Dynegy wrapping up air emissions work at Baldwin coal plant

As of Sept. 30, only Baldwin Unit 2 has material Consent Decree work yet to be performed under a 2005 deal with the U.S. Environmental Protection Agency, with that last work scheduled to be completed by the end of 2012.

“We have spent approximately $911 million through September 30, 2012 related to these Consent Decree projects,” said Dynegy Inc. (NYSE: DYN) in its Nov. 7 Form 10-Q report. On Nov. 3, Dynegy completed the Baldwin Unit 2 outage marking the completion of the Consent Decree environmental capital compliance requirements. Dynegy expects costs associated with Consent Decree as of Sept. 30, to be about $13m and $3m for the remainder of 2012 and 2013, respectively.

In 2005, Dynegy settled a lawsuit filed by the EPA and the U.S. Department of Justice in the U.S. District Court for the Southern District of Illinois that alleged violations of the Clean Air Act and related federal and Illinois regulations concerning certain maintenance, repair and replacement activities at Baldwin. Among other provisions of the decree, Dynegy is required to not operate certain of its power generating facilities after specified dates unless certain emissions control equipment is installed.

Dynegy Midwest Generation (DMG) currently owns and operates four coal plants in Illinois: Baldwin in Randolph County, Havana in Mason County, Hennepin in Putnam County, and Wood River in Madison County. In November 2011, DMG permanently retired a fifth coal plant, Vermilion in Vermilion County.

DMG generally controls SO2 emissions through the use of low-sulfur coal from the Powder River Basin with a sulfur content less than 0.3%. In addition, to control SO2 emissions further, DMG has installed and is operating spray dryer absorbers (i.e., dry scrubbers) with fabric filter (i.e., baghouse) systems on two Baldwin units. DMG had also been constructing a dry scrubber and fabric filter system on the third Baldwin unit (Unit 2), and has installed a dry scrubber on Havana Unit 6, which also will be operational by the end of 2012.

CCR becomes issue at Baldwin and Vermilion coal plants

In another environmental area related to its coal plants in Illinois, Dynegy said it has implemented hydrogeologic investigations for the Coal Combustion Residuals (CCR) surface impoundment at Baldwin and for two CCR surface impoundments at the shut Vermilion coal plant in response to a request by the Illinois EPA. Groundwater monitoring results indicate that these CCR surface impoundments impact onsite groundwater at these sites.

“At the request of the Illinois EPA, in late 2011 we initiated an investigation at the Baldwin facility to determine if the facility’s CCR surface impoundment impacts offsite groundwater,” the Form 10-Q said. “Results of the offsite groundwater quality investigation at Baldwin, as submitted to the Illinois EPA on April 24, 2012, indicate two localized areas where Class I groundwater standards were exceeded. If these offsite groundwater results are ultimately attributed to the Baldwin CCR surface impoundment and remediation measures are necessary in the future, we may incur significant costs that could have a material adverse effect on our financial condition, results of operations and cash flows. At this time we cannot reasonably estimate the costs of corrective action that ultimately may be required at Baldwin.”

On April 2, Dynegy submitted to the Illinois EPA proposed corrective action plans for two of the CCR surface impoundments at Vermilion. The proposed corrective action plans reflect the results of a hydrogeologic investigation, which indicate that the facility’s old east and north CCR impoundments impact groundwater quality onsite and that this groundwater migrates offsite to the north of the property and to the adjacent Middle Fork of the Vermilion River. The proposed corrective plans include groundwater monitoring and recommend closure of both CCR impoundments, including installation of a geosynthetic cover.

“In addition, we submitted an application to the Illinois EPA to establish a groundwater management zone while impacts from the facility are mitigated,” said the company. “The preliminary estimated cost of the recommended closure alternative for both impoundments, including post-closure care, is approximately $14 million. The Vermilion facility also has a third CCR surface impoundment, the new east impoundment that is lined and is not known to impact groundwater. Although not part of the proposed corrective action plans, if we decide to close the new east impoundment by removing its CCR contents concurrent with the recommended closure alternative for the old east and north impoundments, the preliminary total estimated closure cost for all three impoundments would be approximately $16 million.”

