2nd UPDATE:Vermont Senate Rejects Extension For Entergy Plant

The Vermont Senate overwhelmingly rejected extending the life of the state's sole nuclear power plant, dealing a blow to Entergy Corp.'s (ETR) plan to run the reactor for an additional 20 years.

The New Orleans-based utility and power generator has been pushing to operate the reactor past March 2012, but has faced growing opposition amid concerns over the safety and operation of the plant. The vote runs counter to growing national interest in expanding nuclear generation by extending the operation of existing plants and restarting new reactor development for the first time in decades.

The state until recently had appeared split over the future of Vermont Yankee, which is scheduled to shut in March 2012. But the discovery of increased levels of tritium, a radioactive material that increases cancer risk, in test wells on the plant's site fueled growing opposition. The safety concerns have been coupled with accusations Entergy misled state officials on the existence of underground piping potentially causing the leak.

"Don't do business with someone you can't trust," said Senate President Pro Tem Peter Shumlin, speaking on the Senate floor before the vote.

Entergy said earlier Wednesday an internal investigation found employees didn't intentionally mislead state officials, but the statements of employees "led to misunderstandings and, taken out of that context, the responses were incomplete and misleading." The results of the review led the company to place five senior employees on administrative leave and reprimand six additional managers, including Entergy's top official at the plant.

Vermont has the authority, rare among states, to decide on extending the operation of a nuclear power plant, which is typically left up to the U.S. Nuclear Regulatory Commission. Both the Vermont Senate and House of Representatives must back extending the plant's life. The NRC also must rule on the proposed license extension, but hasn't to date. The Vermont House hasn't yet taken up the matter.

Entergy in a statement said efforts to win a license extension are "far from over." The company is determined to keep working in the state legislature to make its case for the plant as a safe and reliable source of power. In the meantime, the company said it continues to focus "on winning back the confidence and trust of the citizens of Vermont."

Over the last decade, dozens of nuclear reactors in the U.S have had their licenses renewed, while a reactor hasn't been permanently shut down since the late 1990s. Interest in restarting nuclear development has picked up with President Barack Obama announcing earlier this month $8 billion in government loan guarantees for Southern Co. (SO) to break ground on a new nuclear-power plant in Georgia. The Obama administration also is looking to triple the size of the loan-guarantees program.

Yet senators in Vermont listed a series of concerns--less about nuclear power in general and more about the Entergy plant itself--before the vote. They were frustrated with what they say are higher and likely more volatile prices the company plans to charge for the plant's electricity if the reactor continues to operate. Additionally, they pointed to a two-year-old plan by Entergy to spin off the Vermont plant and four other nuclear plants into a new publicly-traded company, saying the move would substantially increase debt associated with the plant. Legislators also said they want to see the state focus more on renewable generation and efficiency rather than continue to debate Yankee's future.

Some senators during the debate, however, called for the legislature to take a deeper look at the potential economic impact of the closing of Vermont Yankee. The plant, which is located along the Connecticut River near Brattleboro, Vt., employees about 650 people. The senators also warned that the state is moving away from an important source of reliable electricity.

A spokesman for Republican Gov. Jim Douglas called the vote a "symbolic act" since the Senate can reconsider it in the future. Douglas has been a supporter of extending the plant's operation, but recently has called for more information on the tritium issue before moving forward.

Vermont utilities have said a surplus of power exists in the New England region to replace the output of the Yankee plant, which supplies about a third of the state's power. So far Entergy hasn't detailed the potential financial impact of the closure of Vermont Yankee. But J. Wayne Leonard, the company's chairman and chief executive, said in a conference call earlier this month that the plant "has to be profitable, and today it is simply not covering its cost of capital."

Analysts expect Vermont Yankee to get a second look from state leaders once concerns over the recent controversy cools. Additionally, Entergy's comments indicate the plant isn't contributing significantly to the company's value, although that could change in a robust power market, wrote J.P. Morgan analyst Andrew Smith in a note to clients.

Shares of Entergy closed down 67 cents at $76.73 Wednesday.

-By Mark Peters, Dow Jones Newswires, mark.peters@dowjones.com; 212-416-2457