The imprint of bankruptcy is no cause for alarm

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March 29 – SALEM – Last week’s bankruptcy filing by the owner of the former Footprint Salem Harbor power station is not expected to result in any immediate change in operation or financial impact for the city, the mayor said Monday.

It also will not affect a planned wind power project and other works proposed for land adjacent to the plant, officials said. This land is a separate property.

“It’s not good news, but we’re trying not to be alarmist,” Mayor Kim Driscoll said of the developments last week.

The plant is the city’s largest “taxpayer”, although it is actually part of a 20-year agreement to make quarterly payments in lieu of taxes (PILOT) to the city which in 2021 amounted to $5.1 million, with an additional $335,000 in community benefit assessments.

Late Wednesday night, Footprint Power Salem Harbor Development LP and several affiliated entities filed for Chapter 11 bankruptcy in Delaware. On Friday, a judge approved a preliminary plan to either find a buyer for the 674-megawatt plant or allow it to be taken over by creditors.

Chapter 11 bankruptcy allows a business to continue operations and develop a repayment or restructuring plan.

The move came after several months of attempted negotiations between Footprint Salem and Iberdrola, the Spanish company contracted to build the plant in 2014 for $702 million.

Iberdrola’s contract was terminated in 2018, at a time when it was 11 months behind construction due to multiple issues, including the replacement of the lead engineering company mid-project. The company has also been accused of severely underbidding on the project. Iberdrola pushed back, filing for arbitration and payment of the balance of what he said was owed on the project.

Millions rewarded

In October, an arbitration panel awarded Iberdrola $237 million in damages and costs.

A spokesperson for Iberdrola said in an email Monday that the company believes it is entitled to the award.

“The court carefully considered all of the evidence and arguments of both parties and ruled that the termination of the contract when the plant was substantially complete was unreasonable,” the email said.

While it was about half of what Iberdrola originally claimed, the sentence, later upheld by a New York state court, set off a series of events that threatened to put Footprint Salem in default on another $337 million in debt related to the construction of the plant, creating total liabilities of more than half a billion dollars.

Footprint Salem and Iberdrola originally reached an agreement in January to suspend efforts to collect the award, according to the bankruptcy petition, but last Wednesday Iberdrola terminated that agreement, according to the bankruptcy petition.

Shortly after the arbitration award in October, however, the company had already cleared a company to begin soliciting potential buyers. As of last week, 27 had reached preliminary agreements that would allow them to explore a possible purchase, according to court documents.

The plant generated $47.5 million in energy sales last year and $147.7 million in capacity revenue. According to the bankruptcy filing, those capacity gains — a type of incentive for companies to build new factories — were due to end in May.

A spokeswoman for Oaktree, which provided most of the financing for the plant’s construction, declined to comment on Monday.

Salem’s Concerns

Driscoll emailed city council members on Saturday, acknowledging that the development was concerning, but not unexpected given the arbitration decision.

Driscoll said the plant’s value lies in its continued operation.

The bankruptcy petition also acknowledges the need to maintain the operation and meet all financial obligations, lest it risk losing operating licenses or the like.

The mayor said the city will continue to monitor the situation and is likely to appear in the matter “to make sure our interests are protected.”

“It’s important to us,” Driscoll said.

“I don’t want people to think the sky is falling on us,” the mayor said.

The day-to-day operation and maintenance of the plant will continue to be carried out by a company called NAES, which is paid under an annual contract; Several other companies are also under contract to manage various aspects of the business, including Tateswood Energy, which provides management and financial services, and two subsidiaries of General Electric, according to court documents. Among the motions heard on Friday was a request to continue honoring those contracts while the bankruptcy is pending.

The court also agreed to a legal name change, after a trademark licensing agreement between Footprint Power and the factory owners ended; going forward, at least on paper, the plant will be called Salem Harbor Power Development.

Forensic reporter Julie Manganis can be reached at 978-338-2521, by email at [email protected] or on Twitter at @SNJulieManganis

Forensic reporter Julie Manganis can be reached at 978-338-2521, by email at [email protected] or on Twitter at @SNJulieManganis

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