TransÉnergie: Playing Two Power Games

On a Thursday afternoon last June, state troopers from Connecticut and New York fanned out on a manhunt. Their quarry: several of the dozen Connecticut legis-lators and commissioners with the power to make or break Massachusetts-based TransÉnergie U.S., a pioneer in advanced high-voltage power transmission owned by Mont-réal power utility Hydro-Québec. For two years, political squabbling had idled an innovative 40-kilometer underwater power line installed by Trans-Énergie to strengthen the link between the Connecticut and Long Island power grids. On the Thursday in question, Trans-Énergie, Long Island’s power utility, and Connecticut regulators had finally found a way to end the impasse. All they needed to seal the deal were signatures from all 12 of those Connecticut politicians.

The manhunt marked the dramatic close to a saga that made TransÉnergie a poster child for the confusion that reigns in the U.S. power market. In the early 1990s, the U.S. Congress threw wholesale power markets open to competition, enabling state utilities to buy bulk power from generators located hundreds or thousands of kilometers away (much of New England and New York’s power, for example, comes from Québec). But regional coördination of power grids to accommodate long-distance power delivery has stalled. All too often, coördination has fallen victim to interests that stand to lose from increased competition; and federal law gives states the upper hand in regu-lating electrical transmission, thwarting the best efforts of power regulators in Washington. “It’s really a mess,” says Sally Hunt, a power-industry expert affiliated with National Economic Research Associates, a consultancy in New York.

TransÉnergie’s project got caught in a tussle between Connecticut and New York. “We were stuck in the middle of a much larger policy debate,” says Trans-Énergie U.S. president Jeff Donahue.

What makes the gridlock tragic is that it’s stifling the application of advanced transmission technologies that promise to not only facilitate power sharing across the continent’s aging power grids but also make them more reliable. TransÉnergie’s Cross Sound Cable is one of the first in a string of power lines that exploit digital switching, a technique that allows unprecedented control over electrical flows in the network while simultaneously filtering out dangerous spikes and sags (more on that later).

The benefits of the Cross Sound Cable were initially lost on Connecticut politicians, who believed that the cable would serve only to feed Long Island’s seemingly insatiable appetite for energy at the expense of Connecticut’s consumers and natural environment. Technical missteps by TransÉnergie deepened its problems in Connecticut, giving state officials license to use the company as a political whipping boy. But a very lucky break, in which Trans-Énergie and its supporters shrewdly exploited the -cable’s advanced technology, turned the tables. When the August 14, 2003, blackout threw Long Island into darkness (along with much of the northern United States and Ontario), the Cross Sound -Cable was pressed into service to help stabilize the grids. Ed Grilli, chief of staff for the Long Island Power Authority, says that August 14 set the stage for a po-litical breakthrough: “Quite frankly, what saved us in the end was the blackout.”

Six Feet Under

The pair of 10-centimeter-thick cables begins in a building located in New Haven, CT, connects to a set of digital power valves, travels beneath the Long Island Sound—buried under approximately one to two meters of muck—and comes ashore 70 kilometers east of Manhattan to feed an identical set of valves located on the site of the deactivated Shoreham Nuclear Power Station, which stands in eerie silence as a symbol of the public concerns that crippled the U.S. -nuclear-power industry. The $6 billion plant was fully built but had never operated commercially when local opposition, led by then governor Mario Cuomo, forced its closure in the late 1980s. The Cross Sound Cable’s greatest enemy was an equally popular politician from across the sound: Connecticut at-torney general Richard Blumenthal. Like Eliot Spitzer, his better-known New York counterpart, Blumenthal is both an activist attorney general and a likely contender for the Democratic nomination to challenge his state’s Republican governor in 2006. Grilli says that TransÉnergie handed Blumenthal a juicy issue, and the ambitious pol made the most of it. “They got swallowed up,” says Grilli.

