Now, this brings up a whole lot of questions for us as relates to License Renewal, both here, and in Vermont...any attorney's out in the audience care to give us a read on this fast breaking news story? Does this significantly change Entergy's pending License Renewal Application. Would they have to start all over at square one, or does the fact they are going to maintain 50 percent ownership keep things kosher with the NRC...what am I asking here, the NRC could care less what effects this action will ultimately have, they only care about rubber stamping the process.
By Lisa Lee and Matt Daily
NEW YORK (Reuters) - Entergy Corp (ETR.N: Quote, Profile, Research), the second-largest U.S. nuclear power generator, said on Monday it would spin off five nuclear plants into a new company in a bid to capitalize on rising power prices for nuclear generation.
The new company, which will be spun off in a tax-free deal, would have nearly 5,000 megawatts of generating capacity, located largely in the U.S. Northeast, which has some of the highest power prices in the country.
Entergy also plans to form a 50-50 joint venture with the new company to run and operate the nuclear plants, whose prices are not regulated the way other utility plants' are.
After the spin-off of the nuclear plants, planned for the third quarter of 2008, Entergy would consist of five electric utility subsidiaries across four states and the stake in the new unit.
The U.S. nuclear industry foresees a resurgence driven largely by expectations that the federal government will create new rules limiting carbon dioxide emissions that are blamed for global warming. Nuclear generating plants do not emit the greenhouse gases that fossil-fuel plants do.
Chief Executive Wayne Leonard does not see the new stand-alone nuclear company building any new nuclear plants. "I can't imagine," he told Reuters at an industry conference on Monday in Orlando, Florida.
But the new company could be ripe to make purchases or be an acquisition target. If it were to pursue the acquisition path, Leonard could see the new company buying natural gas plants.
As for new nuclear building plans for the regulated Entergy, Leonard said the process has been "slow and frustrating," adding that "getting a firm price on what it will cost has been difficult."
Entergy had previously said it was considering a spin-off, joint venture or sale of the nuclear plants, and Leonard said he remained open to selling a stake in the new company.
"There is no shortage of interest," he said.
The new company spun off by Entergy would have debt totaling $4.5 billion, a director at Fitch Ratings said at the conference. That debt would be "not commensurate with investment grade," Fitch's Justin Bowersock said.
Leonard told Reuters he did not expect the new company to receive investment grade rating, adding that the nuclear company could have been configured to get one but that "it didn't make economic sense."
Entergy said the new company would target earnings before interest, taxes, depreciation and amortization of $2 billion by 2012 based on an average power price of about $95 per megawatt hour. That would leave the business $500 million to $1 billion annually for acquisitions or share repurchases.
Leonard said he expected the new company to have double-digit growth, and sooner or later become a business with $20 billion in market capitalization.
"In the not too distant future," he said.
The plants included in the new company would be the Pilgrim station in Plymouth, Massachusetts; the Fitzpatrick and Indian Point plants in Oswego and Buchanan, New York; the Palisade plant in Covert, Michigan; and the Vermont Yankee plant in Vernon, Vermont.
The remaining Entergy company expects to announce a new share buyback plan "right out of the box" after the spin-off is completed, Leonard said.
Entergy said it expected 2008 earnings to be between $6.50 and $6.90 per share. Analysts' average forecast is for earnings of $6.87 per share, according to Reuters Estimates.
Third-quarter earnings rose 19 percent, helped by higher wholesale power prices and recent rate increases.
Net income was $461.2 million, or $2.30 per share, up from $388.9 million, or $1.83 per share, a year earlier.
The earnings-per-share gain of nearly 26 percent lagged the 27 percent the company forecast on October 17.
Entergy shares rose $5.46, or 4.6 percent, to close at $124.15 on the New York Stock Exchange, outpacing the 0.5 percent gain in the broader Standard & Poor's Utilities index.