Companies fire back at Sierra Club over Cayuga, Somerset coal plant sale

The current and prospective owner of the coal-fired Cayuga and Somerset power plants told the New York State Public Service Commission in a Dec. 15 brief that the Sierra Club can’t drag in outside issues about future plant operations into a case where the commission is being asked to approve the sale of these plants.

On Sept. 29, Upstate New York Power Producers Inc. (USNYPP), Cayuga Operating Co. LLC, Somerset Operating Co. LLC and Riesling Power LLC filed a joint petition with the commission seeking expedited approval under the the state Public Service Law (PSL) for the transfer of 100% of USNYPP’s ownership interests in Cayuga and Somerset to Riesling. Cayuga and Somerset own and operate the 312-MW Cayuga facility located in Lansing, New York, and the 668-MW Somerset facility, located in Somerset, New York.

The Sierra Club submitted comments on the petition that were aimed at these plants and any future operation they might have on coal.

The companies said in their Dec. 15 response that the commission should only, legally consider whether: the proposed transaction will result in a concentration of wholesale generation ownership that might enable the exercise of horizontal market power; the purchasing entity is affiliated with entities that own or control traditional public utilities, electric transmission facilities, or fuel inputs into generation that operates in markets affecting New York or that otherwise have the ability to impose prices on captive ratepayers; and the subject facilities will be safely and adequately operated.

The companies added: “[T]he Proposed Transfer will not have an adverse effect on competition because it raises no horizontal or vertical market power concerns, and the Cayuga and Somerset Facilities will continue to be safely and adequately operated. Sierra Club does not challenge these points or otherwise oppose the Proposed Transfer. Instead, the Sierra Club requests that the Commission consider extraneous issues regarding the Cayuga and Somerset Facilities’ future operations and compliance with certain environmental standards and/or permits.” 

The Sierra Club requests that the commission require petitioners to provide additional information regarding the Cayuga and Somerset facilities’ future operation. Specifically, the Sierra Club argues that the commission should “seek additional information from Riesling regarding its intention to pursue out-of-market subsidies for the operation or fuel conversion of the Cayuga or Somerset facilities.”

The companies noted that the commission is currently examining in a separate case whether Cayuga’s proposal to repower the Cayuga Facility to using natural gas better satisfies the identified reliability need and certain other criteria in comparison to a New York State Electric and Gas (NYSEG) and Niagara Mohawk Power d/b/a National Grid proposal to construct two phases of a transmission reinforcement project (the “Auburn Transmission Project” or the “ATP”). NYSEG and National Grid are jointly seeking a Certificate of Environmental Compatibility and Public Need (CECPN) to construct the ATP. Both proceedings are fully briefed and awaiting commission determinations.

Cayuga is under a grid reliability deal that expires in June 2017

With respect to Cayuga, the companies pointed out that the plant’s current reliability support services agreement (RSSA) with NYSEG expires on June 30, 2017. It is impracticable to request that Riesling attempt to predict future market conditions and commit to a course of action approximately 18 months into the future, the companies said. To the extent that Sierra Club is requesting that Riesling commit to some future course of action or that the commission condition approval of the proposed transfer on a commitment from Riesling, this request should also be rejected, they added.

The companies also responded to two additional comments from the Sierra Club.

  • First, the Sierra Club asserts that, if Riesling intends to operate the Cayuga Facility going forward, independent of any transmission alternatives proposed by NYSEG to maintain electric system reliability, in the absence of ratepayer-subsidized repowering, this raises questions regarding the continued appropriateness of RSSA payments for the Cayuga facility today. “In other words, the Sierra Club attempts to argue that a decision by Riesling to continue to operate the Cayuga Facility after the expiration of the RSSA (i.e., after June 2017) somehow ‘calls into question’ whether RSSA payments are required at this time,” the companies said. “The need for the Cayuga Facility to maintain electric system reliability through June 2017, however, was confirmed by the Commission in its January 16, 2014 order in a separate proceeding, in which the Sierra Club is a party. The Sierra Club’s argument here is nothing more than an attempted ‘second bite’ at the Commission’s prior order concerning the current need for an RSSA.
  • Second, the Sierra Club requests that the commission direct NYSEG and the New York Independent System Operator to immediately investigate reliability issues and solutions associated with a potential retirement announcement for the Somerset Facility. “The Sierra Club’s purported concern regarding the Somerset Facility is entirely speculative as there has never been any notice of intent to retire the Facility,” the companies said. “Moreover, the results of any reliability study conducted now would be stale by some future date if and when a notice of intent to retire the Somerset Facility is filed. Only by studying current system reliability at or about the time of the proposed retirement can electric system reliability be adequately examined. Additionally, if the Somerset Facility were to notice its retirement, the Commission has proven procedures in place via its Generation Unit Retirement Order to examine and ensure electric system reliability.”

The companies said the Sierra Club bases one of its assertions on alleged environmental compliance issues, claiming: neither the Cayuga Facility nor the Somerset Facility appears to be optimizing the use of installed emissions controls; coal ash from the Cayuga Facility is leaching into groundwater; and SO2 emission rates exceed limits established in air dispersion modeling. Because these purported issues are within the New York State Department of Environmental Conservation’s jurisdiction, consistent with recent precedent, the commission should reject these comments as outside the scope of this case, the companies said.

USNYPP was originally formed for the purposes of acquiring the Cayuga and Somerset facilities from bankrupt AES Eastern Energy LP in 2012. USNYPP’s outstanding common stock is 100% owned by entities that own or owned certain pass-through certificates issued by a series of owner trusts that were formed to provide financing under a leveraged lease structure for a transaction in 1999 involving AES Eastern and certain of AES Eastern’s affiliates, whereby the AES Entities purchased Somerset and Cayuga from New York State Electric and Gas.

The proposed buyer, Riesling, is a wholly-owned subsidiary of Bicent Power LLC. Bicent Power was established in 2007 and is an independent power producer with a diverse portfolio of contracted and merchant power generation assets. Investment funds managed or advised by GSO Capital Partners LP (GSO) hold a majority ownership interest in Bicent Power. The remaining minority owners of Bicent Power each hold less than a 10% equity ownership interest in Bicent Power. GSO represents the credit-oriented business of The Blackstone Group LP and is a major participant in the leveraged finance markets. Blackstone is a leading global alternative asset manager and provider of financial advisory services.

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.