The Cross Sound Cable saga began in the late 1990s. Grilli’s operation was desperate for electricity. Demand for power on Long Island grew larger every year, and reserve capacity was getting thin. After summer heat waves in 1999, power supply became a high-profile issue. The authority invited power producers to build new plants on Long Island, but it also wanted to access the relatively cheap power available in New England. Trans-Énergie offered a deal the authority couldn’t refuse: it would create a subsidi-ary, the Cross Sound Cable Company, that would build a line under the sound, at its own expense. The subsidiary, coöwned by Connecticut utility United Illuminating, would then rent capacity on the line to the authority. This would be the first such “merchant” line in the United States, and TransÉnergie knew how to exploit digital switching technology to make it work.

Electricity flows over power grids at the mercy of the laws of physics. As consumption levels shift from moment to moment, electrical energy follows the path of least resistance from generators to users. The result is that a power company’s grid isn’t limited to delivering electricity to its own local customers but can also, at any moment, become the unpaid carrier of power flowing automatically from high-supply areas to high-demand areas outside its own region. That makes building new power lines—which traditionally use alternating current (AC)—a very tough sell for an independent investor, explains -Laurence Kirsch, a transmission expert with Madison, WI-based consultancy Christensen Associates. “When you build an AC transmission facility, lots of people get to use it without paying just because of how power networks work.”

In contrast, TransÉnergie has precise control over the Cross Sound Cable. Those digital switches at the converter stations on either end, designed and built by Swiss power equipment firm ABB, consist of transistors sized for the grid’s kilovolt power levels; acting much like valves, the switches on one end convert a specified quantity of the grid’s AC power into direct current (DC) and send it down the line to be converted back into AC on the other end. The result is that the Cross Sound Cable Company can lease space on its line and then program the switches to deliver the specified kilowatt-hours of electricity. As on a private toll road, there are no free riders: “If people don’t pay, we close the road,” says Donahue.

The Federal Energy Regulatory Commission, which oversees wholesale power markets, welcomed TransÉnergie’s proposal as a boon to competition in the New York and New England power markets. But Blumenthal was convinced that the cable was a bad deal for his state. He charged that the project was “anticonsumer and antienvironment.” He wasn’t far off base: economists generally agreed that the cable would siphon off cheap power, lowering supply and raising prices in Connecticut. And to avoid interference with boat traffic and fishing, permits that were issued to TransÉnergie required that it bury its cables about two meters below the seabed, which meant plowing a trench through cultivated oyster beds in New Haven Harbor.

Blumenthal came out swinging, in both the media and the courts. He challenged a decision made by the Connecticut Siting Council, the state’s overseer of power infrastructure projects, which had ruled in January 2002 that the long-term need to expand electric transmission capacity in the region outweighed any short-term cost to Connecticut consumers and temporary disruption of the oyster beds. Blumenthal also issued a series of press releases predicting that the Cross Sound Cable would cause “irreparable environmental damage while offering no benefit to Connecticut”—a stance that garnered a substantial amount of public support.

On April 9, 2002, a Connecticut Superior Court judge rejected Blumenthal’s request for an injunction against the Cross Sound Cable Company, clearing the way for installation of the cable. But two months later, after technical blunders by the company, Blumenthal was back on top. The Connecticut legislature had passed a moratorium on consideration of permits for cross-sound infrastructure projects. And in May, while burying the cable below the sound, ABB struck rock in the seabed, which kept short sections of the cable shy of the minimum depths specified in the transmission company’s permits. To operate, the company now needed amendments to the permits. But Blumenthal asserted in a legal opinion that granting them would violate the legislature’s newly enacted moratorium. So for the next year and a half, TransÉnergie was trapped: it couldn’t operate without new permits, and it couldn’t get new permits with the moratorium in place.

Digging Out

August 14, 2003, was a dark day for many people in the United States—though not for officials at TransÉnergie. Just after 4:00 p.m., cascading outages starting in Ohio knocked out power to 50 million people in Canada and the U.S., including many in Connecticut and Long Island. It was just what TransÉnergie and sympathetic officials in Washington needed to put the Cross Sound Cable back on track.

