King Neptune

Deck: 

Consultant Ed Krapels makes waves with undersea transmission.

Fortnightly Magazine - May 2007

“Make no small plans,” the saying goes, and consultant Ed Krapels has taken that to heart.

Krapels and his partners began in 1999 to dream about a huge undersea electric transmission line, running under the Atlantic Ocean from Canada to Manhattan, that would dwarf anything seen before or since. And today, nearly a decade later, Krapels still holds to his vision: Bring significant quantities of renewable energy south from Maine and the Canadian Maritimes, and inject that capacity directly into the congested downtown local grids of America’s large East Coast cities. Who could find fault with that?

Though the dream, to be known as Project Neptune, still lives, Krapels and his partners since have found it prudent to scale back a bit. They first envisioned a single monster 4,800-MW direct-current project, running hundreds of nautical miles, with intermediate stops into the Boston area (where Krapels and the ESAI consultants work) and Southern Connecticut, plus a 1,200-MW bi-pole terminating in New York City. Several years on, with Enron and the standard market design now both dead in the water, the Neptune project has morphed into three smaller and discrete projects, each a high-voltage, direct-current undersea line.

The first, the Neptune Transmission Project, nearly complete and in service, runs from Sayreville, N.J., to Long Island, N.Y. (660 MW, with 51 miles underwater, 65 miles total), bridging the PJM Interconnection with the New York Independent System Operator (ISO). The second, the Hudson Transmission Project (not to be confused with an older project called “Cross-Hudson,” abandoned by PSE&G in 2005), will run under the Hudson River from Bergen N.J. to West 49th Street, Manhattan. The third and newest proposal, known as the Green Line, or the New England Independent Transmission Co. (ITC) Project, would run from the site of the former Maine Yankee nuclear plant, in Wiscasset, Maine, to NStar’s 345-kV K St. substation near the Boston waterfront (660 MW, 140 miles underwater).

Fortnightly: I understand that you have some “skin” in the Green Line. Is that correct?

Krapels: I do. I am the chairman. I have a partner, Ed Stern, who is also the CEO of Neptune, and also the CEO of the Hudson project.

Fortnightly: Are those two projects—Hudson and Neptune—further along than the Green Line, also known as the New England ITC project?

Krapels: Yes. Neptune is actually in the very last month of construction. And it will go into service, God willing, July 1 of this year. The cable is laid. The converter stations are built. It is actually on budget and on schedule, which is a rare thing for a transmission line.

Hudson is not that far along. It was selected by the New York Power Authority for delivering 500 MW of capacity into New York City. But Hudson is still in the process of going through all of its permits and interconnection procedures within PJM. It is probably a year away from start of construction.

Green Line is behind Hudson. Green Line is conceptual; it’s a different animal, because it’s meant to be in the rate base.

Fortnightly: Where do we stand right now with the Green Line?

Krapels: The Green Line is in the process of negotiating an ITC agreement, the first one, with the New England ISO (ISO-NE), for the purpose of participating in transmission development as an ITC, under the conditions of “Attachment M,” under the New England tariff.

Fortnightly: Do you have a time frame on when you will be certified by ISO-NE as a qualifying ITC? When will we know if the ISO accepts the Green Line project as part of its regional transmission plan?

Krapels: Those are two different questions with two different answers.

First, we have obtained an order [Docket EL07-21, Feb. 20, 2007, 118 FERC ¶61,127] that we have both the independence and the capability to develop transmission in New England. It’s a peculiarity of the New England tariff that we need to go to FERC for that kind of order.

For the second step, we have to negotiate an ITC agreement with the ISO. That is ongoing. We hope to be finished with that in April or May. And that, if you will, gives us our second leg—our ability to do business in New England for the purpose of developing a rate-based transmission project. This would not be necessary if we were proposing a merchant project, but we’re not.

Fortnightly: When you say “rate base,” you mean that the ISO will allocate the cost of the line under its regional tariff, in the same way as if an investor-owned utility was building out the grid?

Krapels: Yeah. But I want to be sure, though, not to misspeak in terms of any specific allocation, because that’s yet to be decided. And I guess that, in essence, we would be a utility. But we would be a utility, if you will, with no customers: a utility for the purpose only of developing transmission.

And I think it’s somewhat felicitous that our project, as it’s proposed, would lie in no one single service area.

Fortnightly: Now that you’ve put in some work on three different lines, can you look back and determine whether one was easiest?

Krapels: None of them has been easy. But one of the things we’ve learned is that when FERC effectively abandoned its standard market design, it created a challenge that we actually relish. And that’s that each region has its own eccentricities, and you have to be able to do business within those eccentricities. So Neptune is a fantastic idea, within the New York and PJM scene. We don’t think it would work, necessarily, in the New York/New England scene. Nor would it work within the New England market. And Green Line, I don’t think, would necessarily work within PJM, but it’s just the right approach for New England. We’ve learned to adapt our approach to the market.

Fortnightly: What led you to branch out from consulting and get into the transmission business?

Krapels: When we started this, back in 1999, we thought we would just start the project, and then sell it to somebody. For a consultant, that’s not an unusual thing to do.

Fortnightly: And this was back when you first started to think about the Neptune project?

Krapels: Yes. We spent time and money developing the concept. We had an open season, you may recall, which we launched on Sept. 10, 2001. But we actually did have a successful open season. In other words, we had customers for some of the lines of the original big Neptune project, which had something like 80 different links. And we were negotiating a contract with the major winner [when] Enron imploded. The company that we were negotiating with was not Enron, but it was a big power-marketing company, and in all the fallout we lost the ability to use their credit as a source of financing.

So we wound up owning a project that didn’t have a customer. But a year later, LIPA issued its RFP, and we bid into that RFP and were selected in a very competitive process. With that selection, we wound up not selling the project, but rather, [we] had attracted investors. After that, we started thinking about doing a couple more.

Fortnightly: Before you became a power consultant, were you ever a project manager who got your fingernails dirty doing real work?

Krapels: Nope. This is the first time. But I have to be honest. Getting the fingernails dirty is not the part that I do. In the original Neptune team we had five partners; among them were lawyers, engineers, and project-manager types. I was always the economist and the connect-the-dots guy … the guy to look at all the potential projects that we might do to try to select the ones that make the most sense. I’ve probably looked at 50 projects in the last two or three years, but we’re only involved in three.

Explaining the overall economics, with the market impacts and the regulatory structures, you need one person to throw a net over the whole picture—with a whole lot of sense about everything, and not a lot of sense about anything in particular. Transmission really lends itself well to that kind of thinking.