STATE OF VERMONT
PUBLIC SERVICE BOARD
Docket No. 7404
Petition of Entergy Nuclear Vermont Yankee,
LLC, and Entergy Nuclear Operations, Inc., for
Approval of an Indirect Transfer of Control of
Each Company, Consent to Pledge Assets,
Guarantees and Assignment of Contracts by
Entergy Nuclear Vermont Yankee, LLC, and
Amendment to the CPG of Entergy Nuclear
Operations, Inc. to Reflect a Name Change,
Replacement of $60 Million Guarantee with $60
Million Letter of Credit and Substitution of $700
Million Support Agreement for Two InterCompany Credit Facilities
)
)
)
)
)
)
)
)
)
)
)
)
VERMONT DEPARTMENT OF PUBLIC SERVICE
INITIAL BRIEF
August 12, 2008
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 1 of 26
BRIEF OF THE DEPARTMENT OF PUBLIC SERVICE
The Vermont Department of Public Service, by the Director for Public Advocacy,
respectfully submits the following proposed findings of fact and conclusions of law, and
requests that the Public Service Board consider and adopt these findings in its Order in
this matter.
I. INTRODUCTION
This docket is about Entergy Corporation wanting to reorganize its corporate
businesses into two distinct entities. Simplistically, the first would house its traditionally
regulated utilities including their related nuclear generating plants and operating utilities
and would remain under Entergy Corporation. The second would house Entergy
Corporation’s wholesale nuclear generating businesses under a new holding company
called Enexus Energy Corporation. To accomplish this, Entergy Corporation will have to
sell a controlling interest in various Entergy Corporation affiliates to Enexus Energy
Corporation (Enexus). Accordingly, sections 107, 108, 231 and 232 have to be satisfied
for the transaction to take place. All of the statutory criteria of these four sections need to
be met including a positive finding by the Board that the “acquisition will promote the
public good”1 or “will promote the general good of the state.”2 It is in this need for a
showing of promoting the public good or the general good on which the Petitioners3 fall
short. When we compare what we have as a state today with what is proposed in this
1
30 V.S.A. § 107(b).
30 V.S.A. § 231(a)
3
Petitioners are Entergy Nuclear Vermont Yankee, LLC (ENVY) and Entergy Nuclear Operations, Inc.
(INO) (Collectively: Petitioners)
2
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 2 of 26
transaction, Petitioners show benefits to both Entergy Corporation and Enexus but do not
show a net positive benefit to Vermont that would provide the necessary evidence of
promoting the public good or the general good.
II. PROCEDURAL HISTORY
On January 28, 2008, Entergy Nuclear Vermont Yankee, LLC (ENVY) and
Entergy Nuclear Operations, Inc. (ENO)(jointly referred to as Petitioners) filed with the
Public Service Board (Board) a Petition for approval of an indirect transfer of control of
each company, consent to a pledging of assets, assignment of contracts, a transfer of a
CPG, and the replacement of a $60 million Guaranty by Entergy Corporation with a letter
of credit, and the substitution of a Support Agreement for existing inter-company credit
agreements.
A prehearing conference took place on February 27, 2008.
Motions to intervene were filed by IBEW Local No. 300 (IBEW), Windham
Regional Commission (WRC), Green Mountain Power Corporation (GMP), Central
Vermont Public Service Corporation (CVPS), the Town of Brattleboro, and the Utility
Workers Union of America, AFL-CIO (UWUA). All were granted on March 24, 2008
except for UWUA. Instead UWUA was allowed to participate as amicus curiae by Order
dated May 5, 2008. However, by letter dated June 20, 2008, UWUA filed a notice of
withdrawal from the docket.
On April 8, 2008, a Public Hearing took place by Vermont Interactive Television
with sites open in Bennington, Brattleboro, Johnson, Lyndonville, Middlebury,
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 3 of 26
Montpelier, Newport, Randolph Center, Rutland, Springfield, St. Albans, White River
Junction, and Williston.
On April 10, 2008, the Board issued a Protective Agreement in the docket.
Petitioners prefiled the testimony and exhibits of Wanda Curry on January 28,
2008 with the Petition.
On May 29, 2008, the Department prefiled the testimony and exhibits of Seth
Parker and Charles Adey. On that same day GMP and CVPS jointly prefiled the
testimony and exhibits of Nancy Brock.
The prefiled the rebuttal testimony and exhibits of Susan Abbott, Wanda Curry,
and Joseph DeRoy was submitted on June 16, 2008.
On July 10, 2008, the Department prefiled the surrebuttal testimony of Seth
Parker and Charles Adey. On the same day GMP and CVPS jointly prefiled the
surrebuttal testimony and exhibits of Nancy Brock.
Technical hearings took place on July 29 and 30, 2008.
III. GOVERNING LAW
1.
