If you think the three companies hoping for approval from Washington to serve the burgeoning Long Island (New York) power market from the verdant hills of Connecticut are duelling in a winner-take-all contest, you may be wrong. If you ask contestants vying for a piece of the lucrative cross-Long Island Sound power business, they aren't worried about over-capacity. In fact, on the Northeast Utilities project, marketers expressed overwhelming interest ? offering to make deals for twice planned capacity.

A 2001 study issued by the Manufacturer's Council of Connecticut identified Connecticut as the third most expensive state in which to manufacture, and high energy costs were cited as a significant variable that contributed to this high-cost status.

Power companies learned from blackouts in the past that mutual aid from neighbouring companies and states could make a big difference in reliability. The projects are expected to improve the reliability of Connecticut's and New York's electric systems and will increase the likelihood of continuous electricity service being provided to residents and businesses.

While it seems that federal regulators are slow to put their approval on any proposals, it may be as much a matter of the bureaucracy as it is concern over competition. The projects are going forward, spurred by such regulatory movement as exists. Finance does not seem to be a problem, since several bankers appear to be keen on the upcoming projects. The operation of these cables, however, will bring them up against the new regional transmission organisations (RTO), which have other ideas about how the transmission market will develop.

Neptune

On 13 February the Neptune Project filed a request for clarification of a July 27 2001 Federal Energy Regulatory Commission (Ferc) order. It asked the commission to clarify the order, which says that owners of transmission scheduling rights (TSRs) cannot be required by the Northeastern RTO to pay transmission charges or export fees in addition to the purchase price of TSRs, in order to transmit electricity through the Neptune system.

Also, the commission was asked to clarify that a TSR represents the physical right to use the Neptune system on a point-to-point basis, that is, a TSR is required in order to schedule a transmission transaction over the Neptune system from one specific point to another. The commission granted clarification in part, noting that the order benefits customers by clarifying the terms under which Neptune can offer transmission service.

At issue are not just the benefits that might be available to utilities in the region, but also how this increase in transmission capacity will affect generation markets in the target areas. Whilst utilities will welcome a change in the demand/ supply imbalance, the potential for a flood of cheap power from the north-east into the New York Power Pool (NYPP) leaves some generators nervous.

Neptune will consist of several thousand miles of undersea high-voltage direct current transmission systems which will connect generating capacity-rich regions in Maine, New Brunswick and Nova Scotia with capacity-constrained markets in Boston, New York City, Long Island and Connecticut. It will run from four interconnections, each of which will have a capacity of 1200MW, in New Brunswick, Maine and New Jersey to interconnections in downtown Boston, downtown New York City, Long Island and Connecticut. The undersea project will allow the transmission of 3600MW of power from Maine and Canada to the Northeastern US. In addition, the Neptune will allow transfers of 1200 MW of power from the PJM region to the New England Power Pool (NEPOOL) and the NYPP.

In its July 27 order, however, the commission did not approve Neptune's proposed tariff. Rather, in order to assist Neptune in securing financing, the commission, with certain conditions, approved various concepts underlying the proposed tariff. Consistent with a previous ruling, the commission approved Neptune's proposal as long as Neptune joins an RTO adjacent to, or containing, the geographic area of its proposed facilities, and place operational control of its facilities under the RTO. The commission has directed Neptune to work with the Northeastern RTO to ensure that the RTO's tariff is designed in a manner that accommodates Neptune's proposed financing profile.

?This project is going through. People that question the investment climate for power projects should realise that fallout from Enron should not affect this deal. In fact, that may be a positive development as there is a slow-down of deals on the generation side. This project is away from generation. It's a bet on the relative value between markets rather than the absolute value,? according to SG's Roger Bredder. SG is financial adviser to Neptune on the deal.

?The project is in development. We have completed open season on phase one. We are moving through permitting and contracting and expect to complete in summer or early fall,? adds Bredder.

In summary, Neptune sought clarification that a holder of a TSR is not obligated to pay any transmission charge to the RTO for the use of the Neptune facilities other than any scheduling or uplift charge imposed by the RTO, any other ancillary services charge generally imposed by the RTO for the use of transmission facilities under the RTO's operational control that are not part of the Neptune system and, any charge for the use of transmission facilities under the RTO's operational control that are not part of the Neptune system.

In its answer to Neptune's motion, PJM states that in providing any clarification, the commission should take account of the fact that transmission rates for the north-east will be developed, negotiated, and filed with the commission during the process of forming the Northeast RTO. It maintains that at a minimum, in addition to any Neptune charges, there likely would be a transmission charge for the use of the north-east transmission system that delivers the energy to the final PJM destination, typically a network transmission service charge. And, at least currently, there would also be a charge by the exporting system ? New York ? to move the energy from its original source in New York to the first Neptune terminal point. PJM states that there also may be transitional charges for service over Northeast RTO facilities to compensate transmission owners for lost revenues from the elimination of current multiple transmission charges across the ISOs in that region.

