Competing solutions Dunkirk coal plant's future

Jun 7, 2013

The changing face of New York’s energy landscape has brought uncertainty about the future of the state’s coal plants. The future of one particular plant in western New York has become a hot topic.

Plummeting natural gas prices and tightening emissions restrictions have made the NRG Energy plant in Dunkirk unviable from a business standpoint.

But, the plant is too important to the reliability of western New York’s electricity grid to simply shut it down.

So what do you do with a coal plant that you can’t run and can’t close? That’s the question facing the New York Public Service Commission (PSC).

The commission currently has two studies in front of it, recommending opposing options for the future of the plant.

Owner of the Dunkirk facility, NRG, is endorsing the repowering of the station into a combined-cycle natural gas plant.

And, most recently, the owner and operator of upstate transmission networks, National Grid, released their own report recommending the upgrade of transmission lines to replace the plant’s energy generation.

Competing solutions

The problem the PSC faces is that each company presents numbers supporting their solution as the most cost effective and reliable option. But those numbers completely contradict one another.

“We believe that the combined cycle option provides far and away the most benefits for New York state ratepayers. Again, not just locally, but even across the state,” says NRG’s Jon Baylor.

“It’s clear to us that the transmissions upgrades satisfy the reliability needs at a lower cost to customers than either of the repowering options, even using very conservative assumptions,” says National Grid spokeswoman Jackie Barry.

Energy sector analyst Ilya Grinberg says in the end, it comes down to how the numbers are crunched.

“The difference is not in technical aspects, the difference is in economic impact,” he says.

“The different economic models that they used are as follows; the Dunkirk plant, NRG, their consultants are using projections of energy and capacity market effects. National Grid is using generator production cost estimates, and they consider this as a preferred method of projections.”

John Baylor of NRG says they stand by the results in their study. National Grid’s report on the other hand, Baylor says, is unsound.

“Our view is that the recommendation from National Grid has a number of flaws and very serious flaws that affect the outcome of the study.”

Baylor says, among other things, the report low-balls the cost estimates for transmission line upgrades. He says the costs could be as much as 200 percent higher, making the solution less desirable for ratepayers.

“What they did was they evaluated the lower of the costs, and there’s significant ratepayer risks there that those costs would continue to skyrocket until the projects are fully built in 2019,” Baylor says.

“They basically took the very lowest end of their range and studied that and tried to compare that against the combined cycle costs and we see that as rather self-serving.”

Jackie Barry, spokeswoman for National Grid, rejects that claim.

“There is a range for the estimates, there’s a low point and a high point, and what we do is pick the mid-point. However, to characterize our estimates as miss-information and that the costs could go 200 percent higher really isn’t appropriate and is a mischaracterization of the numbers that we used,” Barry says.

“This is not an issue of whether transmission is better than generation or vice versa. It’s really about what National Grid believes to be the most cost effective solution in this particular case for customers, and the one that will offer the most long term reliability to the system overall.”

Economic incentives

While Barry insists that National Grid does not see itself as NRG’s competitor, Baylor says the company has a lot to gain by pushing for transmission upgrades over a repowering scenario.

“National Grid is very clearly a competitor in this process. The proposals put forward, whether it’s the combined cycle, or the refueling of the existing units, or even the transmission solution, they’re mutually exclusive,” says Baylor.

“There’s an economic interest that National Grid has in adding to their investment because they get a guaranteed rate of return on that investment from the ratepayers of New York. So, there’s a clear economic incentive from National Grid to build the transmissions.”

National Grid says they would support NRG in repowering the Dunkirk station, but not in the current form of the proposal.

Barry says NRG’s current proposal, although it slates the $500 million repowering project as a private investment, would impact on rate payers as that cost would trickle down into energy bills.

“It’s up to the generators to assume the risk for upgrades, and projects, and investments that they make, as opposed to having electricity consumers bear those risks. So if customers were to foot the bill, or foot part of the bill for the repowering, we believe it would give one generator an unfair advantage over the others in the market place. In other words they wouldn’t be playing on a level playing field. And again, typically the generators bear the risk and the costs for these types of projects, so we don’t think it’s appropriate for National Grid customers to bear those costs,” she says.

In a statement, NRG spokesman Dave Gaier responded to the claim:

“The entire cost of repowering the station will be borne by NRG.  The means the full cost of construction in the case of either the combined-cycle or refueling solutions.  There will, of course, be a cost for the electricity that the repowered or refueled stationed produces after it’s built, as you would expect, and the contract to purchase that electricity is called a PPA or power purchase agreement.  But of course ratepayers always pay for their electricity; the repowered or refueled plant will simply be another source of generation that is factored into the generation supply, and it will be a part of the cost, albeit only a tiny fraction, of the energy part of a ratepayer’s bill.  It’s important to remember that the independent analysis that we conducted shows that adding this new generation will actually decrease the wholesale cost of energy over the 10 years covered by the analysis by an average of $1.11 per MW hour.  The decrease in wholesale energy prices is even higher in the vicinity of Dunkirk: $2.35/MWh.  What the utility or competitive retail supplier actually charges the ratepayer for energy (electricity) is determined by them, not the generator, and with more suppliers coming to market, rates per kilowatt hour are getting more competitive.”

Impact on Dunkirk and Chautauqua County

Dunkirk Mayor Anthony Dolce says he’s hopeful National Grid and NRG can work out their differences.

“National Grid has stated that they are in support of the repowering of the NRG plant. However, they feel it will have a negative impact on ratepayers so they’re not in support of the proposed arrangement. So, I remain hopeful that we can work those issues out.”

The majority of residents and officials in Dunkirk support the repowering scenario due to the fact that NRG is the biggest taxpayer in the city, and the whole of Chautauqua County.

“I think the major concern from the residents and officials alike, is the unknown. You know, what is the long term future of the plant if they’re now allowed to repower under a natural gas plant?” says Dolce.

“Most people in the city and in Chautauqua County will say that their number one focus is the long term stability of the plant. And we feel that the only way we’re going to achieve that stability is if NRG is allowed to repower as a natural gas operating plant.”

Dolce says there would be a significant, negative impact on the Dunkirk and wider Chautauqua County community if the repowering of the station does not go ahead. That’s why he’s still hopeful a deal can be reached, he says.

A third option

Both NRG and National Grid have said they are sure the PSC will side with their findings when conducting their own analysis.

But, these aren’t the only options says Lisa Dix, New York senior representative for environmental group the Sierra Club.

“We call for clean solutions to replace the outdated coal plants and urge the commission to investigate other solutions such as energy efficiency, renewable power generation and demand response as cleaner and cheaper options,” she says.

“Remaining stuck in our dirty energy past is going to continue to burden consumers, deter investments in energy efficiency and renewable energy, further increase west-east power congestion, and it’s going to basically stick us into a situation where for the next 50-60 years we’re relying on a power source that we need to actually transition to a different one.”

Dix says this decision from the PSC is crucial as it will set a precedent for how similar situations at redundant coal plants are handled statewide.

She says it may be a harder road, but New York needs to start investing in renewables and energy efficiency.

“This will take time, but this is the direction that we need to go. And decisions like this, the decision that is in front of the PSC, are important decisions because they are going to have implications for generations.”

Ultimately, the final decision comes down to the Public Service Commission.

Analyst Ilya Grinberg says he’s confident the PSC will conduct their own thorough analysis and go with the option that best serves ratepayers and grid stability across upstate New York.

A decision on the future of the NRG coal plant in Dunkirk is expected later this year.