NRG to Receive Subsidized, State-Arranged Contract to Repower New York Capacity

Even as NRG Energy leads Texas down a path to a capacity market, it is about to enjoy the fruits of a state-arranged, ratepayer-backed "subsidized" contract to repower one of its New York power plants (aside: New York has a capacity market and according to capacity market supporters, should have no reliability concerns)

The term subsidized is not our own, but rather, the term used pejoratively by NRG's peers in the Northeast RTOs to protest such state-arranged contracts which provide compensation outside of the centralized capacity market. While as a policy matter, we don't believe state procurement of any resource is the best market design, we acknowledge states' right to do so if elected leaders so desire, and do not consider such contracts to be any more of a "subsidy" than the money that end users are compelled to pay generators clearing a centralized capacity auction.

In any event, New York Governor Andrew Cuomo announced that a $150 million agreement has been reached to repower and expand NRG's Dunkirk Power Plant from coal to a 435 megawatt (MW) natural gas facility. The agreement will be funded by ratepayers.

Under this agreement, the facility, which will be in service by the fall of 2015, "will improve the reliability of the electric system and bring lower electric supply costs to consumers," the governor's office said.

The agreement assures the operation of the plant for 10 years.

"Today's announcement is another example of government working for the people," Governor Cuomo said. "This agreement will result in a larger, cleaner power plant at Dunkirk that will meet reliability needs, reduce costs for consumers, create jobs and stabilize the local property tax base." (emphasis added)

Specifically, according to the governor's office, NRG and National Grid, "will agree that three coal units at the facility with a capacity of 435 MW will be repowered with natural gas."

Currently only one 75 MW unit is operating on coal.

"The repowering provides ... critical local system reliability benefits for National Grid customers," the governor's office said.

The terms of the deal must be submitted to the Public Service Commission for final approval.