The New York State Public Service Commission (PSC) late last week gave regulatory approval to repower the coal-fired Dunkirk power plant with natural gas, a move that saves the plant from its scheduled mothballing while improving the reliability of the electric system and providing economic benefits to Western New York.

The decision validates the $140 million agreement between National Grid and NRG Energy to repower the Chautauqua County facility and assure its operation for 10 years with added capability to generate 435 MW using natural gas.

“The agreement will result in a cleaner power plant at Dunkirk that will meet reliability needs, reduce costs for consumers, create jobs and stabilize the local property tax base,” said PSC Chair Audrey Zibelman. “Repowering Dunkirk will produce significant benefits in terms of enhanced system reliability, congestion relief, and emissions reductions. Our decision to allow National Grid to recover the costs of its agreement with Dunkirk is in the public interest and it meets our obligation to ensure safe and adequate service. Further, it will help spur economic growth and opportunity.”

Under the terms of the agreement announced by Gov. Andrew M. Cuomo in December, National Grid and Dunkirk Power LLC, a subsidiary of NRG Energy, will refuel three coal units at the facility to add the capability to generate 435 MW using natural gas. Currently, only one 75 MW unit is operating on coal. The refueling allows NRG to switch to natural gas and provide critical local system reliability benefits for National Grid customers, the PSC said in its order.

The commission’s analysis determined that repowering provides financial benefits in terms of utility deferred transmission investments, local economic benefits and production cost savings that exceed the costs of the agreement to National Grid.

“Repowering Dunkirk provides reliability benefits, such as fuel diversity and flexibility in the operation and maintenance of the transmission system,” the PSC said. “Further, the availability of the Dunkirk facility will provide greater operational flexibility at the nearby Niagara Power Project, a renewable, zero-emissions hydroelectric facility, and it will allow for more energy imports from the Ontario control area, thereby providing an increased opportunity to call on these resources for economic or emergency energy during high load conditions. The congestion relief provided by Dunkirk will also yield economic benefits.”

The commission’s approval signs off on National Grid’s allocation and recovery of costs associated with refueling the Dunkirk generating facility. Under the deal, the refueled facility will begin operations in the fall of 2015. The facility will have dual-fuel capability that will allow for the use of coal as a back-up fuel-source in the rare instance when natural gas may be unavailable or in short supply.

NRG in early 2012 announced plans to mothball the more than 50-year-old Dunkirk power plant, saying it was no longer economical to operate. National Grid, however, said mothballing the power plant would result in significant detrimental impacts to transmission system reliability in Western New York.