Entergy Corp. and Consumers Energy have reached an agreement for Entergy to purchase the 798 MW Palisades nuclear plant near South Haven, MI, for $380 million.

With the addition of Palisades, Entergy — the nation’s second largest nuclear power company — will own 11 nuclear generating reactors and manage a twelfth. Palisades is the company’s second reactor in the Midwest. Five others are in the South and five are in the Northeast.

The $380 million price represents $242 million for the plant itself, $83 million in nuclear fuel based on current market prices and $55 million in related assets. The sale also includes the Big Rock Point Independent Spent Fuel Storage Installation and compensates Entergy for accepting this responsibility.

In addition to the $380 million purchase price, Entergy will make employment offers to all 500 of the plant’s active employees at their same salaries for 18 months. Entergy has also committed to maintain the benefits programs for the employees for 36 months.

As part of the purchase, Entergy also agreed to sell 100% of the plant’s output, up to its current 798 MW, back to Consumers Energy for 15 years at a price structure that retains the benefits of the low-cost nuclear generation for Consumers Energy’s 1.8 million electric customers. Consumers Energy is a unit of CMS Energy.

In addition, Entergy will assume responsibility for eventual decommissioning of the plant. Consumers Energy will retain $200 million of the current $566 million Palisades decommissioning funds balance, with the later return of $116 million more pending a favorable federal tax ruling.

Under the deal, Consumers Energy will pay Entergy $30 million to accept responsibility for the spent fuel at the decommissioned Big Rock Point nuclear plant, which is located near Charlevoix, MI.

In response to the news, Standard & Poor’s Ratings Services (S&P) said that the announcement will not affect Entergy’s ratings, “given the size of the deal and the incremental risk added to the business profile.” S&P said operating risk “is somewhat mitigated by a good performance record and Entergy’s expertise as an operator of nuclear facilities. In addition, the company’s long-term contract to sell power back to Consumers Energy should ensure a stable revenue and cash flow stream.”

Fitch Ratings said that the news is not anticipated to have an immediate effect on Consumers Energy’s ratings or stable outlook. Fitch’s issuer default rating of Consumers is “‘BB-.”

Fitch said that the sale is a positive development for Consumers Energy. “The utility will no longer have the operating or financial risks of owning a nuclear power plant, particularly since Palisades has experienced performance difficulties in the past. Additionally, Consumers will continue to benefit from the low cost of the output from Palisades through a 15-year purchase power agreement (PPA).”

Palisades has operated at an average capacity factor of 89% from 2002 through 2005. The plant set a CMS Energy record in 2004 for the longest continuous operation of any of its electric generating units at 478 days. Palisades already has applied for a 20-year extension of its operating license and expects to receive it in early 2007. Its current operating license expires in 2011.

Entergy knows the reactor design of Palisades. Entergy already has two combustion engineering pressurized water reactors in its 11-reactor fleet. Palisades will be the third, opening up opportunities to improve Palisades’ operations through fleet purchasing, inventory management, and shared management and other economies of scale.

The other nuclear plant operated by Entergy in the Midwest is the Cooper Nuclear Station at Brownville, NE, owned by Nebraska Public Power District.

The sale transaction is targeted to close in the first quarter of 2007. The final purchase price will be subject to several adjustments at closing. The sale must be reviewed by the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission, the Michigan Public Service Commission, and other regulatory and state agencies.

David Joos, CMS Energy’s chief executive officer, noted that the sale agreement with Entergy capped a competitive bid process launched in December.

Concentric Energy Advisors, located in Marlborough, MA, served as Consumers Energy’s financial advisor and auction manager for the Palisades sale. Concentric Energy Advisors also is providing strategic support throughout the transaction and regulatory approval process.

Prior to last week’s news, Entergy had made no secret of its interest in buying nuclear generation. As recently as May, Entergy CEO Wayne Leonard said that the utility was “always interested” in the possibility of buying nuclear power assets.

Other companies are considering the sale of nuclear power assets. Earlier this year, Wisconsin Energy CEO Gale Klappa said that the company would undertake a formal review related to its Point Beach nuclear power plant, and that possible options included the sale of the facility.

Concentric Energy Advisors recently sent out inquiries to owners and operators of nuclear plants in the U.S. “seeking input on whether they would want to buy the plant or operate the plant on behalf of We Energies,” the Milwaukee Journal Sentinel reported on July 5. We Energies is a unit of Wisconsin Energy.

Entergy’s nuclear CEO Gary Taylor told Dow Jones last week that the company would like another Midwest-based nuclear plant.

Although he would not comment on the status of any negotiations for other plants, a New Orleans-based Entergy spokesperson said the company has expressed its interest in the Wisconsin plant along with a number of other non-nuclear facilities scattered around the country. “We’ll look at any opportunity to grow,” the spokesperson told NGI.

In January, Interstate Power and Light Co. successfully closed the sale transaction of its 70% ownership interest in the Duane Arnold Energy Center (DAEC), a nuclear generating facility located near Palo, IA, to FPL Energy Duane Arnold LLC.

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