Completion of Dunkirk Coal-to-Gas Repowering Project Uncertain

A long-stalled plan to repower NRG Energy's coal-fired 435-MW Dunkirk power plant in Chautauqua County, near Buffalo, New York, to natural gas may be scrapped, owing to uncertainty involving New York Independent System Operator's (NYISO's) interconnection process, the company said.

NRG mothballed all four units at the plant by January 2016 during four years of political wrangling with New York. According to the company, the project now faces exorbitant interconnection costs, which change the project's economics and make it a questionable business decision.

Legal and Regulatory Hurdles

The company initially told regulators it would mothball the facility in March 2012, citing costs that were too high to justify continued operation. However, the New York Public Service Commission ordered the company to keep some units at the plant operating to help maintain grid reliability. Then, in December 2013, New York Gov. Andrew Cuomo announced an agreement with NRG to repower the plant to a 435-MW natural gas facility. Strongly supported by the city of Dunkirk along with a handful of state lawmakers, the plan won the PSC's approval in June 2014, and again in October 2014, during a rehearing prompted by legal challenges filed by Earthjustice and other environmental groups.

But in February 2015, Entergy Corp. filed a lawsuit against the state, challenging its approval of the Dunkirk repowering term sheet. In its complaint, Entergy claimed that Dunkirk, an "uneconomic generation plant," would be kept open "propped up by subsidies from a local utility and from a state agency," and that this interfered with market processes approved by the Federal Energy Regulatory Commission. In November 2016, however, Entergy withdrew its lawsuit related to the Dunkirk power plant, telling POWER the decision was "because the company is focusing on other business priorities."

At Issue: Interconnection Costs

According to NRG spokesperson David Gaier, the project has since been stalled by more uncertainty involving NYISO's interconnection process. When NRG signed the Dunkirk gas addition contract in 2013, the company anticipated no interconnection costs. By the time the year-and-a-half-long legal dispute with Entergy ended, Dunkirk had lost its interconnection and had to restart the interconnection study and process. "When we restarted the study, we were told the interconnection would cost about $15 million," he told POWER on June 7.

In mid-May, NYISO informed NRG that interconnection would require transmission upgrades in both Pennsylvania and in New York, Gaier said. Costs to interconnect Dunkirk may be as low as $5 million and as high as $45 million for the New York transmission system and between $6.5 million to $63 million for the PJM side. "As a result, Dunkirk might not be able to deliver power until as late as 2024," he said. "If upgrades aren't completed by then, the project will likely be canceled."

NYISO told POWER that interconnection costs are based on two primary drivers. One involves upgrades at issue, which are "required to mitigate significant degradations to the PJM-NY transfer capability. These significant degradations create adverse reliability impacts that must be mitigated to ensure reliability of the [New York] and PJM transmission systems," it said. The second driver involves the number of projects in the "Class Year"-which typically has an affiliated deliverability or interconnection facilities study. "Because of the number of projects in this Class Year that impact the PJM-NY transfer capability, including Dunkirk, it is required to share the cost allocation for upgrades required to mitigate the adverse reliability impact of the transfer degradations."

"What we have is an understanding that depending on how many projects stay in or drop out of the Class Year interconnection process, NRG's cost to reconnect Dunkirk may be as much as $115 million, or in that range," Gaier said. "Obviously, an interconnection cost that is more than the cost of the project would destroy the project's economics and make it impossible."

NYISO noted that Dunkirk's costs have risen because project developers "waited so long to reactivate its facilities, [and] it is now subject to current reliability requirements, all of which were not applicable to the original facility. Had the facility reactivated prior [to] the three-year deadline provided by the NYISO tariff, the facility would not have been subject to the interconnection studies that identified these upgrades."

Final costs for Dunkirk will be determined at the completion of Class Year 2017, "as they are highly dependent upon the decisions of other Class Year projects to accept or reject their cost allocations," NYISO said. The Class Year is expected to be completed in third quarter or fourth quarter of 2018.

-Sonal Patel is a POWER associate editor (@sonalcpatel, @POWERmagazine)

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