NRG repowering moves closer

The process of gaining approval for the repowering of the NRG Energy Inc. Dunkirk plant took another step recently. According to the New York State Public Service Commission website, the PSC filed a notice soliciting comments on a staff report supporting the repowering. Included was the 29-page staff report, dated May 16.

On Feb. 13, National Grid filed a “Term Sheet” to provide for the addition of natural gas capability and ensure the availability at the Dunkirk generating facility for 10 years and requested PSC’s approval.

Grid’s proposal would provide that the company pay NRG Dunkirk $20.41 million per year for 10 years, while Dunkirk would add approximately 435 megawatts of gas-fired capability from Units 2, 3, and 4 of the Dunkirk generating facility, with a Sept. 1, 2015 startup.

“According to National Grid, the Dunkirk Proposal would provide flexibility allowing it to defer some transmission reinforcements, estimated to range between $33.7 million to $68.3 million, which would otherwise be needed for reliability if the Dunkirk facility were shut down. National Grid calculates that these reinforcements would have an approximate annual revenue requirement of $5.6 million to $11.4 million, or $37.7 million to $76.4 million on a 10-year Net Present Value basis,” the report states. “Moreover, National Grid advises that the availability of the Dunkirk units would enhance the capability to dispatch hydroelectric generation from the Niagara Power Project or to import power from the Ontario control area for reliability or economic purposes. In addition, it expects that constraints will result in lower congestion-related costs of between $8.8 million and $161.1 million in 2014, while allowing for greater production of renewable, emission-free hydroelectric energy. National Grid also suggests that certain indirect electric market benefits would accrue to its customers.

“The National Grid filing also advised that NRG estimates $42 million in construction spending on the refueling project during 2014 and 2015, and $25 million in operation and maintenance spending annually. The net impact of this spending is estimated to create an average of 175 jobs per year, $31 million in additional gross domestic products, and almost $15 million in higher personal income between 2015 and 2025. In addition, NRG projects contributing $8 million in annual property tax revenues, which would support essential services for the local community.”

The staff did note the financial arrangement was significantly different than what NRG proposed in April 2013, reducing Grid’s fixed payments to NRG and allowing NRG to retain most of the NYISO market capacity revenues and all of the energy revenues. In addition, the report also looked at the local economy.

“Staff agrees that the local area is inordinately dependent on the Dunkirk plant for employment opportunities and property tax revenues. The tax revenue stability in the local area is an economic development benefit that would be lost but for the repowering of the Dunkirk plant, and that benefit could not be obtained through a transmission line upgrade. … In this situation, Staff recommends that the Commission consider the economic development impacts unique to the local community. There are a number of public policy concerns and values that are not reflected in the current generation market pricing. In this case, avoiding the uniquely disproportionate harm to the locality has a public interest benefit supporting local tax revenue stability and promoting local economic opportunity.”

Another thing the PSC staff noted was the flexibility the repowering would provide.

“Dunkirk’s ability to switch to an alternate fuel during gas price spikes would reduce natural gas consumption, freeing up gas for home heating and other customers without dual-fuel capability and potentially reducing their gas prices. Conversely, when natural gas is cheaper than coal, LBMPs could be set by higher-cost coal plants, and Dunkirk could fire with natural gas and earn net revenues that would also represent production cost savings from Dunkirk’s dual-fuel capability. Therefore, the dual-fuel capability provides opportunities for potentially significant production cost savings.

“Collectively the analysis above shows that Dunkirk’s refueling would provide production cost savings and reduce congestion, which provides value to customers and to society. In addition, Dunkirk’s dual-fuel capability would make additional production cost savings possible.”

Environmental benefits would also occur as refueling Dunkirk Units 2, 3 and 4 would the local emission of CO2, SOx and NOx from the plant compared to burning coal.

“The NYISO also found that generation at Dunkirk would relieve certain system constraints in western New York that otherwise limit the output of Niagara Power Project. With some relaxation of the system constraints, a greater proportion of the energy produced in NYISO Zone A would be renewable, emissions free hydropower than would be the case if Dunkirk were not operating.”

According to the staff report, the anticipated monthly payments under an agreement implementing the Term Sheet ($1.7 million per month) would be less than the monthly costs expected to be recovered in connection with the current RSS agreement ($2.83 million per month), the Term Sheet is expected to result in lower surcharges for customers than presently exist.

“In sum, there are significant potential benefits to the Dunkirk Proposal. Notwithstanding that many of these benefits can only be described qualitatively, the quantifiable benefits alone outweigh the costs. Accordingly, Staff recommends that the Commission approve the cost allocation and recovery associated with the Dunkirk Proposal,” the report concludes.

Spokesmen for both National Grid and NRG had similar takes on the situation and noted the PSC still has to give its approval.

“We believe the proposal is in the overall best interest of the community and our customers, consistent with the conclusion reached by the Department of Public Service staff,” National Grid Media Relations Manager Steve Brady stated.

NRG spokesman David Gaier stated, “We believe that the Dunkirk proposal provides significant and important system reliability, economic, tax, and environmental benefits.”

Interested parties have until May 27 to submit comments to the PSC.

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