FERC Conditionally OKs Neptune Transmission Project

The Northeast moved a step closer to getting a major new power transmission line, linking surplus generation in Maine and Atlantic Canada with rapidly growing demand in Boston, New York and the Mid Atlantic region. FERC last Wednesday conditionally approved the transmission project filed by Neptune Regional Transmission System LLC consisting of several thousand miles of undersea high-voltage direct transmission. Among other things, the Commission said that its approval was contingent upon Neptune joining the Northeastern regional transmission organization (RTO).

The Neptune project will run from four interconnections, each of which will have a capacity of 1,200 MW in New Brunswick, Maine and New Jersey to interconnections in Boston, New York City, Long Island and Connecticut. The project will allow for the transmission of 3,600 MW of power from Maine and Canada to the Northeast. Also, the project will allow transfers of 1,200 MW of power from PJM to NEPOOL and the New York power pool. The first phase of the project will consist of a relatively short leg running from New Jersey to New York City and Long Island and is scheduled to be in service by the summer of 2003.

Neptune proposed to provide transmission service under a tariff it included with its application at the Federal Energy Regulatory Commission. Neptune said that it has, to the extent possible, used in its proposed tariff the definition, terms and conditions included in the Order 888 pro forma tariff. But Neptune also said that many of the Order 888 provisions are not applicable to a merchant transmission proposal. Neptune asked for a waiver of the requirement that it provide service under the Order 888 tariff.

FERC said it would conditionally approval of Neptune's proposal on the transmission system joining an RTO adjacent to or containing the geographic area of its proposed facilities and placing operational control of its facilities under the RTO. The Commission directed Neptune to work with the Northeastern RTO to ensure that the RTO's tariff is designed in a manner that accommodates Neptune's financing needs. Since the first phase of Neptune is scheduled for operation by the summer of 2003, FERC said that service should be provided under the terms and conditions of the RTO that will operate Neptune.

FERC also addressed Neptune's proposal to negotiate bilateral transactions with large customers prior to conducting an open season for up to 30% of the capacity of the system. The Commission said that it believes that the open season process that has been proposed by Neptune will provide it with the assurances it needs to go forward and therefore rejected the bilateral negotiations. As a matter of policy, FERC said that it believes that all capacity for merchant transmission projects should be made available solely through the open season process, which will help to ensure that the allocation of capacity is transparent, non-discriminatory and fair.

Neptune states that it is assuming the entire risk of the project. But several parties have disputed this statement, saying that Neptune is seeking to transfer a substantial part of the financial risk of the project onto existing stakeholders in the Northeast region through the assessment of charges for system benefits. Parties objected to the transmission system's request for FERC to approve the concept that Neptune can recover charges for providing system benefits charges.

The Commission said that as a merchant project with the authority to determine the project's size and to negotiate rates, Neptune must be ready to take on 100% of the risks of constructing the project. If Neptune feels that its project provides measurable benefits on the systems to which it connects, Neptune is free to negotiate with the various grid operators to obtain financial support for the project, FERC said. However, if those negotiations are unsuccessful, Neptune may not rely on the Commission to compel any payment for any claimed benefits. In sum, FERC said that it will not guarantee compensation for a merchant transmission project, while allowing that project to retain both its at-risk status and the authority to determine project size and to negotiate rates.

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