In July, the Illinois EPA issued violation notices alleging violations of groundwater standards onsite at Baldwin and Vermilion. In response, Dynegy submitted to the Illinois EPA a proposed compliance commitment agreement for each facility. For Vermilion, it proposed to implement the previously submitted corrective action plans and, for Baldwin, it proposed to perform additional studies of hydrogeologic conditions and apply for a groundwater management zone in preparation for submittal, as necessary, of a corrective action plan. In October, the Illinois EPA notified the company that it would not issue proposed compliance commitment agreements for Vermilion and Baldwin and, instead, would consider referral of the matters to the Illinois Attorney General.

Dynegy fully contracted for 2012 coal, signs new rail deals

The Form 10-Q noted that Dynegy’s remaining expected coal requirements are fully contracted and priced in 2012. “Our forecasted coal requirements for 2013 are 90 percent contracted and priced,” it added. “Our coal transportation requirements are 100 percent contracted and priced through 2013 when our current contracts expire. In August 2012, we executed new coal transportation contracts which take effect when our current contracts expire. These new long-term contracts also cover 100 percent of our coal transportation requirements. We continue to explore various alternative contractual commitments and financial options, as well as facility modifications, to ensure stable and competitive fuel supplies and to mitigate further supply risks for near- and long-term coal supplies. Our Coal expected generation volumes are volumetrically 77 percent hedged through 2012 and approximately 47 percent hedged for 2013.”

MISO filed proposed Resource Adequacy Enhancements with FERC in July 2011. FERC conditionally approved MISO’s proposal on June 11, leaving much of MISO’s proposal in place. The proposed tariff revisions require capacity to be procured on a zonal basis for a full planning year (June 1-May 31) versus the current monthly requirement, with procurement occurring two months ahead of the planning year. The new construct will be in place for the 2013-2014 Planning Year.

“While the new construct is an incremental improvement over the status quo, it is unlikely to have an influence on capacity prices in the near future due to excess capacity in the MISO market,” the Form 10-Q said. “In addition, increased market participation by demand response resources offset by potential retirement of marginal MISO coal capacity due to poor economics or expected environmental mandates could also affect MISO capacity and energy market prices in the future.

In its Coal segment, Dynegy currently intends to retire the Oglesby and Stallings gas-fired peaking facilities in Illinois, representing 152 MW, by the end of 2012, subject to a reliability assessment by MISO. The Dynegy website shows Oglesby with 63 MW of net capacity, and Stallings with 89 MW of net capacity, with both having gone into commercial operation in 1970.

Issues crop up with sale of Danskammer and Roseton

Notable is that due to a recent bankruptcy case that Dynegy the parent company is now out of, Dynegy no longer controls coal-fired capacity in New York at the Danskammer plant. Its former Dynegy Northeast Generation (DNE) affiliate is comprised of the gas-fired Roseton and coal-fired Danskammer facilities located in Newburgh, N.Y., with a total capacity of 1,693 MW. A total of 1,570 MW of generation capacity relates to leased units at the two facilities.

The DNE Entities remain in Chapter 11 bankruptcy and continue to operate their businesses as “debtors-in-possession,” the Form 10-Q noted. Due to the bankruptcy process, leases that Dynegy had on this capacity were turned back to affiliates of plant owner Public Service Enterprise Group (NYSE: PEG).

“The DNE Entities, with the cooperation of the PSEG entities, will use commercially reasonable efforts to sell the Facilities with the proceeds of any sale to pay transaction expenses and to be distributed as set forth in the Settlement Agreement and the Plan,” the Form 10-Q said. “November 1, 2012 was the original deadline for bids for the Facilities sale process. This date was extended to November 5, 2012 due to superstorm Sandy, which caused flooding at the Danskammer plant on October 30. Remediation and repair work at the facility are underway, as well as a full assessment on the extent of the damage. We are currently evaluating the bids received. Further, we are in current negotiations with the union regarding its collective bargaining agreement, which is set to expire on November 7, 2012.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.