ENVY and ENO hold certificates of public good for the operation of the
Vermont Yankee Nuclear Power Station (VY Station or Vermont Yankee)
under 30 V.S.A. § 231, and are subject to the jurisdiction of the Board.
Petition at 4, ¶¶ 1, 2.
2.
As a result of the proposed reorganization, Enexus will acquire a 100%
interest in Entergy Nuclear Holding Company from Entergy Corporation
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 4 of 26
(ENHC). ENHC owns a 100% interest in Entergy Nuclear Holding Company
#3, which, in turn, owns a 100% interest in Entergy Nuclear Vermont
Investment Company, which, in turn, owns a 100% interest in ENVY.
Petition at 4, ¶¶ 6, 7.
3.
ENO will also change ownership if the transaction is approved. As a result of
the reorganization, ENO will be converted from a Delaware corporation to a
Delaware limited-liability company and will be called EquaGen Nuclear LLC.
EquaGen Nuclear LLC will become a wholly-owned subsidiary of EquaGen
LLC, which in turn will be owned by a new joint-venture company to be
owned 50% by Entergy EquaGen, Inc. and Enexus Equa Gen, LLC. Petition
at 5, ¶¶ 13, 15, 16; Exh EN-1 and 2 (Revised).
4.
Entergy Corporation’s marketing affiliate, Entergy Nuclear Power Marketing,
LLC, under the terms of the Power Purchase Agreement, may pledge the
Power Purchase Agreement to secure Enexus credit facilities. Petition at 6, ¶
20.
Discussion of Governing Law
In its petition, Petitioners seek approvals under 30 V.S.A. § 107, 108, 231, and
232. Essentially the myriad of transactions and changes proposed by Petitioners
encompass an indirect change of control of both ENVY and ENO. In addition ENO will
be converted from the entity it is today to a limited liability company. Further there is a
pledge of assets to consider in the transactions that could include the Power Purchase
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 5 of 26
Agreement that ENVY has with Vermont Yankee Nuclear Power Corporation. All of
this leads to the necessary application of the controlling statutes.
The Department finds that Petitioners have met the statutory requirements except
that they have not been able to demonstrate the twin requirements that the transaction will
promote the public good”4 or “will promote the general good of the state.”5 Accordingly
the Department will focus its brief on these requirements.
IV. THE PROPOSED TRANSACTIONS
5.
The transaction would create a new holding company, Enexus. The shares
of which will be distributed directly to the then current shareholders of
Entergy Corporation after which Enexus will be a separate publicly-traded
company. Petition at 2.
6.
This transaction proposes placing Entergy Corporation’s six operating
northern wholesale merchant generators under Enexus’ ownership. The six
units include Vermont Yankee, Indian Point Units 2 and 3 (NY), Fitzpatrick
(NY), Pilgrim (MA), and Palisades (MI). The transaction also includes
putting two non-operating plants (Indian Point Unit 1 and Big Rock) under
Enexus’ ownership as well. Petition at 5.
7.
The NRC operating license for Palisades has been renewed until 2031. The
NRC operating licenses for Vermont Yankee, Indian Point Units 2 and 3,
Fitzpatrick and Pilgrim are to expire in 2012, 2013, 2015, 2014, and 2012.
4
5
30 V.S.A. § 107(b).
30 V.S.A. § 231(a)
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 6 of 26
Entergy is seeking license renewal for these 5 units. Exhibit DPS 3C
(Although this Exhibit is confidential the expiration dates of the NRC
licenses are available on the NRC website and are not confidential.)
8.
Essentially if the transaction were approved, Vermont Yankee would be
owned by Enexus through a number of Enexus affiliates and holding
companies. Petition at 4; Exh. EN-2(Revised).
9.
ENO holds the licenses to operate the VY Station, Indian Point Units 1, 2,
and 3, Fitzpatrick, Pilgrim, Palisades, and Big Rock. Petition at 5.
10. Under the transaction, EquaGen Nuclear LLC, will hold the licenses to
operate the nuclear generation plants. Petition at 5; Exh. EN-2(Revised).
EquaGen Nuclear LLC will be a subsidiary of EquaGen LLC which in turn
will be owned 50% by Entergy EquaGen, Inc. and Enexus EquaGen LLC.
Exh. EN-2(Revised); Petition at 5-6.
11. Entergy Corporation intends the restructuring to enhance the financial
strength of Entergy Corporation’s wholesale units, simplify the corporate
structure of Entergy Corporation, and to facilitate the financing of Entergy
Corporation’s Wholesale Units as a discrete and integrated business. Petition
at 2.
