The Struggle continues at Salem Harbor

Seth Kaplan

The Federal Energy Regulatory Commission (FERC), in an order issued on September 18, 2009, has sided with the operator of the New England electricity system (ISO-NE) in a dispute with Dominion, the owner of the Salem Harbor Power Plant.

Here is the basic situation:  Dominion has “de-listed” the Salem Harbor Power Plant in the upcoming “Forward Capacity Auction”.   This means that it is virtually certain that in the 2012-2013 period that the plant will not be obligated to run and will not received capacity payments that power plants receive when they have such an obligation.   While the plant could still run and be paid for the electricity it made the act of de-listing means that the owner of the plant thinks there is a significant chance it will not be running during that year.  If, however, ISO-NE, finds that one (or more) of the  power generating units at the plant are “needed for reliability” then Dominion would receive payments set at the level of the “de-list bids” submitted this year.

Here is the dispute:  ISO-NE argued that Dominion had set the amount of its “de-list bids” to high.  Dominion had calculated those bids assuming that all pollution control equipment put into the plant would have to be depreciated (basically paid off) within three years.  ISO-NE argued that this was inappropriate. Local newspapers took note of this dispute.

CLF, and the Massachusetts Attorney Generals office, agreed with ISO-NE that Dominion’s bids were inappropriate.  CLF, pressing beyond the polite wording of ISO-NE’s filing, argued that the only appropriate circumstance for the “super-accelerated depreciation” being sought by Dominion would be appropriate only if Dominion were proposing to permanently de-list the plant.  The absurdity of Dominion’s position was highlighted by the fact that it was contradicted by public statements of its own spokesman in a local newspaper.

The Mass. AG, supported by CLF, also raised concerns about the lack of public disclosure of key information about the plant and the lack of auditing of the representations that plant owners like Dominion made to ISO-NE.

FERC, in the order resolving the dispute, accepted the basic logic that ISO-NE and CLF presented, requiring use of the longer depreciation period proposed by ISO-NE.   FERC stated that it could not consider converting a de-list bid from being one-year to permanent at this point in the process – which is essentially a moot point as CLF floated that as an idea that would only apply if the shorter depreciation period was accepted, which it was not. Also, FERC did not squarely address the issues of public disclosure and auditing, relying on earlier decisions that will be continued to be criticized.

But in the end this was squarely a defeat for Dominion: their bluff of calculating costs as if the plant was shutting down, but not actually committing to do so, was called.

These battles will continue.  The likely next dispute will center around “reliability” as all of these numbers games are meaningless if ISO-NE recognizes that the improved transmission system, new generation and rising amounts of energy efficiency and “demand response” (slashing energy use at peak hours during the summer) means that the plant can retire without causing any shortages in the regional electricity system.  They are very close to doing so (having found that other nearby plants can safely retire) and are likely to reach the right result here – although it might take some encouragement.

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