BRATTLEBORO -- The Department of Public Service agreed Thursday to support Entergy’s plan to spin off Vermont Yankee nuclear power plant into a new subsidiary called Enexus.

In July, the DPS urged the Vermont Public Service Board not to issue a certificate of public good unless certain conditions were met.

Those conditions included the status of the plant’s condenser and its back-up power transformer, the decommissioning fund, on-site spent fuel handling costs and a power purchase agreement.

Most of those conditions were resolved, said Stephen Wark, spokesman for the DPS, except for the necessity of a power purchase agreement to guarantee Vermont residents get favorable electric rates if the spin off proceeds.

He called the lack of a power purchase agreement "a critical miss."

"However, the relicensing docket and activity before the Legislature remains open," said Wark. "And the Public Service Board is well positioned to deal with that as the negotiations continue."

Entergy, which owns and operates Yankee, has applied to the Nuclear Regulatory Commission to extend the operating license of Yankee for another 20 years, from 2012 to 2032.

In addition to NRC approval, Entergy must also receive a certificate of public good from the Public Service Board and the OK from the Vermont Legislature.

The CPG for the Enexus spinoff is separate from the CPG for continued operation.

"If Entergy has any expectation for continued operation, it has to include a favorable purchase agreement," said Wark. "We would not support relicensure until such a time that there is a PPA that is favorable to Vermonters."

Vermont utilities, including Central Vermont Public Service and Green Mountain Power, are currently negotiating an agreement with Entergy.

Last year, Entergy announced it was planning to spin off five of its merchant power plants into a new subsidiary. Merchant power plants are those that sell electricity directly to the spot market and are not regulated by state agencies.

The intent of the spinoff is to separate the five plants from Entergy’s regulated nuclear power plants and its non-nuclear production facilities. It is also intended to raise $3.5 billion through stock offerings to pay off outstanding debt incurred by Entergy and to reward stockholders, which include corporate executives.

The other plants involved in the spinoff are Pilgrim in Plymouth, Mass., Palisades in Michigan and Fitzpatrick and Indian Point in New York.

The Nuclear Regulatory Commission and the Federal Energy Regulatory Commission have both signed off on the spinoff and nothing stands in the way in both Massachusetts and Michigan.

In New York, however, the state’s Public Service Commission has held up the spinoff on generally the same grounds agreed to in the DPS memorandum of understanding forwarded to the PSB.

The DPS conditions were met through a combination of financial mechanisms unique to Yankee, said Wark.

"Originally the department had opposed the spin off to Enexus," said Wark. "But during the course of negotiations, we reached the point we think we mitigated the risk to Vermonters and positioned the state to move forward."

Those conditions include a $60 million line of credit that can be used for decommissioning or spent fuel handling costs.

The MOU doesn’t guarantee the complete funding of the decommissioning trust prior to the Enexus spinoff, as was one of the conditions of the DPS’ original recommendation to the PSB.

"It doesn’t solve that problem completely, but it moves us in the right direction," said Wark.

Even though the trust fund has shown significant increases in the last nine months, said Wark, "It’s not where we want it to be."

That’s what the $60 million line of credit is intended for, he said.

"It can be used as soon as the plant goes inactive," said Wark, for either decommissioning or the management of spent fuel.

Entergy also agreed to a $100 million line of credit to be used to make upgrades and repairs that guarantee the reliability of the plant.

That money can be used to fix the plant’s leaky condenser, which is part of the cooling system, and to install a back-up power transformer that can supply replacement power in case the reactor has to be shut down for an extended period.

"The advantage of the line of credit is that it allows Yankee to continue to proactively invest in maintenance and improve its reliability," said Wark.

Any money spent out of the revolving fund has to be replenished, he said, and if it falls below 75 percent Enexus won’t be allowed to pay out any dividends to its parent company.

Another condition Entergy agreed to is a $50 million line of credit to be supplied if Enexus should fall one step below investment grade, which is BB+ on Standard & Poor. And that letter of credit has to be maintained as long as Enexus is below investment grade, which it is expected to be at the time the spin off is concluded.

An Entergy spokesman said it was satisfied with the MOU.

"These commitments were made in direct response to issues raised in the approval process in Vermont," said Alex Schott, senior communications specialist at Entergy New Orleans. "We believe the MOU forms the basis for gaining PSB support for the transfer."

Entergy is hoping the PSB will approve the spin off in November, he said.

In addition to the conditions resolved in the MOU, Entergy has promised to raise $1.2 billion from a consortium of banks to provide capital for Enexus.

"They are expressing their support for Enexus and hence, nuclear power," said Schott.

Entergy has also promised to supply a $700 million support agreement for all the reactors in Enexus.

Wark said DPS believes Enexus will be a better manager of Vermont Yankee than Entergy.

"We prefer the management structure because its better focused than the current structure," said Wark. That’s because Enexus’ sole focus will be the management of its nuclear power plants, rather than Entergy’s current focus on all of its assets, nuclear and non-nuclear.