12. Under the transaction, Entergy Corporation will replace the $60 million
parental Guaranty from Docket 64546 with a third-party letter of credit
6
Docket 6545, Investigation into General Order No. 45 Notice filed by Vermont Yankee Nuclear Power
Corporation re: proposed sale of Vermont Yankee Nuclear Power Station to Entergy Nuclear Vermont
Yankee, LLC, and related transactions.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 7 of 26
running to Enexus Nuclear Vermont Yankee in the amount of $60 million.
Petition at 8.
13. Petitioners also assert that the transaction will result in a replacement of intercompany credit agreements that benefit ENVY, and were put in place and
approved as part of Docket 6545, with a $700 million Support Agreement
running from Enexus to the Wholesale Units. Petition at 8.
14. The restructuring transaction may require ENVY to guarantee Enexus debt
and to secure its guarantee by a pledge of ENVY assets and assignment or
pledge of material contracts as collateral for the debt to be incurred by
Enexus. This debt amount in aggregate principal may be up to $4.5 billion.
The proceeds of the $4.5 billion borrowing will be used to reduce, retire, or
pay off Entergy Corporation’s credit facilities, exchange and retire its senior
notes and possibly conduct an exchange offer to repurchase common stock
and also provide some working capital to Enexus. Petition at 9; Curry pft
1/28/08 at 18.
15. A credit facility up to $2 billion will be put in place by Enexus to finance
certain capital expenses and acquisitions, for other business purposes and as a
source of working capital for Enexus, a portion of which will be available to
support the issuance of letters of credits on behalf of Enexus or its affiliates.
Petition at 9; Curry pft 1/28/08 at 24.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 8 of 26
V. THE BOARD SHOULD NOT APPROVE THE TRANSACTION BECAUSE IT
DOES NOT PROMOTE THE PUBLIC GOOD OR THE GENERAL GOOD OF
THE STATE.
Although it appears that Enexus will have the operating expertise to run a nuclear
fleet, there has been no showing by Petitioners that the transaction will promote the
public good or the general good of the state as required by 30 V.S.A. §§ 107 and 231.
A. The $700 million Support Agreement in combination with the $60 million letter
of credit offered as part of the transaction is inferior to what Vermont has today.
16.
As part of the Board approved sale of Vermont Yankee Nuclear Power
Station to Entergy Corporation, two inter-company credit agreements were put
into place. Each was in the amount of $35 million, one with Entergy Global
Investments, Inc. (EGI) and one with Entergy International Holdings, LLC
(EIHL). Petition at 6; Curry pft 1/28/08 at 39. See also Docket 6545 Order
of 6/13/2002 at 114 et. seq.
17. The inter-company credit agreement with EGI is intended to function as a
revolving-credit facility to fund ENVY’s needs for working capital. Petition
at 6; Curry pft 1/28/08 at 40. . See also Docket 6545 Order of 6/13/2002 at
finding 149.
18. The inter-company credit agreement with EIHL is intended to function as
standby financial assurance. It cannot be used in the normal course of
business, but it may be used to pay costs during the period between an
unplanned, premature shutdown of the VY station, and the eventual access by
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 9 of 26
ENVY to funds from the decommissioning trust. Petition at 7. See also
Docket 6545 Order of 6/13/2002 at findings 153-54.
19. As part of the transaction, a $700 million Support Agreement will exist
between Enexus and the owners of each of the six Enexus nuclear stations
(Subsidiary Licensees), in our case, Vermont Yankee. Curry pft 1/28/08 at
42; Exh. EN-3.
20. The Support Agreement by its terms can be drawn down by any of the six
Subsidiary Licensees, including Vermont Yankee, for money necessary to pay
“Operating Expenses or meet NRC requirements.” Operating Expenses are
defined within the Support Agreement as “expenses to pay the pro rata
expenses of maintaining the Facilities safely and protecting the public health
and safety.” Exh. EN-3.
21. The Support Agreement is a mechanism to provide for safe plant operations
and meet NRC requirements. Curry rpft 6/16/08 at 10.
22. Under the Support Agreement, $700 million is the aggregate obligation of
Enexus to its Subsidiary Licensees. For instance if $700 million is already in
use by the Subsidiary Licensees and if ENVY needs money to fulfill an NRC
requirement, then Enexus would not have to fund the ENVY request.
Alternatively, Enexus might still fund such an expense if it was an
economically sound decision. Exh. EN-3; Tr.7/30/08 at 23 (Curry).
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 10 of 26
23. If money is advanced to one of the Subsidiary Licensees under the Support
Agreement, Enexus will decide if the advance will be made in the form of a
loan or in the form of a capital contribution. Tr. 7/30/08 at 21, 33 (Curry).
24. The $700 million Support Agreement is a financial assurance required by the
U.S. Nuclear Regulatory Commission, and there is an incentive for the
Subsidiary Licensees not to draw down the $700 million. Tr. 1/29/08 at 174
(Curry); Tr. 7/30/08 at 18 (Curry).
