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Sept 13 (Reuters) - New York state environmental regulations may force Entergy Corp to shut its Indian Point nuclear power plant by 2018, according to a research report by U.S. financial firm Morgan Stanley.
Morgan Stanley analysts believe New York will find Indian Point's use of water from the Hudson River to cool the plant will conflict with the state's Coastal Management Program and the state will require the company to build costly cooling towers to reduce its use of river water by recycling it.
Officials at Entergy, the second-biggest U.S. nuclear power operator, were not immediately available to comment on the analyst's evaluation of the 2,037-megawatt Indian Point plant.
Indian Point, whose two units provide about a quarter of the power used in the New York City area, is located 40 miles north of Manhattan on the Hudson River.
Earlier this week, the head of Entergy's Wholesale Commodities Group told Reuters the company planned to keep Indian Point running and was open to talks with New York on a "practical solution" for the plant.
Indian Point, like other industrial facilities, uses river water to cool plant equipment. Entergy has said cooling towers are too expensive, with a price tag of up to $2 billion.
Also, the company has said that even if it could obtain permits to build cooling towers, which is unlikely, they probably would not be completed before 2029.
In Morgan Stanley's view, the $2 billion cost is greater than the value of the plant.
Instead, Entergy has proposed to install a so-called Wedgewire screen system to protect fish and other wildlife in the river. The company has said the Wedgewire screen would save more fish since it would only take about three years to install at a cost of up to $250 million.
Entergy is also fighting the state over the installation of cooling towers to obtain a water quality or discharge certificate, which the plant needs before the U.S. Nuclear Regulatory Commission can renew the plant's operating licenses.
Indian Point's original 40-year operating licenses expire on Sept. 28, 2013 for Unit 2 and in December 2015 for Unit 3.
New York Governor Andrew Cuomo has long said he wants Indian Point to shut. Entergy wants to keep the plant running. In 2007, the company filed with the NRC to renew the reactors' operating licenses for an additional 20 years. The company said the relicensing process could last until 2017 or 2018.
Entergy can keep operating the plant after the licenses expire as long as the renewal process is ongoing.
Entergy stock was up 1.4 percent to $63.17 after noon on Friday, outpacing broader utility indexes.
Morgan Stanley said a "negotiated shutdown of the plant by 2018" without the installation of a cooling tower represents a logical "middle ground".
In 2010, Exelon Corp, the biggest U.S. nuclear power operator, agreed with New Jersey to shut its Oyster Creek reactor in New Jersey in 2019 - ten years before its license expires - to avoid building cooling towers.
New York has been putting in place plans to replace the huge amount of power generated at Indian Point, a process Morgan Stanley believes will take up to four years.
"Allowing Indian Point to run through 2018 without cooling towers would provide additional cash flows to Entergy, avoid a very costly investment in the plant, and ensure replacement power can be procured," Morgan Stanley said.
This week, Bill Mohl, president of Entergy Wholesale Commodities, told Reuters the company expected to keep all of its reactors operating, including Indian Point, after it shuts Vermont Yankee in Vermont at the end of 2014.
As for a settlement with New York, Mohl said "We are working to engage the state to come up with a practical solution ... so we are certainly open to discussions as we work through the relicensing issues."
Separately, Morgan Stanley said the completion of Entergy's deal with U.S. power transmission company ITC Holding Inc is unlikely due to state regulatory concerns.
Entergy agreed to spin off its transmission assets in Arkansas, Louisiana, Mississippi and Texas and then merge the transmission business with a unit of ITC.