Dynegy assesses impact of water rules on Moss Landing plant

Dynegy (NYSE: DYN) is still unsure about the impact of a water rule in California that bans once-through cooling, which impacts its gas-fired Moss Landing power plant, in part due a pending lawsuit against that rule.

The California State Water Board adopted its Statewide Water Quality Control Policy on the Use of Coastal and Estuarine Waters for Power Plant Cooling in May 2010. The policy requires that existing power plants: reduce their water intake flow rate to a level commensurate with that which can be achieved by a closed cycle cooling system; or, if it is not feasible to reduce the water intake flow rate to this level, reduce impingement mortality and entrainment to a level comparable to that achieved by such a reduced water intake flow rate using operational or structural controls, or both. Compliance with the policy would be required at Dynegy’s Moss Landing facility by Dec. 31, 2017, the company noted in its Feb. 27 annual Form 10-K report.

In September 2010, the board proposed to amend the policy to allow an owner or operator of a power plant with previously installed combined-cycle units to continue to use once-through cooling at the combined-cycle units until the unit reaches the end of its useful life under certain circumstances. The board subsequently declined to approve the amendment and instead tabled it for consideration until after the Statewide Advisory Committee on Cooling Water Intake Structures (SACCWIS) has reviewed facility compliance plans and made recommendations to the board.

While the SACCWIS continues to assess the reliability impacts to the electric grid in connection with implementation of the policy, its most recent annual report to the board in March 2013 did not recommend any changes to the final compliance deadline in the policy for any facility, Dynegy noted.

In accordance with the policy, in April 2011, Dynegy submitted proposed compliance plans for Moss Landing. For Moss Landing Units 6 and 7, it proposed to continue its ongoing review of potential compliance options taking into account each facility’s applicable final compliance deadline. For Moss Landing Units 1 and 2, Dynegy proposed to continue current once-through cooling operations through the end of 2032, at which time it would evaluate repowering or installation of feasible control measures.

Moss Landing Units 1 and 2 have a combined winter net operating capacity of 1,020 MW and operate in an intermediate mode. Units 6-7 are a combined 1,509 MW and operate as peakers.

In October 2010, Dynegy Moss Landing LLC joined with other California power plant owners in filing a lawsuit in the Sacramento County Superior Court challenging the California policy.

“We cannot predict with confidence the outcome of the litigation at this time,” said Dynegy. “It may not be possible to meet the requirements of the Policy without installing closed cycle cooling systems. Given the numerous variables and factors involved in calculating the potential costs of closed cycle cooling systems, any decision to install such a system at Moss Landing would be made on a case-by-case basis considering all relevant factors at the time. If capital expenditure requirements related to cooling water systems are great enough to render the continued operation of certain of Moss Landing’s units uneconomical, we could at our option, and subject to any applicable financing agreements and other obligations, reduce operations at certain of the units or cease to operate such units and forego such capital expenditures.”

New federal rule is expected soon

While the California policy is generally at least as stringent as the U.S. Environmental Protection Agency’s proposed rule for cooling water intake structures, compliance with the policy may not meet all requirements of the forthcoming EPA final rule, Dynegy wrote.

In 2004, the EPA issued the cooling water intake structures Phase II Rule, which established standards to implement the best technology available (BTA) requirements at existing facilities. The Phase II Rule was challenged by several environmental groups and in 2007 was struck down by the U.S. Court of Appeals for the Second Circuit. The court remanded several provisions of the rule to the EPA for further rulemaking. In response, the EPA suspended its Phase II Rule and advised that permit requirements for cooling water intake structures at existing facilities should once more be established on a case-by-case basis until a replacement rule is issued.

Under the terms of an amended settlement agreement, the EPA is to issue its replacement rule for cooling water intake structures at existing facilities by April 17, 2014.

The environmental groups that participate in Dynegy’s Clean Water Act permit proceedings generally argue that only closed cycle cooling meets the BTA requirement. The Moss Landing NPDES permit, which was issued in 2000, does not require closed cycle cooling and was challenged by a local environmental group on this basis. In August 2011, the Supreme Court of California affirmed the appellate court’s decision upholding the permit, Dynegy noted.

In a side note, in October 2013, Dynegy and Southern California Edison (SCE) agreed to resolve prior contract termination disputes by entering into two new transactions. Pending arbitration and federal court litigation have been dismissed as a result of the new transactions. Under the first transaction, SCE agreed to purchase energy and capacity from Moss Landing for 2014 and 2015. Under the second transaction, SCE agreed to purchase energy and capacity from the same facility for 2016. The 2016 transaction is conditioned on approval by the California Public Utilities Commission (CPUC), which both SCE and Dynegy have agreed to seek in good faith and use commercially reasonable efforts to obtain. In November 2013, SCE filed the necessary request for the CPUC’s approval of the 2016 transaction. The request is currently being reviewed by the commission’s Energy Division.    

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.