The transmission line critique comes as the Energy Department is under congressional scrutiny for assistance provided to other companies, including now-bankrupt solar panel maker Solyndra, bankrupt electricity storage firm Beacon Power and EnerDel, the parent of a struggling lithium ion battery manufacturer.
The transmission line project, which was the first authorized under a $3.25 billion borrowing program established by the American Recovery and Reinvestment Act of 2009, is two years behind schedule and $70 million over budget, the inspector general, Gregory H. Friedman, wrote in a memorandum released Monday.
The 214-mile line, known as the Montana Alberta Tie Line , is supposed to run from Great Falls, Mont., to Lethbridge in Alberta and is designed to facilitate wind generation in northern Montana. The financing came from money lent by the Treasury to the Western Area Power Administration, a regional power marketing authority for hydropower across 15 states that is part of the Energy Department.
The transmission line is a private-public partnership. Tonbridge, the cash-strapped original owner of the proposed line, has been acquired by Enbridge, a Canadian energy delivery company. Enbridge has asked the Energy Department for more time to meet loan deadlines and said it would invest additional money to complete the line.
Energy Department spokesman Damien LaVera said Enbridge would pay for the cost overruns, complete the line and repay the loan. “Despite facing some delays, this crucial transmission project is getting back on track,” he said.
Friedman said that he found “that Western’s lack of lending experience contributed to the issues we identified.” He said that Western did not ask Tonbridge to establish a reserve fund that would pay for cost overruns and that Western was unable to assess the reasons for delays.
He said that, “although we did not confirm their assertions, certain Western officials indicated that they encountered pressure from the Department to spend Recovery Act funds expeditiously.”
In 2009, with the economy in dire shape, the Obama administration saw the Western Area Power Administration as a good conduit for stimulus money. As a wholly controlled part of the Energy Department, it could quickly turn plans into activity. Two-thirds of the Montana Alberta Tie Line is supposed to travel through the United States, and use American labor and materials.
The line was also supposed to promote the development of 300 megawatts of wind power in Montana, enough to power 150,000 homes.
The groundbreaking ceremony took place on Nov. 30, 2009, but the developers have struggled to obtain the right of way to build across private land in Montana and also squabbled with contractors.
Tonbridge later ran out of money.
A Canadian company called NaturEner Energy Canada delayed construction of its planned Rim Rock Wind Farm.
Now, however, the acquisition of the line by Enbridge has raised hopes that construction can resume. NaturEner is again preparing to start its project, though it has scaled down the size of its planned wind farm to 189 megawatts, from the original 300 megawatts planned.
In an example of the complexity of U.S. energy policy, the power will be sold to San Diego Gas & Electric, which won’t use the electricity directly but will get credits to meet California standards for renewable energy use.
The inspector general said that the Western Area Power Authority should have had a management system to “provide timely, integrated cost and schedule information to allow Western to adequately monitor the progress of the project.” He said that the transmission line company provided “inadequate information” for “over a year.”
He acknowledged that “not all of the issues causing delays and cost overruns were within Western’s control.” He noted that the transmission company had not yet secured the use of 79 parcels of land in Montana and that a December 2010 Montana court decision “curtailed the rights of utilities to condemn property for development of transmission lines.”
But Friedman said that the project “raises questions about the sufficiency and effectiveness of internal controls” at Western Area Power Authority. “In the event of a project failure, Western and ultimately the U.S. taxpayer could bear a large financial burden,” he wrote. “We believe that more aggressive up front efforts to monitor project performance and control use of federal funds may have served to better protect taxpayer interests.”
Western approved $161 million in loans, and has let the transmission company draw down $152 million.
Deputy Energy Secretary Daniel B. Poneman replied in an Oct. 28 letter to Friedman that “both Western and the Department have learned important lessons from this process.” Poneman said Western had “limited the taxpayers’ financial exposure” and that work on the line “will soon resume.”
Poneman said the Energy Department would take the inspector general’s recommendations and that Western Area Power Authority had hired Deloitte Corporate Finance for additional expertise.
The power authority has financing plans that “dwarf” the Montana-to-Alberta transmission line, Friedman wrote, noting that the Energy Department agency was planning to “invest as much as $1.5 billion in a potential $3 billion transmission line project that would cross several states and hundreds of miles.”
He said the power authority should make changes before lending any further money under the stimulus funding.