* Entergy cites rising capital costs after Fukushima, 9/11
* Cheaper power prices due to natgas also hit plant
By Eileen O'Grady
HOUSTON, Aug 27 (Reuters) - Entergy Corp will shut the Vermont Yankee nuclear power plant, citing high costs tied to regulation and competition from cheap natural gas, bringing to an end a long battle with state politicians and environmentalists seeking to close the plant.
The 40-year-old plant, which generates three-quarters of the state's power, will cease operations by the fourth quarter of next year, Entergy said on Tuesday.
Entergy's announcement came just two weeks after a federal appeals court largely sided with the company in its fight to prevent Vermont from shutting down the only nuclear power plant in the state.
Opposition to the plant has grown over the years, most recently focusing on a January 2010 disclosure of a leak of radioactive tritium. Still, the U.S. Nuclear Regulatory Commission granted the plant a 20-year operating license in 2011 that would have kept it running until March 2032.
But Leo Denault, Entergy's CEO since February, said in an interview with Reuters that the plant was no longer economically viable due to a combination of rising capital costs after the September 11 attacks in 2001, Japan's 2011 Fukushima disaster and low wholesale electricity prices stemming from cheap natural gas burned by competing plants.
"We did everything we could to keep the plant open," he said, praising the 600 employee for operating the plant safely and efficiently even when "they did not feel welcome in the state."
Opponents of the plant were quick to voice their approval of the move.
"This is not a big surprise to me and I don't think it's a big surprise to many who follow the economics of aging nuclear power plants," Vermont Governor Peter Shumlin, a Democrat who led the state's fight to have the plant shut down when its initial operating permit expired in 2012, told reporters.
The Fukushima crisis led regulators to review safety standards, which could burden operators with costly construction work and plant improvements. That came a decade after 9/11 caused heavy spending to tighten security around plants.
"The financial impact of cumulative regulation is especially challenging to a small plant in these market conditions," Entergy said in a press release.
Surging output of shale gas, which sent natural gas prices to 10-year lows in 2012, has also weighed on the nuclear industry. Last October, Dominion Resources Inc's Kewaunee plant in Wisconsin became the first nuclear plant to fall to cheap gas prices after hundreds of coal-fired plants had been forced to shut.
With Vermont Yankee, a total of five U.S. nuclear plants are now shutting or in the process of closing down.
Denault said Entergy is open to a settlement with New York State officials over the future of its controversial Indian Point nuclear plant, which is near New York City.
Vermont Public Interest Research Group, a local advocacy group which has been lobbying for Yankee's closure since the 1970s, said it felt vindicated by Entergy's decision.
"Entergy has finally - and perhaps for the first time - told Vermonters the truth about Vermont Yankee," VPIRG Executive Director Paul Burns said in an emailed statement.
"It represented a risk would could not afford for power we don't need."
Vermont's total energy consumption is the lowest in the country, according to the U.S. Energy Information Administration. In 2011, three-quarters of its power came from nuclear power, with another 21 percent from hydroelectric power.
Closure of the plant will probably not have a large impact on natural gas markets, Thomson Reuters analyst Reza Haidari said, estimating it would lead to a 30 million cubic feet per day increase in U.S. natural gas consumption -- less than 0.01 percent in the nation's total demand.
Entergy said it will take an after-tax impairment charge of about $181 million in the third quarter due to the retirement of the plant, the smallest that it owns, and expects further charges of $55 million to $60 million related to future severance and employee retention costs through the end of next year.
The company said the shutdown would modestly benefit its operational earnings, excluding special items, within two years, with cash flow expected to increase about $150 million to $200 million through 2017.
Shares of the U.S. power company traded down 39 cents to $62.68 per share on the New York Stock Exchange.