Hudson Transmission Partners closed a  $700 million private placement for its 660MW submarine transmission cable under the Hudson River on 23 May - bringing to an end a long road from concept to delivery. The $850 million deal, which has hovered on the edge of the market since 2007, finally closed after the New York Power Authority (NYPA) agreed to a long-delayed contract to buy the majority of the line’s capacity. Construction started the same month. 

Royal Bank of Scotland (RBS) and Societe Generale arranged the debt. The oversubscribed 22-year private placement was sold to institutional investors, mostly large insurance companies such as John Hancock and Prudential, and priced in the low 200bp over the equivalent Treasury range. The roughly $150 million in equity came from Energy Investors Funds’ US Power Fund II (44.375%), Starwood Energy’s Starwood Energy Hudson In­ves­tors (44.375%) and the remainder from a joint venture made up of Hudson Power Ventures (HPV), Anbaric Hudson and Triton Partners, according to US Federal Energy Regulatory Commission filings. HPV’s owner is Powerbridge, the project’s developer, Anbaric’s is Edward Krapels and four other individuals and Triton is controlled by the law firm of Curtis Thaxter. Skadden was legal counsel to the sponsors and Milbank counsel to the lenders.

The structure is very similar to the $550 million financing for the Neptune Regional Transmission project that closed in July 2005. Societe Generale arranged a 22-year private placement that is believed to have priced around 175bp over the equivalent Treasury for the 660MW line. Atlantic Energy Partners, today part of Powerbridge, was the developer with equity coming from EIF and Starwood.

Hudson has tread a long, fraught journey from concept to close. In November 2006 NYPA named Hudson the winner of a March 2005 request for proposals for 500MW of new transmission capacity con­necting the New York Independent System Operator (NYISO) in Zone J (New York City) to the PJM Interconnection in northern New Jersey. The authority want­ed to bring cheaper electricity into Zone J from New Jersey where average rates are lower than in the congested Zone J. NYPA sells power to large state entities, including the Metropolitan Transportation Auth­ority and New York City Housing Authority.

HTP consists of a 12.8km line from an upgraded substation in Ridgefield, New Jersey to the Consolidated Edison (ConEd) west 49th Street substation in New York City. The 345kV line will have a capacity of 660MW. As part of the project, the developer agreed to fund $172 million in upgrades to the PJM network in northern New Jersey, and $16 million in system upgrades to the NYISO. Separately, the authority selected an electricity supply pro­posal from AES for 500MW from its Red Oak power plant in New Jersey to feed the HTP line. It later dropped the power supply plans.

Project approvals proved difficult. It took the developer more than four years to close all the necessary agreements for both construction and operations of the line, including those from the New Jersey De­partment of Environmental Protection (Febru­ary 2009), New York Public Service Commission (September 2010) and US Army Corp of Engineers (December 2010).

Closing the capacity agreement with NYPA proved the most difficult. Despite the basic structure laid out in the 2005 RFP, the parties could not agree to a final offtake agreement until March 2010. NYPA agreed to buy 495MW (75%) of the line’s capacity for 20 years, with the developer selling the rest on the merchant market. Upon completion, the developer will turn the line over to the NYISO to operate under its open access transmission tariff scheme. The US Federal Energy Regulatory Commission approved the contract on 29 April.

State officials also questioned the project’s merits. Lee Solomon, president of the New Jersey Board of Public Utilities, claims that, if built, it could result in higher, less reliable electricity rates for users in northern New Jersey. While across the Hudson, state legislators argue that it could cost taxpayers millions of dollars and result in increased levels of air pollution. However, the developer says New York governor Andrew Cuomo’s support was pivotal to the project moving to construction from development.

The lengthy approvals process was the biggest hurdle for the project, say sources close to the financing. They cite the need for approvals from NYPA, ConEd, the city of New York and two states that ex­perienced a change of governor in middle of the process as the reason for the project delays. If it was not for these, they say the deal’s fundamentals are strong, despite its merchant aspects, and easily financeable in the current market. They cite the fact that the current financing launched in late March and closed in May.

Neptune faced significantly fewer hurdles. The Long Island Power Authority (LIPA) selected the 103km submarine cable through a competitive RFP process in June 2004 and signed a 22-year offtake agreement for the line’s entire capacity that September. Financing closed in July 2005. The project benefitted from the fact that the developer began pitching a $4 billion version that would have run along must of the northeastern US to potential customers in 2001 and received FERC approval the same year. The line connects PJM in Sayreville, New Jersey to Levittown, New York in Nassau county on Long Island, and construction was completed in 2007.

Siemens Energy and Prysmian Cables and Systems hold the engineering, procurement and construction contract for the line. Siemens is responsible for the substations and interconnections and Prysmian for the cable itself. Joseph Jingoli & Son is responsible for site preparation at the substation in New Jersey. Construction is scheduled to be complete in mid-2013.

Hudson Transmission Partners
Status: Closed 23 May 2011
Size: $850 million
Location: New Jersey and New York
Description: 12.8km 660MW submarine transmission cable connecting PJM to the NYISO under the Hudson River
Grantor: New York Power Authority
Developer: Powerbridge
Sponsors: Energy Investors Funds (44.375%), Starwood Energy Group (44.375%) and a joint venture of Hudson Power Ventures, Anbaric Hudson and Triton Partners (11.25%)
Equity: $150 million
Debt: $700 million private placement
Arrangers: RBS and Societe Generale
Legal counsel: Skadden Arps (developer), Chadbourne & Parke (equity) and Milbank (lenders)
EPC contractors: Siemens Energy and Prysmian Cables and Systems
Site preparation contractor: Joseph Jingoli & Son