NRG Energy’s (NYSE: NRG) Dunkirk Power LLC unit filed with FERC on July 12 a plan to temporarily keep part of the money-losing Dunkirk coal plant in operation to meet regional electric system reliability needs.
Dunkirk is a four-unit coal plant in Western New York that already meets federal and state environmental requirements, Dunkirk Power noted. Despite significant investments by NRG Energy over the past several years, the facility is not currently economic to operate, it said. On March 14, Dunkirk submitted a 180-day notice to the New York Public Service Commission that Dunkirk intends to cease operations at midnight on Sept. 10. The company noted that its plans are to mothball the plant for later possible restart, not retire it.
NRG also plans to add combined-cycle natural gas generation at Dunkirk.
After Dunkirk provided the notice to the NYPSC, it was informed that it was expected that “the proposed mothballing of Dunkirk units 1-4 will result in significant detrimental impacts to transmission system reliability in western NY.” However, it later was clarified that certain transmission upgrades would obviate the need for two of the units.
Since filing its initial notice with the NYPSC, Dunkirk said it has attempted to reach a bilateral reliability agreement with National Grid that would allow the necessary units to continue operating. While Dunkirk may be able to reach agreement with National Grid prior to Sept. 11, Dunkirk made this Section 205 rate filing to provide the commission with the required 60 days prior notice and to allow a rate to go into effect should talks fail. Dunkirk requested that the commission accept the Dunkirk Rate Schedule without suspension or modification, to be effective on Sept. 11, which is the 181st day after Dunkirk notified the NYPSC it intended to mothball the plant.
The four coal units at Dunkirk were placed in service between 1950 and 1960. Dunkirk Units 1 and 2 each have an installed capacity of 100 MW (75 MW UCAP) and are interconnected at 115 kV. Dunkirk 3 and 4 each have an installed capacity of 217.6 MW (185 MW UCAP) and are interconnected at 230 kV. All four units are interconnected to National Grid in New York ISO Zone A.
“Due to the drop in energy prices resulting from the availability of plentiful low cost natural gas and in capacity prices due to a healthy NYISO reserve margin, which currently stands at just over 31%, the Dunkirk facility had an operating margin (i.e., total revenues less variable costs) of only about $13.2 million for the 12 months ended February 29, 2012, compared to its cost of service of about $111 million,” Dunkirk reported. “In fact, the $13.2 million was sufficient to cover less than 37% of the facility’s fixed operation and maintenance (‘O&M’) expenses, let alone any other component of the cost of service.”
National Grid and NYISO need two of the units for a few months, then one until mid 2015
New York ISO and National Grid did a series of studies to determine whether deactivation of the facility would create local reliability problems. NRG was subsequently informed that there is a local reliability need for two, 115-kV units (Units 1-2) to remain in service from September 2012 until May 31, 2013. After midnight on June 1, 2013, one 115-kV unit is expected to be needed until a major substation project is completed by June 1, 2015.
The Dunkirk Rate Schedule will be effective on Sept. 11, 2012, and will remain in effect with respect to two units for 12 months, and for one of the units for a term of 36 months. Either Dunkirk or National Grid may terminate the rate schedule at any time with 180 days’ written notice to the effect that both the NYISO and National Grid agree that none of the Dunkirk units are needed for reliability. Dunkirk may also terminate the Dunkirk Rate Schedule upon 180 days’ written notice, provided that it agrees not to deactivate the units needed for reliability prior to June 1, 2015. The Dunkirk Rate Schedule may also be terminated at any time upon mutual agreement by Dunkirk and National Grid or as a result of a forced outage where National Grid declines to reimburse Dunkirk for the expenditures needed to restore the facility to a state of safe and reliable operation.
Dunkirk said it will operate these two reliability must-run (RMR) units in response to any dispatch instruction issued by the NYISO provided that such instruction is consistent with the operating parameters of the units as shown in the rate schedule and any relevant environmental standards. Dunkirk will offer the RMR units into the NYISO-run day-ahead energy and ancillary service markets as well as make them available for dispatch in the real time market in accord with mitigation rules. Dunkirk will also offer capacity from the RMR units into NYISO’s spot Installed Capacity Market at its going-forward costs, calculated in accordance with Attachment H to the Market Services Tariff.
Alan Lovinger, Vice President with the firm of Brown, Williams, Moorhead & Quinn Inc., filed testimony pointing out that the company is making take-or-pay payments to the Union Pacific railroad under a contract signed in 2010 because it isn’t taking a contract minimum of coal at Dunkirk and another of NRG’s coal plants in New York. “Under the Union Pacific contract for both the Dunkirk and Huntley generating plants, a minimum take of 2 million tons per year is required,” he wrote. “The minimum take is divided between the two generating plants based on their ICAP Megawatt ratings. Dunkirk’s share based on ICAP rating of 520 MW, versus 378 MW rating for Huntley, is 1,158,129 tons. The expected annual dispatch assuming all four units are in operation would require only 195,000 tons, leaving a shortfall of 963,129 tons. The charge per ton is $5.00 and multiplying the rate times the variance of 963,129 tons equals a payment owed to Union Pacific of $4,815,646.”
Both plants take Powder River Basin out of Wyoming, which originates on the UP. U.S. Energy Information Administration data shows Huntley in April taking coal from Arch Coal‘s (NYSE: ACI) Black Thunder mine. Dunkirk was taking coal earlier this year from Black Thunder and Cloud Peak Energy‘s (NYSE: CLD) Antelope mine.
NRG Energy has plans in the works to repower Dunkirk with gas combined cycle
NRG Energy plans, in the meantime, to repower Dunkirk with natural gas, NRG told the New York Power Authority (NYPA) in recent project proposals lodged under the New York Energy Highway Task Force Project, designed to find new electricity suppliers for the state for the future.
“NRG proposes to convert its Dunkirk coal facility to a combined cycle unit with generating capacity between 450 and 600 MW,” the proposal said. “The site can accommodate either a one-on-one or a two-on-one CCGT unit, with final design dictated by customer needs. NRG will build gas infrastructure to its existing Dunkirk coal units to enable them to co-fire with both coal and natural gas,” the company said. The combined-cycle plant will ultimately use the pre-built gas infrastructure and take the place of the existing coal units, NRG said.
NRG is also offering to build natural gas infrastructure to the Huntley coal plant in Tonawanda, N.Y., to provide it with dual fuel and co-firing capabilities. Modifying Huntley as a dual fuel unit would be a cost-effective way to diversify the Western New York generating portfolio and support the reliability of the regional electrical system, NRG said. The existing Huntley plant has been continually modernized and comprises two coal units with a total nominal rating of 380 MW net. NRG pointed out many of the same benefits for the Huntley project as it did for the Dunkirk repowering. NRG said it can achieve the Huntley project by summer 2013.