Salem Harbor Reaches $44 Million Settlement to Resolve Alleged Violation of Electricity Market Rules

The Federal Energy Regulatory Commission on June 27 approved an agreement between its Office of Enforcement and Salem Harbor Power Development LP to resolve allegations that the company engaged in a fraudulent scheme in ISO New England Inc.’s capacity auction to secure capacity payments. The company agreed to a civil penalty of $17 million and disgorgement of $26.7 million in profits.

ISO New England, the grid operator for the six New England states, conducts a yearly forward capacity auction to ensure adequate resources would be available to meet the future reliability needs of the region. The enforcement office commenced an investigation of Salem Harbor, a natural-gas-fired power plant, over alleged violation of ISO New England’s tariff to receive $100 million in payments, but failed to meet power generation commitments as construction delays prevented it from entering commercial operations on schedule. Salem Harbor failed to provide accurate and complete information to the grid operator ahead of the plant’s commercial operation date, according to the office. FERC alleged that Salem Harbor engaged in a fraudulent scheme to deceive the ISO and the market into believing that the project would meet the commercial operation deadline, in order to secure capacity payments.

In 2017, Salem Harbor missed the proposed date for its commercial operation but still went ahead to collect capacity market payments under market rules that were in operation at the time. Based on details provided in Salem Harbor’s public bankruptcy filing, FERC’s preliminary findings indicated that the project developer violated ISO New England and FERC rules by not disclosing, in its critical path schedule updates, all necessary information relevant to the evaluation and feasibility of the project and its ability to meet the May 31, 2017, commercial operation date. The enforcement office alleged that the failure of the developer to disclose critical information violated FERC’s Anti-Manipulation Rule.

The office also alleged that the ISO should have detected that Salem Harbor would be late and miss the scheduled date and given advice that helped the project avoid the consequences of its failure to meet its commercial operation date. ISO New England, in a statement issued after the matter was disclosed in the company’s bankruptcy filing, denied the allegations, arguing that after Salem Harbor’s delay, the grid operator took action to ensure a similar situation never happens again, especially by making rule changes that include an automatic financial penalty for resources that are late.