25. Each Subsidiary Licensee has its own board. Entergy appoints the Board
members. Tr. 7/30/08 at 19 (Curry).
26. ENVY and the Vermont Yankee Nuclear Power Corporation (VYNPC) have a
unit contingent contract under the Power Purchase Agreement (PPA) now in
place. Tr. 7/30/08 at 24 (Curry).
27. The PPA between ENVY and VYNPC has been well below the wholesale
market price. The ratepayers under CVPS and GMP have saved hundreds of
millions of dollars since the PPA went into effect. CVPS and GMP expect
that their ratepayers will enjoy hundreds of millions in additional savings as
long as the VY Station operates safely and reliably through the end of the
current PPA in March, 2012. Brock pft 5/29/08 at 3.
28. When the Vermont Yankee Nuclear Power Station was recently derated to
about 50% capacity because of a cooling tower incident, CVPS paid about
$230,000 to $250,000 per day for replacement power during the derate. Tr.
7/30/08 at 136 (Brock).
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 11 of 26
29. ENVY currently has available to it a $60 million Guaranty from Entergy
Corporation. Curry pft 1/28/08 at 40. See also Docket 6545 Order of 6/13/02
at Findings 160-165.
30. Through the Guaranty, Entergy Corporation agrees that if the amounts
available under the EIHL credit agreement is less than $35 million at the time
of the permanent cessation of operations at the VY Station or if the amount
available under the EGI credit agreement is less than $25 million at the same
time, it will make available to ENVY any deficiency up to a total of $60
million. Curry pft 1/28/08 at 40.
31. The $60 million Guaranty was at its inception supposed to cover
approximately six months of the VY Station’s operating costs until it could
access the decommissioning fund. Docket 6545 Order of 6/13/08 at Finding
161.
32. It is unclear at this time if the $60 million Guaranty would be enough to cover
approximately six months of the VY Station’s operating costs. Parker rpft
7/10/08 at 5
33. In the transaction before the Board, Entergy will convert the $60 million
Guaranty into a third-party letter of credit to be issued by a financial
institution with a minimum S&P rate of A. Curry pft 1/28/08 at 43.
34. The $60 million letter of credit could be better than the $60 million Guaranty
now in place. Parker pft 7/10/08 at 5.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 12 of 26
35. In Docket 70827, in order to provide financial assurance for care of spent fuel,
Entergy agreed to obtain a third-party letter of credit in an amount required to
manage spent fuel for six months following the VY Station’s shutdown if
Entergy Corporation’s debt should be rated below investment grade. Curry
pft 1/28/08 at 41.
36. Just as the $60 million Guaranty is only available if the EIHL and EGI credit
agreements are exhausted, the $60 million letter of credit will only be
available if funds are not available under the Support Agreement. Curry pft
1/28/08 at 43.
Discussion: The $700 million Support Agreement in combination with the $60
million letter of credit offered as part of the transaction is inferior to what Vermont
has today.
Entergy asserts that the $700 million Support Agreement in combination with the
$60 million letter of credit is superior to the inter-company credit agreements and
Guaranty that are in place today for ENVY’s use, but upon comparison it is evident that
Vermont’s public good is better off with the inter-company credit agreements and
possibly even the $60 million Guaranty now in place. This is true for four reasons.
First, by the terms of the Support Agreement it can only be used to meet NRC
requirements or for Operating Expenses. But Operating Expenses is defined in the
Support Agreement document as “maintaining the Facilities safely and protecting the
public health and safety.” Accordingly, the Support Agreement would not be available
7
Docket No. 7082: Petition of Entergy Nuclear Vermont Yankee, LLC and Entergy Nuclear Operations,
Inc., for a certificate of public good to construct a dry-fuel-storage facility at the Vermont Yankee Nuclear
Power Station, in Vernon, Vermont.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 13 of 26
for remedying reliability concerns.8 ENVY could not call on the Support Agreement for
something non-safety related like the collapse of a cooling tower. In contrast, the credit
agreement in place with EGI that ENVY relies on today is to be used for working capital.
Reliability is not excluded. Looking at the recent derate due to a non-safety related
cooling tower problem that cost CVPS ratepayers about $230,000 to $250,000 per day for
replacement power as an example, it is important that ENVY have guaranteed access to
credit under agreements that would allow access to capital to repair such a reliability
problem. That would not be true under Enexus ownership.
Second, with the current credit agreements in place with EGI and EIHL, as a state
we know that up to $70 million is available for ENVY’s use for the VY Station.
