Texas utilities' rejection of stimulus funds could lead to higher bills for customers

WASHINGTON - The companies building Texas' $5 billion renewable-energy transmission network have decided against seeking stimulus funding that could have saved money for consumers.

The decision was made last month in a little-noticed hearing of the Public Utility Commission of Texas, where regulators agreed with the companies that stimulus funds came with regulations that could slow construction. One commissioner, Kenneth W. Anderson Jr., told the companies, "The juice may not be worth the squeeze."

The $750 million in loan guarantees for transmission was a signature piece of the stimulus law, which was crafted with an eye to help create millions of green jobs. In particular, Congress hoped the stimulus would help finance the transmission needed to move renewable energy from the Texas Panhandle and other remote locations to urban areas that need the power.

But the Texas companies told the PUC that any potential savings for customers from federal funding was inferior to higher costs that could arise from provisions such as a "Buy American" rule, which required that stimulus-funded projects use iron, steel and other goods produced in the U.S.

"Cost increases arising from this Buy American [rule] could quickly overcome the savings created by the lower cost of capital," Richard Roloff, vice president of finance at LS Power, told the commissioners.

Consumer advocates said the commission should have required the companies to prove the federal funding wasn't worth it. Geoffrey M. Gay, an Austin attorney representing cities served by Dallas-based Oncor, said the loan guarantees, which reduce a company's cost of borrowing money, could have cut $50 million to $75 million a year from the project's tab.

"Ratepayers were shorted by this process," Gay said. "I don't think there are any studies or documentation that suggests the cost-benefit [analysis] is favorable to rejecting the loan guarantee."

Several of the companies are seeking other sources of stimulus funds - including for so-called smart meters that help consumers conserve energy - that would lower costs for consumers.

As recently as August, Oncor CEO Bob Shapard said the company planned "to pursue participation in the [federal] loan guarantee program." Another Oncor executive, Autry Warren, is scheduled to discuss the Texas project today at a transmission policy summit in Washington.

Shapard and other executives later noticed something they didn't like - most construction projects that receive federal funding must undergo a major environmental review. Federal funding also would require the firms to pay workers a "prevailing wage" in line with what laborers make for similar jobs in the same county. That could have raised labor costs or at least made payroll more complicated because the transmission project stretches across dozens of counties.

"At first we thought the loan guarantee, on the face of it, would be a benefit because it would lower the borrowing costs," said Carol Peters, an Oncor spokeswoman. "But once we got the guidelines, there were some pretty strict guidelines in there about employment and environmental aspects."

Lowering the cost of a utility project also typically reduces the profit that a regulated utility earns. The PUC normally sets a profit margin that companies such as Oncor can include in the rates they charge customers. That means the more Oncor spends on new power lines and other assets, the more profit the company makes.

"There is a natural incentive to maximize your investment if you have a certainty it's going to be put in the rate base," Gay said.

That wasn't a part of the company's calculus about going after stimulus funds, Peters said.

"We believe the long-term benefits of getting the project in on time and delivering clean, renewable energy to the market and relieving congestion outweighs the benefits that we might receive from loan guarantees," she said.

Bill Malley, a lawyer who advises companies on federal incentives and environmental laws, said concerns about environmental reviews are real. Such reviews can take two years or longer, and the stimulus requires that project construction begin by Sept. 30, 2011.

"I think what many applicants are finding is it's very difficult to come up with a project that does meet all of those parameters," said Malley, a partner at Perkins Coie in Washington.

The Public Utility Commission's members are appointed by Gov. Rick Perry, who has criticized many features of the stimulus. Earlier this year, Perry and the Republican Legislature rejected $565 million in stimulus funds for the state's beleaguered unemployment insurance fund.

At the August hearing, none of the commissioners voiced opposition to the stimulus. But PUC Chairman Barry Smitherman, who opposes legislation to regulate greenhouse gas emissions, said he detected "staggering" irony in the notion that "here we are trying to build projects to move our country more to a carbon-free environment, and yet we might get delayed indefinitely because of an environmental impact statement."