What Is The Sandwich Canal Plant Worth?
By: Mary Stanley
Town officials are gearing up to enter into negotiations with GenOn Energy, owners of the Canal Plant in Sandwich, on a long-term tax agreement for the power-generating facility.
These negotiations are conducted once every eight years to assess the power plant’s value in terms of its property, operations, and equipment. The last time this agreement was reached, the canal plant was valued at $220 million. That set the average annual tax payment to the town at $2.5 million.
According to Director of Assessing Edward L. Childs, the tax payment makes up about 5 percent of the town’s tax base. With that agreement set to expire at the end of the next fiscal year, the town must hammer out a new agreement with the plant owners.
Town Manager George H. Dunham said he does not know when the valuation discussions will formally begin but said the town has begun preparing for negotiations.
“The current agreement expires at the end of Fiscal Year 2013 and over the next year we will begin discussions. We continue to have regular discussions with GenOn regarding their future plans, including the valuation agreement,” he said.
Since signing the last agreement, a number of economic factors have arisen that have put the aging power plant at a disadvantage in the power generation marketplace, thus reducing the number of days the plant is actually operating, and possibly, reducing its taxable value.
First of all, the plant uses oil rather than natural gas to run its turbines. With the cost of oil significantly higher than the price of natural gas, that has placed a strain on the power plant’s ability to compete with other suppliers that use natural gas as their source for producing electricity. Not only is it more expensive to use the oil-fired burners, there is a much longer startup time involved.
Options for increasing GenOn’s ability to compete in today’s market include switching over to a more affordable energy source such as natural gas. With gas lines already available in that area, the plant has the ability to use natural gas as its source of fuel. Another option would be for the plant to change to a combined cycle power plant, a much more efficient generating plant, which takes as little as 30 minutes to start up and has a very short cool-down time.
Such a system, however, would be very costly, estimated to be in the hundreds of millions of dollars, a cost that would be borne by the shareholders of the company.
“We continue to look at various options, including quick start turbines. Everything is dictated by market conditions,” said Paige M. Kane, public affairs manager for GenOn in New England.
For the past eight years, the generating plant has been operating mostly as a third string quarterback, there in case two transmission lines that provide electricity to homes and businesses in the southeastern part of the state should both fail at the same time.
In 2009, however, however, NStar made some upgrades to its existing transmission lines and that has further reduced the need for power from the Sandwich plant for reliability purposes.
“The number of days that the canal plant was operational in 2011 was significantly lower than in years prior to the short-term upgrades,” said Ms. Kane. Ms. Kane did not state exactly how many days the plant was operational.
NStar’s proposed project to build a third transmission line to the southeastern part of the state could further reduce or even eliminate the need to turn to GenOn for backup energy since this third line will serve that purpose, should the other two transmission lines fail.
“It’s hard to predict what the reliability call will be when the third transmission line is built. But we don’t know when that transmission line will be approved or permitted,” Ms. Kane said.
Mr. Childs declined to speculate on the future operations of the plant and its potential taxable value if, and when, the third line is built, only saying that he has concerns.
“I’m not absolutely sure how the NStar project will affect GenOn’s valuation. It’s too premature to predict, other than to say I do have concerns,” Mr. Childs said, noting that all this will be considered during negotiations with the company.
Mr. Childs said even if the power plant were to completely shut down, GenOn would still need to pay taxes based on its property value, which also includes equipment inside the facility. These tax payments, however, would be much lower.
If GenOn’s tax payments plummet, other taxpayers in town will have to bear more of the town’s overall tax burden.
“Whatever doesn’t get collected from [GenOn] gets collected from everyone else,” Mr. Childs said.
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