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Key step taken toward 1,200 MW Hydro-Quebec line project

October 13, 2010
MANCHESTER — Another step was taken last week as part of a lengthy process designed to bring to fruition a $1.1 billion high-voltage direct current (HVDC) 1,200 megawatt (MW) electric transmission line south from the Quebec border to southern New Hampshire.

Northern Pass Transmission (NPT), LLC, and H.Q. Hydro Renewable Energy, Inc., an indirect wholly owned subsidiary of Hydro-Québec, signed a Transmission Service Agreement (TSA) on Monday, Oct. 4, for the Northern Pass Transmission line, a.k.a. the Hydro-Quebec line.

If and when the project is completed, it would help meet the growing demand for renewable "green" energy, primarily in Massachusetts and Connecticut.

The transmission line would serve to reduce carbon dioxide emissions and carry enough electricity to serve more than a million homes.

Although the preferred route has not yet been announced, it likely will run on existing rights-of-way on the western side of Cos County on into Grafton County, with a new right-of-way (ROW) required in Pittsburg.

NPT is a joint transmission line venture indirectly owned by Northeast Utilities (NU) — of which Public Service of New Hampshire (PSNH) is a wholly owned subsidiary — and NSTAR, formerly Boston Edison.

NU controls a 75 percent share, and NSTAR, 25 percent.

"The TSA is one of the key elements of the project, along with the Purchased Power Agreement (PPA) that is still being negotiated," explained PSNH spokesman Martin Murray. PSNH president Gary Long is one of the point people in these negotiations, he said.

As now envisioned, the NPT will be a new high-voltage direct current (HVDC) transmission line from the Canadian border to southern New Hampshire plus a converter station and an associated alternating current (AC) radial transmission line to be constructed by NPT, likely in Franklin.

It will be designed to interconnect at the Des Cantons substation near the U.S.-Canadian border with a new HVDC transmission line to be constructed in Québec by Hydro-Québec Transénergie, the transmission division of Hydro-Québec.

As agreed in the just-signed TSA, NPT will sell firm electric transmission rights over the 1,200 megawatt NPT line for a 40-year term to Hydro Renewable Energy. NU and NSTAR, both publically traded companies, have filed the required 8-K reports with the U. S. Securities and Exchange Commission (SEC) that include a project timeline.

NPT intends to file this TSA for approval with the Federal Energy Regulatory Commission (FERC) during the fourth quarter of 2010, that is, before Jan. 1, 2011.

In addition, NPT expects to file its project design with ISO-New England for technical approval in the same timeframe, and also to submit applications over the next 16 to 18 months for all required state and federal permits.

If timely siting approvals are secured, NPT expects to begin construction of the HVDC line in late 2012 or early 2013, with the expectation that power would flow five years from now in the second half of 2015.

NPT will charge Hydro Renewable Energy cost-based rates under the TSA for firm transmission service using a FERC approved-formula rate. The projected cost-of-service calculation includes a return on equity (ROE) of 12.56 percent through the construction phase of the project, after which the ROE will be tied to the ISO-New England regional rates' base ROE, currently 11.14 percent, plus 142 basis points.

The TSA rates will be based on a deemed capital structure for NPT of 50 percent debt and 50 percent equity.

NPT is currently negotiating the arrangements for construction financing with Hydro-Québec. During the development and construction phases under the TSA, NPT will capitalize its financing costs through non-cash Allowance for Funds Used During Construction (AFUDC) earnings.

According to the two SEC filings, the estimated project costs are approximately $1.1 billion. NU's share of the NPT Line is approximately $830 million and NSTAR's share, approximately $280 million (including capitalized AFUDC and property taxes).

FERC approved a funding plan for this major transmission line in May 2009. The two utilities applied for approval for this innovative funding plan on Dec. 12, 2008.

Hydro-Quebec will pay for the line and recover its investment through long-term power purchase agreements (PPAs). NU and NSTAR did not seek to recover their costs by "socializing" the project across New England.

The project is expected to reduce annual greenhouse gas emissions by about 4 million to 6 million short tons of carbon dioxide (CO2) by displacing natural gas- and-or coal-fired generation in New England.

New England has taken steps to reduce greenhouse gases, forcing utilities to seek new power sources to meet the mandates of the Regional Greenhouse Gas Initiative (RGGI).

Northeast Utilities, headquartered in Berlin, Conn., transmits and distributes electricity and natural gas to more than 2 million customers in New England.

NSTAR of Boston, Mass., transmits and distributes electricity and natural gas to 1.4 million customers in Massachusetts.

Hydro-Quebec of Montreal owns and operates more than 40,000 MW of generating capacity — 97 percent of which comes from hydropower — and transmits and distributes electricity to 3.8 million customers in Quebec.

Littleton Chmber
Varney Smith
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