2012 may very well bring major changes to Salem's largest taxpayer, the Salem Harbor Generating Station.  Forces are gathering that suggest that the 60 year-old power plant will not continue to operate as it has for the last six decades once its current three-year tax agreement with the City concludes in 2011.   We, the members of the Salem Alliance for the Environment (SAFE), call upon Salem's political and business leaders to consider the hard facts and read the "handwriting on the wall."  While no one can predict the future, new historic regulations are on the way and we believe that Salem needs to consider the implications for our city and our future tax base.  We believe the reluctance of the current owner to invest long-term in the facility combined with the prospects of national carbon regulation strongly suggest that the Salem's plant's days are numbered.  We also believe that the best interests of the power plant and City of Salem are no longer aligned.  We are residents of Salem and local tax payers who are not "anti-power plant" as much as we are "pro-Salem."  Consider the following developments:

Taxes

Dominion Resources, the plant's owner since 2005, only agreed to a 3-year tax agreement with Salem that ends in 2011.  They agreed to pay $4.75 million annually to the city for the next three years, or $14.25 million in total.[1]  While this seems like a lot of money, we must put this in perspective:  ten years ago this same plant paid the City of Salem over $8.75 million each year!  The plant has enjoyed a 45% cut in its yearly taxes during the same period that average home owners in Salem have seen their property taxes increase 46%. Clearly over the last few years, when the City was confronting budget shortfalls that exceeded $2 million, we could have used that money.  As for the future, Dominion to date has refused to commit to any tax agreement beyond 2011.

A Carbon Dioxide Cap and Trade System

Currently the Salem plant must pay for its carbon dioxide emissions under the Regional Greenhouse Gas Initiative (RGGI), which requires all fossil fuel generating power plants in the Northeast to purchase permits for their emissions.  A national program similar to RGGI is currently being debated in the U.S. Senate. If approved, this legislation would put a price on carbon dioxide emissions on a nationwide basis for the first time.  Coal-fired power plants as a group are one of the biggest emitters of CO2 and will be adversely affected by this legislation to varying degrees depending on the final law.  In 2007, the most recent year for which there is available data, the plant here in Salem was the third largest emitter of CO2 in Massachusetts.[2]

Scientists who study climate change (including the current Secretary of Energy, Nobel laureate Stephen Chu) are recommending that our country reduce its CO2 emissions dramatically in the next 10 to 15 years.  This can only be done if older, inefficient coal-fired plants like Salem's stop emitting CO2.  While the proposed regulations may give away emissions permits to plants already in operation for a period of time, eventually the Salem plant will have to purchase permits to emit CO2, just like it currently must do under the regional program (RGGI).  This would reduce the plant's profitability and its ability to pay local taxes.  The plant's owners will be the first to tell you this.

After reviewing over the current legislation in the U.S. Senate, we believe that Salem could very well be a "sacrificial pawn" in Dominion's larger plans.  The current bill (as sponsored by Congressmen Markey and Waxman) would assign carbon permits to electric utilities based on their total emissions at the time of passage.  This means that while this bill is being debated, electric utilities like Dominion have a huge incentive to maximize their current emissions.  However, once this bill becomes law and the emissions cap is set, these utilities will find themselves under significant financial pressure to reduce their total emissions.  One way they will do this is by closing down their most inefficient coal plants.  Based on Dominion's reluctance to invest in the Salem plant, we believe there is a chance they will opt to close the Salem facility if national carbon dioxide regulation is passed.   If local leaders think this is outside the realm of possibility they should read carefully the next section.

Filing to change "Must Run" Status:

The Salem plant is designated a "must run" facility by the regional authority whose responsibility it is to ensure reliable electricity in New England (the ISO-New England).  Over the years, city officials and supporters of the plant have pointed to the need for the power generated by the Salem Harbor Generating Station for the reliability of the regional power "grid."

However, the plant is no longer essential to the grid's reliability.   ISO-New England stated on July 22, 2008 that the Salem plant may no longer be needed for grid reliability once two large transmission projects in the region were completed.  At least one of these projects is now on line and the other will be soon, both of which alleviate the need for local generation.