Additionally, if the VY Station ceases operations and these two credit agreements are
depleted, then the $60 million Guaranty comes into use. Under the proposed Support
Agreement, we are sharing a bigger pool of potential money for ENVY but we are
sharing it and no longer have a dedicated source of funds for the VY Station. Enexus is
not compelled to provide any more than the $700 million Support Agreement. So if the
transaction is approved and all the stations up for relicensing in the Enexus fleet (Indian
Point Units 1 and 2 (2013 and 2015), Fitzpatrick (2014) and Pilgrim (2012)) all need an
expensive new part and exhaust the $700 million before ENVY makes a written request,
then there would be no money under the Support Agreement available for Vermont
Yankee unless Enexus saw investing more in ENVY was an economical business
decision. Tr. 1/29/08 at 169-173. Although the $700 million pool of money is bigger, it
8
Although Ms. Curry thought that the Support Agreement could be used for a reliability items, she
indicated she was unsure. Tr. 1/30/08 at 29. Regardless of her testimony the Support Agreement speaks
for itself and will govern what the Support Agreement can be used for by the Subsidiary Licensees.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 14 of 26
is restricted to safety related items and is shared by all older nuclear stations. Vermont is
likely to benefit more from its current dedicated pool of credit than from the $700 million
restricted pool provided by the Support Agreement.
Third, the conversion of the $60 million Guaranty to a $60 million letter of credit
could be better for Vermont, but it is not beneficial because of the need to first exhaust
the $700 million Support Agreement before the $60 million letter of credit could be
accessed. Today, the $60 million Entergy Corporation Guaranty can only be accessed if
the amount available under the EIHL credit agreement is less than $35 million at the time
of the permanent cessation of operations at the VY Station or if the amount available
under the EGI credit agreement is less than $25 million at the same time. With the new
proposed $60 letter of credit, it can only be accessed if the $700 million Support
Agreement is exhausted. Given the need to have the $700 million Support Agreement
completely depleted before the $60 million letter of credit can be accessed, it is less likely
that the $60 million letter of credit will ever be called upon so it is unlikely to promote
the public good or the general good of the state.
Fourth, the offered $60 million letter of credit may be a duplication of a
requirement already in place, and thus not of added value. Currently under Docket 7082,
ENVY to comply with the Board’s Final Order in that docket, agreed to obtain a thirdparty letter of credit in the amount required to manage spent fuel for six months9
following the VY Station’s shutdown if Entergy Corporations debt should be rated below
investment grade. If the transaction is approved, all the witnesses agree that Enexus will
9
Spent fuel management would be a part of keeping the VY Station operational in the event of permanent
cessation of operations and thus a part of the $60 million Guaranty.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 15 of 26
be rated below investment grade. Accordingly, the Board’s requirement in Docket 7082
would need to be fulfilled by a letter of credit being put into place. If under the proposed
transaction there would be two non-overlapping letters of credit in place, then Vermont
may see the $60 million letter of credit as of some benefit but it is unclear if there are two
such letters of credit proposed.
B. ENVY relies upon its parent for support, and Enexus will not be as financially
strong as Entergy Corporation.
37. ENVY will need assistance from its parent or associated companies in the
coming years to assist in capital expenditures. Parker pft. 5/29/08 at 25.
38. Entergy Corporation, the current owner of ENVY, has an investment-grade
credit rating from Standard & Poor’s (S&P), Moody’s Investors Services
(Moody’s) and Fitch Investment Services (Fitch). Parker pft 5/29/08 at 10.
39. Enexus is expected to have a corporate credit rating in the BB range. Curry
pft 1/28/08 at 22.
40. BB is not an investment-grade credit rating. Parker pft 5/29/08 at 8-10.
41. Investment-grade credit ratings are viewed as safer and more prudent by
investors and lenders. There are many financial institutions, funds, and other
investors that are restricted to investment-grade securities. Debt that has an
investment-grade rating or is issued by an issuer with an investment-grade
rating has (i) a broader market with more potential purchasers and (ii) has
lower costs in terms of interest rate compared to ratings below investmentgrade, which are referred to as “speculative grade” credit ratings. For
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 16 of 26
example, the Federal Reserve Board has restrictions for its bank members of
the Federal Reserve System that purchase debt securities below investmentgrade, and the Federal Home Loan Bank System prohibits federally chartered
savings and loan associations from purchasing debt securities below
investment-grade. The State of Vermont has restrictions on purchases of
securities below investment-grade for state-chartered insurers. Parker pft
5/29/08 at 10, 13.
42. S&P describes the credit quality of an issuer with a credit rating in the BB
range as facing “major ongoing uncertainties and exposure to adverse
business, financial or economic conditions which could lead to the obligor’s
inadequate capacity to meet its financial commitments.” Parker pft 5/29/08 at
14.
43. Moody’s describes the equivalent to a BB rating as being “judged to have
speculative elements and are subject to substantial credit risk.” Parker pft
5/29/08 at 14.
