Inadequate project monitoring and the Western Area Power Administration's (Western) failure to require the sponsors of the Montana Alberta Tie Line (MATL) to set aside reserves against potential cost overruns has placed U.S. taxpayers at risk for $161 million and highlights the need to reform the way Western administers stimulus funding for similar projects according to a November 4, 2011 report published by the Department of Energy's Inspector General (IG).
MATL is a planned merchant transmission project between Cutbank, Montana and Lethbridge, Alberta, Canada, that secured authority from FERC to sell transmission capacity at negotiated rates. It sold transmission rights to NaturEner Energy, a Canadian wind energy developer, to transmit energy from its planned Rim Rock Wind Farm into the Alberta energy market.
Western received authorization under the American Reinvestment and Recovery Act of 2009 (ARRA) to provide up to $3.25 billion in loans for new transmission projects, and $10 million to pay for program administration costs. The program was intended to be self-funding through loan repayments. In October 2009, Western provided a $161 million loan to MATL as a "shovel ready" project, and has plans to provide $1.5 billion in financing for a multi-state transmission line.
The MATL project was delayed by disputes with its contractor and landowners. The delays led to $70 million in cost overruns and put the line two years behind schedule. These delays, in turn, have delayed commercial operation of the transmission line and delayed loan repayments to Western. Western now lacks the funds to administer its loan program.
It is not clear when MATL will get its project back on track, and the IG report says the stalled MATL project is "clearly at risk, with the outcome uncertain." If the project fails, Western and U.S. taxpayers will bear a large financial burden.
The IG recommends that Western (1) suspend investment of additional ARRA funds until it completes a "root cause" analysis of the problems encountered with MATL, (2) ensure that MATL implements necessary project safeguards before construction resumes, (3) require adequate status reporting and reserves by recipients financing, and (4) work with DOE to resolve long-term funding issues for administration of Western's portion of the ARRA loan program.