Nassim Taleb Would Counsel Entergy to Maintain Vermont Yankee’s Operating License

Nassim Taleb is a author and essayist whose 2007 book, The Black Swan, has been described in a review in the Sunday Times as one of the most influential books published since World War II. He often works to focus people’s attention on the importance of maintaining flexibility to respond to unpredicted or unpredictable events; he refers to actions that help maintain flexibility at low cost as “optionality.”

He also describes flexibility as “antifragile,” reminding readers and followers that the key to survival is being able to change directions and to bend without breaking.

In my opinion, Taleb would advise Entergy to maintain the option of restarting Vermont Yankee. All evidence points to the fact that the plant is in decent physical condition, produces electricity at a low marginal cost, and owns valuable permissions that would be difficult for a competitor to replicate.

Unfortunately, the company is proceeding down a path that eliminates the option of restarting the plant. Vermont Yankee is a complete and permitted factory that can produce an extremely useful and potentially lucrative product. Though market conditions have been unfavorable in the recent past, they could have been hugely lucrative in 2005-2008. If Entergy gives up the option to restart, it eliminates the potential for substantial revenues if market conditions change while failing to eliminate any of the potential liabilities and distractions associated with continuing to own the plant.

The point of no return for a shut down nuclear power plant is the act of filing two documents with the Nuclear Regulatory Commission that notify the commission that the nuclear fuel has been removed from the plant and that the owner of the facility has no intention of ever operating the plant again. When the NRC receives and accepts those two documents, it issues a license amendment that converts the existing operating license to one that is a “possession only” license.

Once an operating license has been converted to possession only, the available path to restoring the license is a new license application, which would be evaluated as if the plant was a new design. That would make it virtually impossible for a new license to be awarded to a 1960s vintage Mk-1 boiling water reactor because all of the rules that have been imposed in the past 40-plus years would be applicable.

There is an incentive for Entergy to file the documents needed to give up Vermont Yankee’s operating license as quickly as possible. The annual fee for a holder of an operating license is $5.2 million; the annual fee for license that has been modified to be a “possession only” license $244,000 or about $5 million per year less.

The total savings to the company, however are not as large as that simple comparison implies. The annual license fees are the primary revenue source for the Nuclear Regulatory Commission’s budget, which is mandated by law to be provided by assessing fees on license holders. Recent history shows that reducing the number of plants holding operating licenses does not result in a decrease in the NRC’s expenditures; it simply results in fee increases for the remaining license holders so that the total fee income remains relatively constant.

As the holder of eleven other operating licenses, Entergy will not reduce its annual license costs by $5 million, though it will shift some of its burden to other licensees. In addition, the money that Entergy spends on maintaining operating licenses is a legitimate business expense, so the real cost of maintaining the license has to be considered after computing the tax implications of continuing to pay the full cost versus paying the discounted cost of a possession only license.

There is little doubt that Entergy would be pressured by Vermont politicians and the organized antinuclear movement to take the final step that would permanently prevent Vermont Yankee from being able to be restored to full operating condition. Some opponents have worked hard for decades to remove the plant’s ability to generate electricity in order to make room in the market for their favored, more costly, and less reliable sources like natural gas, Canadian hydro, wind, solar and biomass.

From Entergy’s point of view the only real cost of keeping its option to return Vermont Yankee to revenue-producing service in a changed market is paying the annual license fee. It has already announced that it will not begin physical dismantling of the plant immediately; it is beneficial to the process to allow relatively short-lived radioactive materials to decay while also allowing its decommissioning fund to grow with financial returns on investments.

Maintaining the quality assurance condition of the plant and keeping the operating procedures available for use would not be a significant cost, especially compared to the cost and effort required to establish that paperwork in the first place.

There is one other consideration worth mentioning. Keeping the plant operational could reduce Entergy’s risk of a potentially large, treble-damages judgement that its premature decision to shut down the plant was part of a coordinated effort to restrain the supply of energy in the northeast region of the United States.

Additional Reading

Neutron Bytes (Jan 1, 2015) Vermont Yankee shuts down for good

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