44. Entergy did have a preliminary credit rating evaluation performed for Enexus
by S&P and Moody’s. The result was as expected for Enexus of a credit
rating of below investment-grade. Parker pft 5/29/08 at 14-18.
45. As the owner of six merchant nuclear plants, the preliminary rating given
Enexus is an indication that Enexus will have limited financial ability to
address risks having to do with adverse changes in the power and fuel market,
poor plant performance that reduces revenues, or to fund unexpected capital
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 17 of 26
expenditures for the safe and efficient operation of the plants. Parker pft
5/29/08 at 19.
46. S&P specifically identified potential negative impacts of having Enexus not of
investment-grade. Parker pft 5/29/08 at 15-17 (Confidential).
47. If credit rating agencies see a below investment-grade company as less likely
to be able to pay back its debts than an investment grade company, they also
may think it more likely that below investment-grade companies may face
financial difficulties that would be broader than just debt service. Tr. 7/29/08
at 26 (Abbott).
48. Almost all the owners of nuclear power plants that could be researched have
investment-grade corporate or issuer credit ratings. Parker pft 5/29/08 at 10.
49. Nuclear plants do have unique risk. Tr. 7/29/08 at 18 (Abbott); Exh. DPSSGP-3 Confidential at 8.
50. Where Entergy Corporation is a very large and diversified corporation with an
investment-grade credit rating, Enexus will be much smaller and will have
more limited financial resources. Parker rpft 7/10/08 at 6.
51. Enexus will have much smaller revenues than Entergy Corporation and much
less net income. Additionally, Enexus will have considerably less assets than
Entergy Corporation. Parker pft 5/29/08 at 20-21; Exh. SGP-5 (Confidential);
Exh. SGP-6 (Confidential)
52. The credit rating agencies are the best judges of a company’s financial
strengths and weaknesses. Tr. 7/30/08 at 192-93 (Parker).
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 18 of 26
53. Enexus will have substantially more negative equity than originally reported.
Compare Exh. DPS-SGP-5 with Exh. Board 1.
54. The Enexus Securities and Exchange Commission (SEC) Form 10 filed at the
SEC on July 31, 2008 has a substantial section, as required by the SEC, on the
risk factors of its business and the risks related to the separation from Entergy.
At page 34 and 62 of that document Enexus discusses the substantial
indebtedness of the company and how it could negatively affect its financing
options and liquidity position. SEC Form 10 Filed with the SEC on July 31,
2008 (Exh. EN-4).10
Discussion: B. ENVY relies upon its parent for support, and Enexus will not be as
financially strong as Entergy Corporation
Although Petitioners would have us believe that the basis of the comparison for
this case is only whether the tangible committed legal obligations11 of the new company
(Enexus) are superior to the old company (Entergy), the companies that stand behind the
tangible committed legal obligations are as important as the obligations themselves. For
example, although Entergy Corporation’s current legally committed obligations are the
$60 million Guaranty and the two affiliate credit agreements (EGI and EIHL) it matters
to the State of Vermont that those commitments are backed up by a financially strong
10
By letter dated August 5, 2008, Petitioners submitted the Amended SEC Form 10 to the Board that had
been filed at the SEC on July 31, 2008. Entergy asked that the Board admit the Amended SEC Form 10
into the record as Exhibit EN-4. No parties objected to the admission.
11
Entergy Corporations obligations may extend beyond the $60 million Guaranty and the two affiliate
credit agreements. “If there are safety or other NRC type capital expenditures required and the plant and
the incremental capital expenditures are cost effective, I’m not sure that Entergy may be strictly obligated,
but I would have to think that they certainly would make such capital expenditures.” Tr. 7/30/08 at 182
(Curry).
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 19 of 26
parent company. Moreover, it matters to the State of Vermont that currently the Chief
Nuclear Operator responsible for the safety of the plant has the resources of a strong
parent company to call upon in the event of an emergency. So even though Enexus holds
out a $700 Support Agreement and a $60 letter of credit12, if those offered commitments
do not have the backing of a financially strong parent, then they may be only a mirage of
security without actually promoting the public good.
Because we have a very favorable Power Purchase Agreement with ENVY that is
estimated to save Vermont ratepayers millions of dollars, it is very important financially
to the state and its ratepayers that the VY Station be reliable. If ENVY needs financial
assistance, Vermont needs to know that the parent company has the strength to offer that
assistance. The case before the Board shows Enexus to be a company that will have less
financial ability than Entergy Corporation to withstand adverse market changes, weather
poor plant performance, or fund unexpected capital expenditures. Although it has
positive benefits for Enexus and Entergy, the test before the Board is whether the
transaction will promote the public/general good. Having a weaker parent for ENVY is
not promoting the public good.
C. The 50%/50% ownership structure proposed in the transaction does not
promote the public good.
55. ENVY today is owned through a number of affiliates and holding companies
by Entergy Corporation. Exh. EN-1.