The Long Island Power Authority (LIPA) announced in early January that the Connecticut Siting Council had approved the proposal submitted by the Cross-Sound Cable Company to build a 24-mile, 330 MW, high-voltage cable from New Haven, Connecticut to the Shoreham plant on Long Island. LIPA provides electric service to nearly 1.1 million customers in Nassau and Suffolk counties, and the Rockaway Peninsula in Queens.

Cross Sound Cable

The Cross Sound Cable Interconnector is a high voltage, direct current (HVDC) buried submarine cable system that will connect the electric transmission grids of New England and Long Island, New York. The CSC Interconnector will provide additional power transfer capability between New Haven, Connecticut and Shoreham, Long Island, in either direction.

Cross-Sound Cable Company, LLC is a subsidiary of TransEnergie US Ltd and is also partially owned by TransEnergie HQ, Inc. and United Capital Investments, Inc. TransEnergie US Ltd. is the US transmission project development subsidiary of TransEnergie, the transmission division of Hydro- Quebec, a provincially owned electric utility in Quebec, Canada. United Capital Investments, Inc. is an unregulated subsidiary of UIL Holdings Corporation, the parent corporation of Connecticut-based United Illuminating Company.

The US Army Corps of Engineers must still approve use of the Navigation Channel as the cable route out of New Haven Harbour.

According to CSC officials the Cross Sound Cable uses new technology to overcome the obstacles that have prevented electric utility companies from investing in new transmission lines. Bankers maintain that the amount of investment in new transmission has fallen behind the growth in demand for electricity. In the north-east, the most recent transmission lines of the scale of the Cross Sound Cable are from the 1970's.

A source at Northeast Utilities, parent of Connecticut Light & Power, says: ?The deal will probably cost about $100 million ? and that's being conservative. However, we aren't going to be more specific on the price of the project. We think it would be counter-productive with the bidding process going on to use the capacity. Right now we are in the design stage. We have already completed the required environmental reviews.?

When the project was in its germination stage, estimated cost of completion was about $80 million.

The cost issue has been a continuing question, with officials connected with it opting to not put a value on the project. However, proponents of cross-Sound projects maintain that Long Island needs the extra capacity to safeguard against the same sort of meltdown that plagued California. Conventional wisdom is that bad planning and mismanaged deregulation played a large part in the California crisis, grid congestion also played a major role in that state's power debacle.

Commenting on the approval, LIPA Chairman Richard Kessel says: ?The new cross-Sound cable will be an important addition to the region's electric transmission infrastructure that will improve the reliability of the power grids that serve Long Island, Connecticut and New England.

?The Connecticut Siting Council's expeditious action on the new application submitted by the Cross-Sound Cable Company provides the opportunity, barring any unforeseen problems or delays, to have the new cable in service sometime this summer,? says Kessel.

The Cross-Sound Cable Company, LLC will build, own and operate the cable. LIPA has entered into an agreement with Cross-Sound to transport electricity that will be sourced from off-island resources.

However, Ferc officials last year asked Northeast Utilities to demonstrate that the cost of the project would not fall on the shoulders of consumers. Also, Ferc expressed concern that Northeast owns transmission, generating, marketing and gas distribution facilities ? the entire electricity spectrum.

Ferc also noted that while the Northeast deal is similar to other cable projects put before the commission, ?this project raises significant affiliate issues that weren't before us in those proceedings.?

In mid-December, the New York Independent System Operator (NYISO), the agency responsible for ensuring the reliability of the New York State transmission grid issued approvals of system reliability impact studies submitted by the Neptune Regional Transmission System. The studies demonstrate that interconnecting the first two scheduled phases of the Neptune Regional Transmission System, linking New York City with New Jersey and New Brunswick, Canada, will have no adverse impact on the New York transmission system.

Neptune received its first bids in November for its Phase I of the electric transmission service from New Jersey to New York and Long Island. According to Neptune's CEO, Charles E. Hewett, the company has received numerous bids from investment grade players in the industry, all but two of which were for 20 years or longer.

The company is currently evaluating the bids to determine which combination offers the highest financial net present value as required by FERC.

The project got FERC approval on July 27, 2001. In approving the system, FERC authorised the open season process for bids for transmission capacity. The Phase I bidding period closed on November 5. Indicative bids for service on the remainder of the system were due November 14 with firm bids for that service due December 21.