By GIB SNYDER
OBSERVER City Editor
Tuesday will mark a change in the operation of NRG's Dunkirk Power LLC plant as the effect of the low-cost natural gas leaves its mark. The two largest of the four generating units at the facility located in Dunkirk's harbor is scheduled to be shut down or "mothballed."
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The NRG Plant in Dunkirk will switch from four to two lines this week. The plant will stay in operations, reducing its production greatly.
It will also mean a reduction of staff.
The mothballing process began in March when NRG filed a notice with the state's Public Service Commission (PSC) of its intent. NRG's notice had a Sept. 10 date but the company sought to start mothballing sooner.
National Grid then conducted an analysis of the reliability impacts of the planned mothballing and identified adverse reliability impacts. National Grid also identified system reinforcements needed to resolve those reliability impacts. National Grid could not complete the reinforcements before Sept. 10.
It determined that a portion of the Dunkirk plant must remain available for an interim period in order to maintain system reliability.
The PSC assigned case number 12-E-0136 to the request and a series of exchanges between the companies and the PSC followed, leading to the contract which was finalized in late August. The communications are available at documents.dps.ny.gov/public/MatterManagement/CaseMaster.aspx?MatterSeq=39463.
The Dunkirk plant has four coal-fired generators, made up of a nameplate capacity 100 MW Unit 1, a 100 MW Unit 2, a 217.6 MW Unit 3, and a 217.6 MW Unit 4 and is a generation-owning entity that sells its energy, capacity and ancillary services in the NYISO-administered wholesale power market. National Grid is the transmission owner to which the Dunkirk station is interconnected;
The agreement went into effect Sept. 1 and will run through May 31, 2013; the mothballing is set to begin Tuesday, according to NRG. The agreement seems to cover any alternatives and possible problems, including early termination.
When Lee Davis, NRG Northeast region president, announced in July about the reliability study, he said the plant would reduce its employees from 145 to 82.
Either NRG or National Grid may terminate the agreement prior to May 31, 2013 with 60 days notice if certain events or circumstances materially and adversely affects the economic or reliability benefits of the agreement. These would include a change in law; a change to the New York Independent System Operator, Inc. (NYISO) tariff or other NYISO policy or rule; or an order of any governmental authority, other than as a result of an action or proceeding commenced by such party.
Nothing in the agreement prevents NRG from ceasing operation and deactivating either or both of the generators being used as reliability support service units immediately upon the date this agreement is terminated by National Grid.
The agreement calls for good-faith negotiating in such an instance, but if no reasonable compensation level can be reached, NRG is not obligated to enter into any necessary extension. In addition, NRG has to provide prior consent for any necessary extension to run past Aug. 31, 2013. If NRG Dunkirk is still needed after that date, a new agreement will cover it.
If only one RSS Unit is needed at any time during a necessary extension, that unit will be selected by NRG after consulting with National Grid.
Commencing in October and for the remainder of the term of the agreement, National Grid shall provide NRG Dunkirk an update by the first business day of each calendar month on the status of National Grid's need for any units at Dunkirk expected to be necessary for providing reliability service beyond May 31, 2013, consistent with applicable laws and regulations.
The companies will continue to operate safely and efficiently as they do now, with cooperation still required by the agreement. As expected, monetary matters are included in the agreement.
National Grid shall pay a monthly fixed-cost charge of $2,924,324 for the period from Sept. 1 through May 31, 2013. National Grid will also pay up to $6,681,084 in either property taxes or in payment in lieu of taxes within 30 days of NRG submitting evidence from taxing authorities the payments were made.
Within 30 days of the date on which the agreement terminates, NRG will make a payment to National Grid in an amount equal to all capacity revenues earned by the RSS Units during the agreement.
National Grid shall pay NRG for Dunkirk's Take or Pay Costs as calculated based on the pre-determined minimum volume allocation to the Dunkirk plant, prorated to nine months, of 868,597 tons of coal at $5 per ton ($4,342,985). By Jan. 15, 2013, NRG will determine its prorated Take or Pay Costs allocable to Dunkirk during the period from Sept. 1 to Dec. 31 and shall provide National Grid with an accounting of such Take or Pay Costs. The determination of the first payment to be made under this provision will be based on actual coal deliveries to the Dunkirk plant during Sept. 1 to Dec. 31, 2012.
The determination of the final payment to be made under this provision will be based on actual coal deliveries to the Dunkirk plant during the remainder of the minimum term of the agreement.
A five-year refund period is also in effect, allowing National Grid to recoup some of its expense for using NRG to maintain reliability if the Dunkirk plant has positive earnings before interest, taxes, depreciation and amortization (EBITDA) in excess of $2 million in any such year during the refund period. If the Dunkirk plant had EBITDA in excess of $2 million during a calendar year of the Refund Period, then NRG shall pay National Grid 50 percent of the first $1,680,000 in excess of $2 million of EBITDA. The maximum refund payable by NRG for any calendar year during the Refund Period is $840,000. No refund payment will be made for any year after the Refund Period.
Legal protections are provided both companies in the event NRG invests in repairs. The contract also requires "NRG to interface and comply with NYISO scheduling deadlines and requirements for maintaining the RSS Unit as an eligible energy and capacity provider, as well as National Grid's dispatch instructions."
It would appear from the terms of the agreement the Dunkirk harbor will have at least one more winter with the benefit of NRG's warm-water discharge keeping it ice free.
Send comments on this story to gsnyder@observertoday.com
