Power Plant of the Week - Salem Harbor Generating Station

Its been a while since we've named a PPotW, but writing about the Salem Harbor Generating Station (Salem Harbor) took a lot longer than we thought it would. Its a complicated plant with a long history. Once upon a time New England Electric System (NEES), predecessor company to the current National Grid, constructed the Salem Harbor plant. Units 1 & 2 (short smokestack) were constructed in 1952 with nameplate capacities of approximately 82 MW each. Both generated power via steam turbines fueled with bituminous coal. Unit 3 came online in 1958, is a coal fired steam turbine, and has a nameplate capacity of 165 MW. Unit 4 was constructed in 1972 and is a residual fuel fired steam turbine with a nameplate capacity of approximately 475 MW. The large tanks used for residual fuel storage are easy to spot on the property and the large coal pile is also a distinctive landmark. 

Salem Harbor viewed from the air facing Northwest

Salem Harbor viewed from the air facing Northwest

During the restructuring of the electric industry in New England, this plant was sold to USGen New England which was a deregulated subsidiary of Pacific Gas & Electric Corp (PG&E). As most people remember, PG&E had some problems after the California energy crisis and the USGen subsidiary had to declare bankruptcy. Dominion Resources, a subsidiary of Dominion Corp, purchased the plant from USGen in 2005 and operated it until 2012 when it sold the plant to Footprint Power LLC. Footprint Power intends to operate the current plant until 2014 and then redevelop the property with a natural gas fired facility (more on this later).

Salem Harbor has been famous (or infamous) due to its environmental record. Although its never been conclusively documented (go to p. 26), many environmental groups have alleged that this plant is responsible for elevated rates of certain cancers in the towns of Salem, Marblehead and Beverly. In 2003 Mitt Romney called a press conference outside the plant to condemn its environmental record and vowed to use his powers to force it to shut down.  In many ways, the closure of this plant has become a cause celebre among the New England environmentalists. Due to the age of the plant and its poor economics, it hasn't been upgraded with modern pollution controls. The lack of investment in the plant has also lead to workplace accidents in the last decade that have been very serious. To limit emissions of sulfur dioxide, the plant burns a low sulfur coal imported from Columbia. 

Salem Harbor viewed from the air facing North-NorthWest

Salem Harbor viewed from the air facing North-NorthWest

Despite its age and pollution issues, this plant could not retire because it was needed for reliability. Salem is in the Northeastern Massachusetts (NEMA) zone of the Independent System Operator of New England (ISO-NE) grid which is capacity constrained. Dominion actually wanted to retire this plant in 2008 and submitted a de-list bid to ISO-NE, but its bid was rejected since the plant was required to ensure reliable electric service in the NEMA zone. Units 1 & 2 were allowed to retire in 2011, but Units 3 & 4 were required to run until 2014. ISO-NE uses a special contracting mechanism, called Reliability Must Run (RMR) to keep resources like Salem Harbor open when they are needed for reliability due to transmission constraints on the grid despite unfavorable economics. In 2012, Unit 3 had a capacity factor of approximately 12% (e.g., it ran for 12% of all hours in the year) and Unit 4 had a capacity factor of less than 1%. Although this plant has been on death's door for a while, the shale gas revolution (a.k.a. fracking) and the resultant drop in ISO-NE electricity prices driven by lower natural gas prices has made closure by 2014 a certainty. 

Although Units 3 & 4 are needed for reliability in NEMA through 2014, there are some major transmission upgrades taking place in the ISO-NE grid that should relieve the transmission bottlenecks on the North Shore. The Greater Boston Transmission Project, a multifaceted upgrade of the regional transmission infrastructure sponsored by National Grid and NStar's transmission affiliates, should create another 1,000 MW of deliverability to NEMA by 2018.  There is also a speculative project, known as the SeaLink, sponsored by New Hampshire Transmission LLC (subsidiary of NextEra Energy) , that would build a HVDC line from coastal New Hampshire to the North Shore although its just a proposal at this point.

In 2012, Dominion announced that it had sold Salem Harbor to Footprint Power. This stunned many market watchers as most people found it unlikely that anyone would want to buy Salem Harbor. Footprint Power has stated that they want to demolish the existing plant and construct a natural gas fired power plant that would go into service by 2016. The City of Salem enthusiastically backed Footprint Power as they are very concerned about losing the property tax revenue paid by the plant ($4.75M in 2010 per Final Environmental Impact Report p.17). 

Footprint power then made an enormous controversy by lobbying the Legislature to force National Grid to sign a 15-year Power Purchase Agreement (PPA) with their proposed natural gas plant to ensure that it could get financing. Although this attempt was rebuffed, Salem Rep. John Keenan, Chairman of the MA House Committee on Telecommunications and Energy, and State Sen. Joan Lovely were able to get language requiring that the MA DPU study the need for a long-term contract with the plant inserted into the ironically titled "An Act Relative to Competitively Priced Electricity in the Commonwealth" which was signed by Gov. Deval Patrick in August 2012. Unsurprisingly,  the New England Power Generators Association and other deregulated ISO-NE market participants were very irate over this legislative end-run around the marketplace.

Per the mandate of Section 40 of the Act referenced above, MA DPU opened Docket 12-77 to study the need for additional generation in NEMA and to determine if a long term PPA was warranted. This MA DPU docket was proceeding in parallel with the lead up to ISO-NE's Forward Capacity Auction (FCA) #7 which was to procure the necessary resources for the NEMA zone for the 2016/2017 delivery year. The ISO-NE FCA was designed to send a price signal to the marketplace to incent the build out of new generation capacity for future delivery. Many in the marketplace were skeptical of the ISO-NE FCA since all auctions to date (FCA #s 1-6) had cleared at the price floor due to oversupply in the market. ISO-NE broke up the FCA into zones to better isolate regional capacity issues such as those in NEMA. Footprint Power bid their proposed natural gas fired power plant into FCA #7 and their bid cleared the market. This is great for ISO-NE because it shows that the FCA process works to send a price signal. This is great for Footprint power as they were able to secure a capacity price of $14.99/kW/month for five years beginning June 2016 which should be sufficient for them to raise financing for their plant. This is great for consumers because the integrity of the ISO-NE marketplace was preserved and they won't be saddled with uneconomic cost burdens due to a legislatively mandated long term contract. MA DPU wrapped up Docket 12-77 in March 2013 with a very well reasoned conclusion. MA DPU highlighted all of the tools that ISO-NE has to mitigate a capacity shortfall and ensure reliability of the grid. In conclusion, MA DPU stated that "ordering local distribution companies to enter into long-term contracts under Section 40 would unnecessarily and unduly disrupt the wholesale marketplace and shift the risks associated with generation development from developers, who are best positioned to manage such risks, back to consumers." MA DPU hit the nail on the head, the profits and losses (lots of losses these days BTW) should be borne by the developers and asset owners, not the rate-paying consumers.