LIPA paid upward of $40 million to fix equipment related to the Neptune Cable and replace lost power while portions of the undersea energy line between Long Island and New Jersey were down for more than a year. Repairs were completed in June.
For reasons that still are not completely known, two transformers on the Long Island end of the 660-megawatt cable failed last spring, rendering it inoperable as the peak summer season of 2012 began. The transformers in Levittown convert electric power from the cable into energy usable on the local grid. Partial service was restored by late July.
The Long Island Power Authority was forced to pay $2 million to $3 million a month for higher-cost power because it didn't have access to the line's full 660 megawatts for roughly 15 months.
And two new transformers to replace those that malfunctioned cost around $4 million to $5 million each. LIPA paid those costs, but will attempt to recover the expense either from insurance or the manufacturer, LIPA spokesman Mark Gross said.
But the costs don't stop there.
Even though the cable was only partly available during the prior year, LIPA still had to pay the full $86 million in 2012 under its long-term capacity contract for the cable as well as $37 million for capacity from a plant in Marcus Hook, Pa., which is accessible through Neptune, according to LIPA records. LIPA said it was still able to count capacity from the cable toward a state requirement despite the outage, but said future costs will result from the cable's problems.
Contract required payments
Nicholas Lizanich, LIPA's vice president of transmission and distribution operations, explained that LIPA contracts require it to pay the agreed-upon capacity charges as long as the cable itself was operable, even though the transformers were not. "The fact that transformers weren't working doesn't affect the capacity charge," Lizanich said. "Had the cable broke, we wouldn't be paying the capacity charge."
The 65-mile-long cable from Sayreville, N.J., to Jones Beach and then north to New Cassel linking the Long Island grid to lower-cost energy in the Mid-Atlantic market, was completed in 2007 at a construction cost of more than $600 million.
The system first malfunctioned in March 2012, when one of two large transformers failed. A second transformer failed in May 2012, leaving the cable inoperable during June and most of July. "While we were busy putting the spare into service, the second [transformer] failed in May, resulting in total shutdown of the cable," Lizanich said.
The spare transformer returned the line to only partial usage for the next year. Installation of a second transformer last month brought the cable back to full power. It's now "fully operational," LIPA said. The delay, Lizanich said, was primarily in manufacturing the transformers, which took the better part of 11 months.
Different cable failed in '09
Neptune at partial power still allowed the line to provide up to 450 megawatts, Lizanich said, around two-thirds its full capacity. A megawatt powers around 800 homes.
LIPA operations records show that the malfunction sharply reduced the amount of power it buys in the Mid-Atlantic market, known as the PJM Interconnect, during the period. From May 2010 through April 2011, energy buys through the cable represented 19 percent of LIPA's total mix. From May 2012 through April 2013, it was cut to just 8 percent.
LIPA says that even with its problems, Neptune has saved ratepayers millions of dollars annually by providing access to cheap power, from coal and nuclear plants in the Mid-Atlantic, as well as other sources.
But one expert said the malfunctions and their costs underline the risks of depending on long-term contracts for power, as LIPA does.
"These are 20-year contracts -- no one can predict what will happen in 20 years," said Thomas Bjurlof, an energy expert at Bruguel Advisors and a one-time adviser to Port Jefferson Village on energy matters. "The essence of energy-market reform was to create competition in the generation of electricity. LIPA's power purchase agreements prevent competition from developing." And they result in higher rates, Bjurlof contended.
Another expense possible
LIPA in a statement said the transformer problems led a state reliability agency to require higher reserve capacity in the future, increasing its costs.
"Because the [cable's] transmission inter-tie is demonstrating different reliability than originally assumed by the New York State Reliability Council, the assumptions will be adjusted in future years," LIPA said in the statement. "Due to the lower demonstrated reliability, the Long Island locational requirement was set higher in 2013 and will be set higher for the next few years. This will increase LIPA's capacity costs over the next five years."
For a number of reasons, the New York Independent System Operator increased LIPA's capacity requirements for the coming year.
Gross said Neptune's problems were a "small factor" in the state system operator's requirement that LIPA increase its capacity reserve by 6 percent, at a cost of around $7 million over the next six years. Other factors such as the loss of an upstate power plant that was retired were the primary reason for the increase, Gross said.