Dynegy may need to back down two Moss Landing units due to higher gas prices

Two units at Dynegy‘s (NYSE: DYN) Moss Landing power plant in California would have problems running in the future if a natural gas price proposal from Pacific Gas & Electric is adopted by the California Public Utilities Commission (CPUC), said Dynegy in its Aug. 7 quarterly Form 10-Q report.

Said the Form 10-Q: “In its 2015 Gas Transmission and Storage rate case, which will set gas transportation rates for 2015-2017, Pacific Gas & Electric Company’s (‘PG&E’) proposed revenue requirements and allocation proposals which, if adopted, would result in a significant increase in the rates for electric generators served by the local transmission system, including Dynegy’s Moss Landing Units 1 & 2.

“Historically, after PG&E’s gas transportation rate structure was changed to unbundle the Backbone Transmission System (‘BB’) rates, PG&E gas transmission and storage rate case settlements have included a bill credit for Moss Landing Units 1 & 2 that effectively reduces the differential between rates for BB and local transmission system service, allowing the plant to compete against other power generators. However, according to PG&E’s own estimates, the rate differential between BB and local transmission system rates PG&E proposes in its 2015 proceeding would result in Moss Landing Units 1 & 2 likely experiencing a decline in dispatch hours.

“Dynegy is actively participating in the hearing process before the CPUC and is advocating positions that would maintain the ability of Moss Landing Units 1 & 2 to compete in California electricity markets. A post-hearing briefing concluded in May of 2015, with a decision expected in late 2015.”

The Dynegy website shows Moss Landing Units 1 and 2 with a total of 1,020 MW (net) of capacity, and that they run at intermediate load. Also at the site are the gas-fired Units 6 and 7 (1,500 MW net), which are classified as peakers.

Fuel is not the only issue for Moss Landing Units 1 and 2. The California Independent System Operator (ISO) on May 7 issued a report saying that roughly 10,517 MW of natural gas-fired capacity in the state is subject to the once-through-cooling regulation, which requires coastal power plants that use ocean water for cooling to be retired, retrofitted or repowered. The bulk of the generation retirements forecast to occur as a result of this requirement are not anticipated until the 2018-2020 time frame.

The ISO said that the generating units facing OTC compliance deadlines before 2020 are:

  • El Segundo Unit 4, NRG Energy, deadline of 12/31/2015, 335 MW;
  • Encina Units 1-5, NRG Energy, deadline of 12/31/2017, 946 MW;
  • Pittsburg Units 5-6, NRG Energy, deadline of 12/31/2017, 629 MW;
  • Moss Landing Units 1-2, Dynegy, deadline of 12/31/2017, 1,020 MW; and
  • Moss Landing Units 6-7, Dynegy, deadline of 12/31/2017, 1,500 MW.

On the OTC issue, for Moss Landing, Dynegy in the Aug. 7 Form 10-Q defers to what it said about the plant in the prior Form 10-Q, filed on May 7 with the SEC. That Form 10-Q said: “On October 9, 2014, we entered into a settlement agreement with the California State Water Resources Control Board (‘State Water Board’) that would resolve a lawsuit we filed in 2010 with other California power plant owners challenging the Statewide Water Quality Control Policy on the Use of Coastal and Estuarine Waters for Power Plant Cooling (‘Policy’).

“Under the settlement agreement, the State Water Board agreed to propose an amendment to the Policy which would extend the compliance deadline for all four units at Moss Landing from December 31, 2017 to December 31, 2020. The State Water Board issued public notice of the proposed amendment on February 6, 2015. On April 7, 2015, the State Water Board approved the amendment to the Policy.

“We are required to implement operational control measures at Moss Landing for purposes of reducing impingement mortality and entrainment, including the installation of variable speed drive motors on the circulating water pumps for Units 1 and 2 by year end 2016. In addition, we must evaluate and install supplemental control technology at Units 1 and 2 by December 31, 2020. The settlement agreement also clarifies the implementation and applicability of various Policy provisions to Moss Landing.

“At this time, we preliminarily estimate the cost of our compliance at Moss Landing under the provisions of the settlement agreement will be approximately $10 million in aggregate through 2020. Operation of Moss Landing Units 6 and 7 beyond 2020 would be allowed only if those units comply with the Policy’s impingement mortality and entrainment standards, which would require the evaluation and installation of control technology, the cost of which would vary depending on the projected operational profile of the units.”

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.