut the Vermont Yankee nuclear power plant, citing high costs tied to regulation and competition from cheap natural gas, bringing to an end a long battle with politicians and environmentalists seeking to close it.
Vermont Governor Peter Shumlin welcomed the news that the 40-year-old plant, which generates three-quarters of the state's power, will cease operations by the end of 2014, though the closure raises new problems for the New England state, including how long it would take to clean up the site.
Entergy's move came just two weeks after a federal appeals court largely sided with the company in its fight to prevent Vermont from shutting down the only nuclear power plant in the state and one of four in New England.
Opposition to the Vernon, Vermont, plant has grown over the years, most recently focusing on a January 2010 disclosure of a leak of radioactive tritium. Still, the U.S. Nuclear Regulatory Commission granted the plant a 20-year operating license in 2011 that would have kept it running until March 2032.
But Leo Denault, Entergy's chief executive since February, said in an interview with Reuters that the plant was no longer economically viable due to a combination of rising capital costs after the September 11 attacks, Japan's 2011 Fukushima disaster and low wholesale electricity prices stemming from cheap natural gas burned by competing plants.
"We did everything we could to keep the plant open," he said, praising the 600 employees for operating the plant even when "they did not feel welcome in the state."
Opponents of the plant were quick to voice their approval.
"This is not a big surprise to me and I don't think it's a big surprise to many who follow the economics of aging nuclear power plants," Shumlin, Vermont's Democratic Governor who led the state's fight to have the plant shut down when its initial operating permit expired in 2012, told reporters.
Marvin Fertel, chief executive of the Nuclear Energy Institute said in a statement that the shut down was "a great loss to the state of Vermont, the regional economy and consumers, and the environment."
The Fukushima meltdowns and radioactive contamination led regulators to review safety standards, which could lead to requirements for costly plant improvements, a decade after 9/11 prompted heavy spending to tighten security around plants.
Surging output of shale gas, which sent natural gas prices to 10-year lows in 2012, has also weighed on the nuclear industry. Last October, Dominion Resources Inc's Kewaunee plant in Wisconsin became the first nuclear plant to be closed due to cheap gas prices after hundreds of coal-fired plants had shut.
Natural gas-fired plants now account for more than half New England's energy supply, according to the region's grid operator.
With Vermont Yankee, a total of five U.S. nuclear plants have shut or will shut before their licenses expire.
Denault said Entergy is open to a settlement with New York State officials over the future of its controversial Indian Point nuclear plant, which is near New York City.
Vermont Public Interest Research Group, a local advocacy group which has been lobbying for Yankee's closure since the 1970s, said it felt vindicated by Entergy's decision.
"It represented a risk would could not afford for power we don't need," VPIRG Executive Director Paul Burns said in a statement.
Vermont's total energy consumption is the lowest in the country, according to the U.S. Energy Information Administration. In 2011, three-quarters of its power generation came from nuclear power, with another 21 percent from hydroelectric power.
Closure of the plant will probably not have a large impact on natural gas markets, Thomson Reuters analyst Reza Haidari said, estimating it would boost U.S. natural gas consumption by less than 0.01 percent.
Entergy said it will take an after-tax impairment charge of about $181 million in the third quarter due to the retirement of the plant, the smallest that it owns, and expects further charges of $55 million to $60 million related to future severance and other costs through the end of next year.
The New Orleans-based company said the shutdown would modestly benefit its operational earnings, excluding special items, within two years, with cash flow expected to increase about $150 million to $200 million through 2017.
Shares of the U.S. power company were little changed, down 26 cents to $62.81 per share on the New York Stock Exchange.
LONG CLEANUP AHEAD
Entergy's decision to close the plant leaves Vermont with the question of what to do with the site, located in the rural state's southeast corner, near New Hampshire and Massachusetts.
It could be some time before the site is available for other uses, warned energy specialist Christopher Russo of Charles River Associates in Boston.
"It's probably on the order of 50 years before it goes back to being a green field site," Russo said. "There's nowhere to move the nuclear fuel at this point."
That said, he noted, one of the greatest assets in a decommissioned nuclear power plant is its connection to the electrical grid, which could make the site attractive to a utility looking to install another style of generator.
"The grids were almost built around these plants," Russo said.
While Vermont officials have long fought to close the plant, area residents had an uneasy peace with it.
Fana Cyr, a 37-year-old builder from Hinsdale, New Hampshire, across the Connecticut River from the plant, said he was glad it was being shut down.
"I figure it will be safer, I've heard they had some problems with it," Cyr said. "Hopefully they clean up the mess."
Cyr discussed the plant as he fished in the waters of the same river that plays a role in the plant's cooling systems.
"We do fish here," he said. "I don't do much swimming here. And we definitely don't eat the fish."
(Reporting by Garima Goel in Bangalore,; Jeanine Prezioso, Eileen Houlihan, Ed McAllister, Joseph Silha in New York; Richard Valdmanis and Scott Malone in Boston; Editing by Matthew Robinson and Alden Bentley)