56. ENO is owned today by Entergy Corporation through a holding company.
Exh. EN-1
12
See previous section for why these offered commitments will not promote the public/general good.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 20 of 26
57. If the transaction is approved, Entergy Corporation and Enexus will own
companies called Entergy EquaGen, Inc. and Enexus EquaGen, LLC
respectively. They in turn will each hold a 50% ownership share in EquaGen
LLC. EquaGen LLC will own EquaGen Nuclear LLC which would hold the
NRC licenses for the 6 plants in the Enexus proposed fleet and also be the
employer of the Chief Nuclear Officer. Exh. EN-2(Revised);
58. Under the corporate structure today, ownership and control of ENVY and the
nuclear plant operator are unified through Entergy’s ownership of the nuclear
plant and the licensed operator. Brock pft 5/29/08 at 10.
59. Because of the Entergy Corporation/Enexus proposed 50%/50% ownership
of EquaGen LLC and its ownership of EquaGen Nuclear LLC, control over
the operator of the VY Station will be split. Exh. EN-2(Revised); Brock pft.
5/29/08 at 10
60. EquaGen LLC has the authority at all times to shut the VY Station down or
take any other actions necessary to carry out its responsibilities as the
Operator under the Operating License. DeRoy rpft 6/16/08 at 8-9.
61. Today ENO has the authority to shut the VY Station down in accordance with
its responsibilities as the licensed operator (such as for an equipment
problem), but it does not have the authority to unilaterally close the plant for
economic reasons. DeRoy rpft6/16/08 at 9.
62. The partial separation of ownership and control could create delays and
management distractions, preventing timely implementation of actions
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 21 of 26
necessary for the continued reliable operation of Vermont Yankee. Brock pft
5/29/08 at 11.
63. A dispute resolution mechanism has been developed. Having a dispute
resolution procedure is common to many operating agreements. DeRoy rpft
6/16/08 at 9; Exh. EN-JPD-1.
64. The dispute resolution mechanism which would come into play if there were
differences of opinion at the EquaGen Nuclear LLC level are cumbersome
and may be a hindrance to the optimal operation of the VY Station and could
adversely affect Vermont residents. Parker pft 5/29/08 at 37.
65. The use of the dispute resolution mechanism for disagreements would take
months to resolve. DeRoy rpft 6/16/08 at 10; Tr. 7/29/08 at 110.
66. Petitioners have not explained why it could not preserve economic benefits
and scale economies of the fleet of nuclear plants if EquaGen LLC were
owned solely by Enexus. Brock rpft 7/10/08 at 6.
Discussion: The 50%/50% ownership structure proposed in the transaction does not
promote the public good.
Because the PPA is a unit contingent contract, when Vermont Yankee is shut
down or derated for unexpected reasons such as problems with the cooling tower,
Vermont ratepayers are at great risk of having to pay higher prices for replacement
power. For example, the derate in July of 2008 at Vermont Yankee resulted in CVPS
paying about $230,000 to $250,000 per day for replacement power. Those costs are
likely to get passed on to ratepayers. Where Vermont Yankee and the PPA are
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 22 of 26
concerned, time is money and the 50%/50% ownership of EquaGen LLC could create
costly delays.
The harm to Vermonters is precisely because of Vermont’s concern with
reliability. Necessary safety items are highly unlikely to result in a “tie” at the EquaGen
level precisely because they are safety items and required by the NRC so there should be
no dispute about those items. However, for reliability items, Enexus and Entergy may
have different interests that would result in the impasse that would necessitate the use of
the dispute resolution mechanism. For example, a tie might result from a non-safety
mechanism unexpectedly collapsing due to lack of maintenance and the question would
be should the money be spent to rebuild it immediately or allow Vermont Yankee to run
at 75% capacity until the issue of license renewal is resolved . ENVY through Enexus
may feel an obligation under the PPA to have used commercially reasonable efforts to
maintain the VY Station’s installed capability and want to rebuild the tower immediately
while Entergy Corporation might want to wait until the question of license renewal is
resolved. The dispute resolution mechanism described by Mr. DeRoy would
undoubtedly, over the course of months, resolve the dispute. But the concern for
Vermont is that each of those months represents ratepayer money.
Because no valid reason has been given for the 50%/50% ownership of the
operating company or a proposed expedited dispute resolution mechanism, the
Department has to conclude that this provision contributes to the transaction not
promoting the public/general good of the state.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 23 of 26
D. The proposed new structure will not provide a simpler less complicated
structure that will benefit Vermont.
67. The post-transaction corporate structure appears to be almost as complicated
as the current structure. Although some entities have been removed, other
new entities have been added and the relationship between the entities is still
complicated. Parker pft 5/29/08 at 36; Exh. EN-1; Exh EN-2 Revised; Exh.