As of September 30, 2008, Dominion was free to file a request to shut down this facility or at least no longer operate as a "must run" plant (based on an agreement they signed with the Federal Energy Regulatory Commission in 2005).   Very quietly last winter, Dominion submitted a "static de-list bid" to ISO New England for the electricity generated at the plant to be sold in 2012 in the regional power market.  This means that they applied to sell their power but no longer have the Salem plant figure into any regional electricity reliability determinations.  Even the owners of the plant themselves have concluded that the plant should no longer be a "must run" facility and the Salem plant is not needed for reliable electricity north of Boston.  If the plant were interested in closing down, this is precisely the first action they would take in a multi-step process.[3]

According to one of its lobbyists, Dominion claims that the company is pursuing this "de-list" determination because they can make more money selling power into the grid during "peak" usage times.  While theoretically that might be true, we do not believe that the Salem facility is well positioned to sell into the "spot" wholesale market for electricity.  It is a 60 year-old coal and oil fired facility with antiquated technology and a tragic history of recent safety problems.[4] (Three plant employees were killed in a boiler explosion in November 2007.)  We see no evidence that suggests that this is the sort of facility that you can quickly turn on and turn off without problems -- quite the contrary.  This plant was designed 60 years ago to provide baseline power for 30-40 years, not be quickly turned off and on to sell into an ever-changing market for electricity.

We believe that Dominion's filing to have the Salem plant's "must-run" status revoked is a bad long-term sign. It is the first step they would take if they were considering closure.  The fact that this was done with little or no notification to local officials should truly put city and business leaders on alert, as should the obvious lack of investment in the plant's aging infrastructure.

Lack of investment

Dominion owns two coal-fired power plants in New England: the Salem Harbor Generating Station and Brayton Point, a 1500 MW coal and gas fired plant located in Somerset, Massachusetts.  Since purchasing both facilities in 2005, Dominion has invested over $300 million in new water cooling towers and emissions equipment in Somerset.  During this same period of time, it has publicly committed to spending $12 million in Salem.  While Brayton Point generates more than four times the amount of electricity as Salem[5], this lack of investment in the Salem plant's future should once again be a concern for our local leaders.

This is especially the case since the Salem facility is thirty years older than the plant in Somerset and is in need of several major updates.  For example, the Salem plant is currently operating with an expired (albeit legal) permit for its water discharge.  The plant uses huge amounts of water from Salem Harbor to cool its system.  It is required by federal law to have a permit to do this, as part of the National Pollution Discharge Emission System (NPDES). The plant's permit expired in 1999 and its application for a new permit is backlogged at the EPA. When Salem's application does come up for review, it is entirely possible that the plant will be required to install a water cooling system that could cost $120 million or more. We have seen no local official or representative of the plant address this outstanding issue. 

In addition, the plant does not have the emissions equipment in place to comply with the state's stricter regulations for emitting mercury.  In 2005 the previous owner of the plant stated that the installation of such a system would cost a minimum of $74 million, a figure more than five times larger than the $12 million that Dominion has committed to invest in Salem to date.

Overall, comparing Dominion's respective investments at its two sites is instructive and reveals how little the company has invested here in Salem.   Once again, we believe this presents a pattern of behavior on the part of Dominion that should be of concern to taxpayers and our local leaders.

The Handwriting on the Wall

The regulatory forces are gathering and we believe that Salem's power station will soon no longer be able to operate in the way it has for the last 60 years.  New federal legislation combined with recent events at the plant and actions by its corporate owner all point to big changes coming to the facility.  The Salem Alliance for the Environment asks that Salem's leaders read the handwriting on the wall and take proactive steps on behalf of our city.  We call upon our elected officials and local business leaders to form a Salem Harbor Transitional Task Force whose mandate would be to verify the facts included in this letter, study the situation carefully, make an informed determination about the future of Salem's power plant, and plan accordingly for the future use of the site. The task force should include representation from Salem citizens as well as its elected officials. Salem's tax payers need to soberly consider Salem's future during this time of fiscal crisis.  The handwriting is on the wall.  We call upon Salem's leaders to read it.

Note about SAFE:

This open letter was researched and authored by the Board of the Salem Alliance for the Environment (SAFE).  The opinions expressed are solely those of the authors. The primary authors were Jeff Barz-Snell, Shelley Alpern, Pat Gozemba, and Marjorie Kelley.  Significant research assistance was provided by the Conservation Law Foundation in Boston.  All inquiries can be directed to Jeff Barz-Snell at 978 741-1629 or jeffreysnell@comcast.net.

Endnotes:

[1] Note, the actual agreement stipulates an annual tax payment of $ 3.5 million with an additional $ 1.25 million community payment.  From Dominions perspective, the actual tax payments over the three year agreement is $10.5 million, with the additional $ 3.75 million considered additional. 

[2] Based on data available at The Regional Greenhouse Gas Initiative website, retrieved at: http://www.rggi.org/about/documents

[3] According to the Conservation Law Foundation report on the Salem Harbor Generating Station, retrieved at http://www.clf.org/work/CECC/airpollution/salemharborpowerplant/docs/Salem_fullreport_2008.pdf

[4]  The Occupational and Safety Hazard Administration, issued SHGS a citation with 10 violations and $ 43,000 fine in May 2008,  http://www.healthlink.org/documents/OSHA.citation.pdf

[5] In terms of annual generation data, not reported capacity.