The crucial suggestion came from the Long Island Power Authority. Ed Grilli and the authority’s chairman, Richard Kessel, asked their grid operators whether the Cross Sound Cable could help them get the lights back on. According to Grilli, they said it “absolutely would.” Grilli contacted the office of New York governor George Pataki, who set up a conference call late that night with U.S. Department of Energy officials, grid operators in New York and New England, and Donahue, who is CEO of both TransÉnergie and its Cross Sound Cable -subsidiary. Soon afterward, U.S. energy secretary Spencer Abraham issued an emergency order, and by early the next day the company had energized its cable. “We had always planned on being available if there was an emergency, so the facilities were left in a state where it wouldn’t be difficult to turn them on,” Donahue says. “Within 12 hours we were transferring power to Long Island, helping customers get energy—and most importantly, helping provide stabilization to the grid while the generators on Long Island were coming back on.”

Abraham’s emergency order was set to expire two weeks after the blackout, but he extended it indefinitely, arguing that the grid was in jeopardy until the cause of the blackout was determined. Abraham would not rescind his order until May 2004, after the Energy Department and Canadian investigators issued an exhaustive dissection of the blackout. By then, nine months of operating experience and a radically altered political environment had worked wonders for TransÉnergie.

Politicians, like most of us, tend to take electrical power for granted. The 2003 blackout stripped away this sense of security. Suddenly local and state officials were concerned about power grids’ vulnera-bility to everything from lightning strikes to terrorism, which cast Trans-Énergie’s cable in a new light: according to Donahue, the cable’s digital switches helped stabilize voltages on neighboring lines on 135 occasions between August 2003 and April 2004. Nine months of operation also proved that the cable was not the dire economic or environmental threat that Blumenthal had predicted. Prices didn’t rise dramatically, and no damage to the oyster beds was documented. Indeed, without the cable, Long Island would have had to pay an extra $15 million to $18 million for replacement power in 2004, according to Long Island Power Authority calculations.

On June 17, 2004, the Federal Energy Regulatory Commission warned Con-necti-cut, the Long Island Power Authority, and TransÉnergie to settle their squabble within a week or face federal impositions they might all regret. Grilli says he picked up the phone and found the Connecticut regulators ready to talk. By deadline day they had a deal. Connecticut agreed to let the Cross Sound Cable Company operate while it determined how to finish burying the line. The Long Island authority agreed to replace an aging cable between Long Island and southwestern Connecticut. The authority, the Cross Sound Cable Company, and Connecticut Light and Power chipped in $2 million apiece to an environmental trust fund to benefit the sound.

By the end of Thursday, June 24, all the Connecticut politicians had been located, the deal was signed, and the press releases began to fly.

Fixing the Rules

For TransÉnergie, the victory had come at a high cost—about $20 million in legal bills, lobbying efforts, and extra engineering costs on top of the cable’s original $125 million price tag, not to mention lost momentum in its bid to lead the emerging merchant-transmission market. Trans-Énergie lost out to a competitor in a bid to build a second merchant DC power line to Long Island last fall (but it remains in the running to build a link from northern New Jersey to Queens that would connect the New Jersey and New York grids). Similar politi-cal dramas* could keep the merchant-transmission market hobbled for years.

Participants in the Cross Sound Cable saga say that TransÉnergie could have surmounted its political obstacles sooner. Donahue wishes his firm had surveyed the bedrock along the cable route more intensively. He also wishes it had “educated” Connecticut politicians on the -cable’s bene-fits early on. (TransÉnergie had brought in United Illuminating partly to help it master the local political landscape, but insiders say the partner did little to help sell the project.) Grilli, a veteran of New York politics, says Trans-Énergie also should have responded more aggres-sively to Blumenthal’s high-profile attacks. “TransÉnergie just let him go out there and define the issue. It was extremely difficult to wheel that back.”

The larger problem, of course, is the mishmash of state and federal rules that govern power transmission, which leaves entrepreneurs like Donahue vulnerable to political attack. Power-transmission experts like Sally Hunt say the merchant–transmission market won’t be stable or profitable until the companies, power authorities, and politicians involved hash out a reasonable process for coördinating regional investments in power transmission. A good place to start, according to Hunt, is with the rules about how transmission services are bought and sold, which must be redesigned to reward the improved reliability that the most sophisticated devices deliver.

These issues are highly technical and not at all sexy. But the alternative to sorting them out—and opening the door for future Cross Sound Cables—could be regular blackouts of historic proportions. Power politics “doesn’t make big headlines, but it’s really the important issue,” says Hunt. “It could really prevent the development of good technology.”