FERC OKs Seabed 'Merchant' Pwr Line For Northeast US

Dow Jones & Company, Inc.

WASHINGTON (Dow Jones)--Federal energy regulators Wednesday approved a proposed "merchant"  electricity transmission project designed to bring power from Canada and the U.S. Mid-Atlantic region to power-hungry stretches of New England and New York.

The U.S. Federal Energy Regulatory Commission granted conditional  approval to the Neptune Regional Transmission System, a venture that plans to  lay undersea transmission lines to avoid on-shore siting problems and costs.

Wednesday's order marks the second time FERC has granted approval to a merchant transmission-line developer.

Last year, FERC approved a plan to lay a 26-mile cable in Long Island  Sound to bring power from Connecticut to power-starved Long Island.

That project, proposed by TransEnergie US Ltd., a unit of Montreal-based Hydro-Quebec (X.HQB), ran aground after state regulators raised concerns that the power line would have adverse impacts on oyster beds.

The Neptune project, to be developed in four stages, would link  1,200-megawatt interconnections in New Jersey and Maine with interconnections in  Boston, New York City, Long Island and Connecticut.

Ultimately, the project would allow transmission of 3,600 megawatts of power from Maine and Canada to the Northeast, and another 1,200 megawatts of  power from the PJM Interconnection to New England and New York.

The first phase of the project, linking New Jersey with New York City  and Long Island, is slated to enter service by the summer of 2003. A second  phase, linking New Brunswick, Maine, with New York City, is scheduled to begin service in 2004.

A third phase, linking Nova Scotia with Boston, is due to enter service  in 2005, with Maine and Connecticut added as interconnections in the fourth  phase in 2006.

Neptune, a Delaware limited liability corporation formed by Atlantic Energy Partners, a Maine-incorporated LLC, is assuming all the risk of the  project as a merchant developer.

It plans to award 80% of the project's transmission capacity under long-term contracts to the highest creditworthy bidders through an open season.

These long-term transmission scheduling rights would be tradable in a  secondary market. The rights would be awarded under a use-it-or-lose-it basis, providing a financial incentive for a secondary market. Unused long-term transmission rights would be made available for bidding on an hourly basis.

The remaining 20% of transmission capacity will be auctioned through similar open seasons for short-term transactions, either monthly, weekly or hourly.

FERC's order excludes Neptune affiliates from acquiring capacity in  initial open seasons, but leaves them free to participate in secondary capacity  markets.

Neptune had proposed to sell 30% of the project's capacity through negotiated bilateral contracts prior to the open-season auctions as a means of  assuring there is adequate financial interest in the project.

But FERC rejected that. "The commission believes that the open season  that Neptune has proposed will provide it with the assurance it needs to go forward and will not approve the bilateral negotiations," Wednesday's order said. "There is no financial benefit to Neptune by negotiating for 30% of its  capacity prior to the open season."

The order said that, as a matter of policy, it would require all merchant transmission projects to make capacity available through open seasons.  "This will help ensure the commission and all parties that the allocation of  capacity is transparent, nondiscriminatory and fair," FERC said.

The order also rejected Neptune's proposal to collect fees from existing transmission systems in the region to reflect the systems benefits the project  will provide.

"As a merchant project with the authority to determine the project's size and to negotiate rates, Neptune must be prepared to bear 100% of the risks  of constructing the project," FERC said.

The commission also conditioned its approval on Neptune joining the  Northeast regional transmission organization FERC is promoting. The Northeast RTO would independently manage the Neptune transmission assets in accordance with FERC rules.

The order requires Neptune to make nonpublic information available to  the RTO's market monitors, and to file quarterly transaction information with FERC. -