Many construction projects are gauged by how close they are to the finish line. For a contentious transmission project in southern New Jersey, the relevant metric is when it will start.
The Artificial Island project passed another hurdle in February, when the Federal Energy Regulatory Commission approved Public Service Electric & Gas’ request for abandonment incentive rate treatment for the project. But as quickly as that hurdle was crossed, others have come into sight.
FERC’s approval protects PSE&G against financial loss if the project is abandoned for reasons beyond the New Jersey utility’s control. That would seem to be prudent, given the project’s history.
The project is being closely watched because it is one of the first under FERC’s Order 1000, which aims to cut regional transmission-line building costs and loosen incumbent utilities’ hold on that process.
“It is a landmark project for the region and for the United States,” says Johannes Pfeifenberger, a principal at economic and regulatory consultants The Brattle Group. Not only is a transmission project being chosen through competitive bidding, PJM Interconnection, the grid operator in the mid-Atlantic region, did not identify a specific project, but identified a problem and left it up to bidders to propose a solution.
The project involves building a transmission line and enhancing connections to move the power more effectively from two nuclear plants with a total capacity of 3470 MW on Artificial Island, a small knob of land protruding into the Delaware River and thinly separated from the New Jersey coast by Alloway and Hope creeks.
PSE&G’s role involves expanding the substation at the Salem nuclear plant on Artificial Island and building a static VAR compensator at New Freedom, N. J. PJM originally estimated the cost of that work at $137 million. When PSE&G took a harder look at the work involved, it came up with estimate of $272 million.
PJM is now looking at a new configuration that could reduce costs, possibly by shifting the job to the Hope Creek nuclear plant on Artificial Island, which is farther from the water than the Salem plant and would give PSE&G more room to work. However, reconfiguration could mean rebidding the project.
PSE&G spokeswoman Karen Johnson notes that the FERC approval did not address costs but only cost methodologies.
PSE&G’s portion of the work is substantially higher than the cost of the main project, which will use horizontal drilling to run a new, 230-kV transmission line under the Delaware River to the Red Line substation in Delaware. LS Power won that contract with a bid of $146 million.
In a controversial bidding process, PJM received 26 proposals ranging from $100 million to $1.55 billion. Low cost is not the main criterion in PJM’s solicitation process. The grid operator also takes into account factors such as “constructability.” PJM’s staff recommended one by PSE&G, which ignited cries of incumbent favoritism. In the wake of the outcry, PJM re-examined the bids, and LS Power, seeking to strengthen its hand, guaranteed to cap costs at its $146-million bid price. In the end, the regional transmission organization board chose LS Power’s offer.
The portion of the project now assigned to PSE&G was not awarded via competitive bidding. PJM chose PSE&G for that portion in part because the work involves a nuclear power switchyard, which requires high levels of security clearance.
PJM also weathered another challenge when FERC at the end of April upheld PJM’s cost allocation methodology for the proposed submarine cable. Mounted by entities in Delaware and Maryland, the dispute involves state’s cost share for projects that serve a multistate region. Parties have also challenged LS Power’s proposed 10.5% return on equity for the project. FERC has yet to hear that case.
Planning for Artificial Island began in 2013, but construction has yet to begin on the project still slated for completion in spring 2019.