BY TOM DALTON
---- — The plan to build a natural gas power plant on the Salem waterfront has suffered a major setback.
One month after the operators of the New England power grid ruled that the new Salem plant will be needed in a few years, a state agency has declined to issue an order that the plant owners say they need to get the project financed.
On Friday, the state Department of Public Utilities decided not to ask two public utilities, National Grid and NStar, to consider entering into long-term contracts to buy power from Footprint Power, the new owners of Salem Harbor Station.
That is seen as a significant development for several reasons, principally because the Footprint owners say they need a long-term contract, and the guaranteed revenue that comes with it, to secure financing for the planned 670-megawatt natural gas plant.
In its ruling, the DPU said it would be “premature” to order the utilities to enter into long-term contracts unless it was clear that “the competitive market had failed and that there were imminent (energy) reliability concerns.”
The question now is what this ruling means for the Salem project, which is seen as the catalyst for developing the 65-acre waterfront site.
“It does not kill the project,” said state Rep. John Keenan, D-Salem, a strong Footprint supporter who filed controversial, and ultimately unsuccessful, legislation last year to try to secure that guaranteed financing. “It certainly makes it a lot more difficult, and we’ll have to find a way to get it done ...”
Keenan’s bill, which was called a “sweetheart deal” by opponents, was modified into legislation that gave the DPU the option of seeking long-term contract proposals from NStar and National Grid — an option the agency has now rejected.
Keenan, chairman of the House Committee on Utilities, Telecommunications and Energy, said he plans to meet with DPU officials, Gov. Deval Patrick and others.
“My goal still remains to get (a new plant) built on time for 2016, and we’re going to try to find a way to do that,” he said.
The Footprint owners, Peter Furniss and Scott Silverstein, said they were disappointed and surprised by the ruling. However, they remain optimistic about the prospects of building a plant in Salem.
“We see this as a new beginning in a sense,” Furniss said. The DPU “basically said, ‘OK, we can’t do anything about it. Will someone else please come in and fix this?’”
There was strong opposition to a long-term contract from the New England Power Generators Association, a trade organization; NStar and National Grid; other power plant owners; and a number of environmental groups, including the Conservation Law Foundation and Salem Alliance for the Environment.
Some argued that it would result in unfair competition and higher rates for consumers.
Contending their new plant would lower rates, the Footprint officials said they provided information to the DPU to make that case.
“It’s disappointing the agency didn’t review the data that was provided to them,” Silverstein said.
“Our bottom line is this is the right project at the right place with the right technology to solve the reliability need in (Greater) Boston,” Silverstein said. He said he feels that ultimately “the state will recognize that and this project will get built.”
“I think we were somewhat surprised by the outcome of the order,” Furniss said, “but I think that, on balance, it’s still going to send us in the right direction ...”
Both men stressed the importance of last month’s finding by ISO New England, operators of the regional power grid, that the Salem plant will be needed in 2016. The DPU reached a similar conclusion in its Friday ruling, but disagreed on the need for a long-term contract.
Salem Harbor Station, a coal- and oil-fired facility, is scheduled to shut down next year.
The Footprint principals said they plan to open a gas plant by 2016. Permit requests are now before the state and will soon be filed with the city.
“They’re still marching forward on the permitting side,” Mayor Kim Driscoll said.
Tom Dalton can be reached at email@example.com.