NRG takes impairment charges due to coal plant shutdowns in New York

NRG Energy (NYSE: NRG) said in its Nov. 4 Form 10-Q quarterly report that it has taken impairments losses related to plans it recently communicated to the New York State Public Service Commission (NYSPSC) to shut the coal-fired Huntley and Dunkirk power plants in New York.

By plant, those plans are:

Huntley

“During the three months ended September 30, 2015, the Company filed a notice with the NYSPSC of its intent to retire Huntley’s operating units on March 1, 2016,” said the Form 10-Q. “The Company considered this to be an indicator of impairment and performed an impairment test for these assets under ASC 360, Property, Plant and Equipment. On October 14, 2015, the Company filed a cost-of-service filing at FERC in anticipation that the Huntley operating units would be needed for reliability purposes, proposing a reliability must run service agreement for a four-year period beginning on March 1, 2016.

“On October 30, 2015, NYISO released the results of its reliability study, indicating that the Huntley operating units are not needed for bulk system reliability, but could be needed for short-term local system reliability in 2016. The Company considered the impact of the reliability study conducted and evaluated the estimated cash flows associated with the facility, including the impact of a potential short-term reliability agreement with NYISO and National Grid. Accordingly, the Company determined that the carrying amount of the assets was higher than the estimated future net cash flows expected to be generated by the assets and that the assets were impaired.

“The fair value of the Huntley operating units was determined using a weighting of the income approach and the market approach. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, and include key inputs such as forecasted contract prices, forecasted operating expenses and discount rates. The Company recorded an impairment loss of $106 million during the quarter ended September 30, 2015.”

Dunkirk

“The Company had previously signed a ten year agreement in November 2014 with National Grid to add natural gas-burning capabilities at the Dunkirk facility,” said the Form 10-Q. “On August 25, 2015, NRG announced that Dunkirk Unit 2 will be mothballed on January 1, 2016 at the expiration of its reliability support services agreement. The project to add natural gas-burning capabilities has been suspended, pending the outcome of litigation with respect to the gas addition contract and its validity.

“On October 30, 2015, NYISO released the results of its reliability study, indicating that the Dunkirk facility is not needed for system reliability. In connection with the planned mothball of the facility, the pending litigation and the latest reliability assessment completed by NYISO, the Company evaluated whether the related fixed assets were impaired as of September 30, 2015. The Company determined that the carrying amount of the assets was higher than the estimated future net cash flows expected to be generated by the assets and that the assets were impaired. The fair value of the Dunkirk facility was determined using a weighting of the income approach and the market approach. The income approach utilized estimates of discounted future cash flows, which were Level 3 fair value measurements, and include key inputs such as forecasted contract prices, forecasted operating and capital expenditures and discount rates. The Company recorded an impairment loss of $116 million during the quarter ended September 30, 2015.”

New York ISO says neither plant needed to support the grid

The New York ISO sent an Oct. 30 letter to the New York commission saying that grid fixes can compensate for the shutdown of the Dunkirk and Huntley power plants. On Aug. 28, the comission requested that NYISO determine whether the proposed retirement of Huntley, effective March 1, 2016, and the mothballing of Dunkirk, effective Jan. 1, 2016, would have an adverse impact on the reliability of the New York State transmission system.

“A coordinated analysis by National Grid and the NYISO has been performed to determine impacts to reliability on both the local transmission system and the Bulk Power System,” said the Oct. 30 letter. “Based upon the expectation of the timely completion of the National Grid upgrades (noted below) and that no other changes occur to the current and planned status of the New York electric system, reliability will be maintained through at least the year 2020 if Dunkirk is mothballed January 1, 2016 and Huntley is retired March 1, 2016.”

NYISO added: “The NYISO also assessed the resource adequacy of the overall system with Huntley retired and Dunkirk mothballed. Based on the NYISO 2014 Comprehensive Reliability Plan and accounting for the National Grid upgrades, it is expected that the one-day-in-ten-years Loss of Load Expectation (LOLE) criterion, which measures the probability of disconnecting firm load due to a resource deficiency, will not be exceeded through at least the year 2020.”

The PSC’s inquiry was at least in part prompted by an Aug. 25 notice from NRG Energy that it intends to retire Huntley Units 67 and 68 effective March 1, 2016. Also, NRG advised the commission on Aug. 25 that it will mothball the remaining Dunkirk unit, beginning Jan. 1, 2016. National Grid and NRG currently have a Reliability Support Service Agreement (RSSA) for Dunkirk Unit 2 that expires Dec. 31, 2015.

Huntley Units 67 and 68 are coal-fired units, with 218 MW of nameplate capacity apiece, that began operating in 1957 and 1958, respectively. The units are located in Tonawanda, N.Y., and are interconnected to the National Grid system in NYISO’s Zone A.

NRG’s Dunkirk Power owns and operates a coal-fired station in Dunkirk, New York, made up of a (nameplate) 100-MW Unit 1, a 100-MW Unit 2, a 217.6-MW Unit 3, and a 217.6-MW Unit 4.

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.