EN-JPD-2; Exh. Board-2.
68. While there may be advantages to the individual companies that will own and
operate the merchant nuclear power fleet, there is no apparent reason that the
new corporate structure will benefit Vermont residents or promote the
public/general good of the state. Parker pft 5/29/08 at 36.
Discussion: The proposed new structure will not provide a simpler less complicated
structure that will benefit Vermont.
Although Petitioners assert that the transaction as proposed will lessen the
complicated structure that is in place today and provide more transparency into the
overall financial strength of Enexus in the future (Curry pft at 6; Curry rpft at 25), it
really is a benefit to Entergy Corporation and Enexus and not to Vermont. There is
nothing wrong with this being a benefit accruing to the corporations but it cannot be used
to demonstrate the promotion of the public good. Additionally, after looking at the pre
and post organizational charts, it is difficult to see significant differences other than the
joint ownership of EquaGen LLC which was discussed in the previous section. If there
are key differences as asserted by Ms. Curry, it is difficult at best to see any reduction in
the complexity of the many corporations and the lines of reporting.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 24 of 26
E. There are remaining operational and transition issues that have not been
resolved so at this point do not promote the public good.
69. Entergy has been thorough and presented documents of quality on issues of
technical and operations information. Adey rpft 7/10/08 at 3; Exh. EN-Cross2.
70. One area that has not been addressed is providing ENVY with a contractual
avenue to approve or disapprove the assignment of personnel to Vermont
Yankee. The Operating Agreement is between ENVY and EquaGen, and it
defines the roles and responsibilities for working together to achieve the
desired objective. As such there should be a clear way to take issue with
personnel assignments and that should be part of the day to day operations
function. By not having this in the Operating Agreement, it appears that a
functionally integrated and business coordinated agreement may not be
viewed by ENVY and EquaGen as a priority. Adey rpft 7/10/08 at 5.
71. Today ENVY and ENO are subsidiaries of the same parents, thus overall
responsibility is maintained in a single group. However, in the proposed
transaction, ENVY and EquaGen Nuclear LLC will not answer to the same
parent because of the 50%/50% ownership of EquaGen by Entergy and
Enexus and will be financially independent. With this independence, more
specific contractual definitions of responsibility and authority at the
appropriate operations level are recommended. Adey rpft 7/10/08 at 5.
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 25 of 26
72. In the operating agreement under Safety Conscious Work Environment the
Operator “shall assure that its employees are continuously aware of conditions
potentially adverse to safety or public health.” This should include any
contractors as well. Exh. EN-JPD-1 at Article XV, 15.2(c)ii; Tr. 7/29/08 at
144 (DeRoy).
Discussion: There are remaining operational and transition issues that have not
been resolved so at this point do not promote the public good
There are some remaining operational and transitional issues that have not been
resolved and should be resolve in the final documents. This should include references to
contractors in the Operating Agreement under Safety Conscious Workplace.
VI. IF THE BOARD APPROVES THE TRANSACTION, ENEXUS AND ITS
SUBSIDIARIES AND AFFILIATES MUST BE HELD TO THE COMMITMENTS
MADE BY ENTERGY CORPORATION AND ITS SUBSIDIARIES AND
AFFILIATES TO THE STATE OF VERMONT AND ITS UTILITIES.
If the Board determines that the transaction before it does promote the public and
grants approval, the approval should be conditioned on Enexus and its subsidiaries and
affiliates being responsible for and honoring all the commitments, agreements,
settlements, and memoranda of understanding entered into by Entergy Corporation and
its subsidiaries and affiliates with the State of Vermont and the Vermont Utilities.
Entergy Chief Financial Officer of Entergy Nuclear Operation, Wanda Curry, reiterated
Enexus’ commitment to live up to all of the obligations made by Entergy and its
subsidiaries and affiliates. Tr. 7/29/08 at 156-61 (Curry); Tr. 7/30/08 at 64-65 (Curry).
Initial Brief of the Department of Public Service
Docket No. 7404
August 12, 2008
Page 26 of 26
The Department requests that these commitments be part of a Board order if the
transaction is approved.
VII. CONCLUSION
Petitioners are proposing a transaction that makes sense to them and benefits
them. There is nothing wrong with a business taking such an approach. But in addition
to benefiting the corporation the transaction has to promote the public/general good for a
transaction of this type in Vermont. For the foregoing reasons the Department does not
believe that at this time the Petitioners have met statutory requirements necessary for
approval of the proposed transaction. Accordingly, the Department recommends that the
Board deny the Petition.
Dated at Montpelier, Vermont this 12th day of August, 2008.
VERMONT DEPARTMENT OF PUBLIC SERVICE
By:____________________________________________
Sarah Hofmann
Director for Public Advocacy