Dynegy (NYSE: DYN) said in its Nov. 2 quarterly Form 10-Q report that it plans to shut in 2017 a total of 1,509-MW of combustion turbine peaking capacity at the gas-fired Moss Landing Units 6-7 in California.
That would leave 1,020 MW of intermediate load combined-cycle capacity at the gas-fired Moss Landing Units 1-2 still in operation.
For the Moss Landing Units 1 and 2, Dynegy sold incremental Resources Adequacy (RA) capacity to various counterparties for 2016. For the third and fourth quarters of 2016, it sold an average incremental 226 MW and 160 MW, respectively. In October 2015, Dynegy contracted RA capacity with Southern California Edison for Moss Landing Units 1 and 2 for 575 MW, 400 MW, and 850 MW, for calendar years 2017, 2018, and 2019, respectively.
On the other hand, Moss Landing Units 6 and 7 have tolling and RA agreements in place that continue through Dec. 31, 2016.
Dynegy wrote in the Form 10-Q: “We participated in various Request for Offers for RA capacity procurement with various load serving entities for 2017, but did not secure an RA transaction to maintain the viability of Moss Landing Units 6 and 7. Because we are unable to recover basic operating expenses for these units, we announced on November 1, 2016 that Moss Landing Units 6 and 7 would shut down January 30, 2017. We submitted the required notice to the California ISO and the [California Public Utilities Commission (CPUC)] on November 1, 2016 and expect to receive approval on or about November 30, 2016.
“In its 2015 Gas Transmission and Storage rate case, which sets gas transportation rates for 2015-2017, [Pacific Gas & Electric (PG&E)] proposed revenue requirements and allocation proposals which would result in a significant increase in the rates for electric generators served by the local transmission system, including Moss Landing Units 1 and 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 and 2 that effectively reduced 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 which PG&E proposed in its 2015 proceeding would result in Moss Landing Units 1 and 2 likely experiencing a decline in dispatch hours.
“Dynegy actively participated in the hearing process before the CPUC and advocated positions that would maintain the ability of Moss Landing Units 1 and 2 to compete in the California electricity market. However, on June 23, 2016, the CPUC approved a rate increase for local transmission customers, including Dynegy, of approximately 200 percent and rejected Dynegy’s requests for relief. Dynegy filed a request for rehearing of the CPUC’s unfavorable June 23, 2016 decision on August 1, 2016. The request for rehearing does not act as a stay on the rate increase, which went into effect on August 1, 2016. If Dynegy’s request for rehearing is denied, Dynegy will explore options for an appeal.
“We currently have approximately 2,694 MW of power generation in CAISO. With the retirement of Moss Landing 6 and 7, we will have approximately 1,185 MW in CAISO for 2017. The CAISO capacity market is a bilateral market in which Load Serving Entities are required to procure sufficient resources to meet their peak load plus a 15 percent reserve margin. We transact with investor owned utilities, municipalities, community choice aggregators, retail providers, and other marketers through Request for Offers solicitations, broker markets, and directly with bilateral transactions for both the Standard and Flexible RA capacity.
“Beginning on or after November 1, 2016, CAISO is expected to implement the voluntary capacity auction for annual, monthly, and intra-month procurement to cover for deficiencies in the market. The voluntary competitive solicitation process FERC approved on October 1, 2015 will replace the existing pricing mechanism, Capacity Procurement Mechanism (‘CPM’), and will provide another avenue to sell RA capacity. Like CPM, we expect this mechanism to be used infrequently because generation supply has been ample, and demand has been stagnant, mainly due to energy efficiency programs and distributed generation of residential and commercial rooftop solar.”