November 4, 2011
Western Area Power Administration's Control and Administration of American Recovery and Reinvestment Act Borrowing Authority
Under the Recovery Act, the Western Area Power Administration (Western) was granted $3.25 billion in borrowing authority to help build transmission infrastructure. Western first used its borrowing authority to execute a financing agreement with Montana Alberta Tie Ltd. and MATL LLP (jointly referred to as MATL) in October 2009, to construct a 214-mile transmission line between Great Falls, Montana, and Lethbridge, Alberta, Canada to provide interconnection for proposed wind power generation farms in Montana.
Western had not implemented the necessary safeguards to ensure its commitment of funding was optimally protected. Specifically, Western had not initially required MATL to establish an earned value management system and a risk-based management reserve. Without an earned value management system, Western was not optimally positioned to determine the extent of delays and the potential for cost overruns. Also, Western had not initially required a management reserve to fund unanticipated cost overruns. Such a reserve was not established until nearly a year after the start of the project. An adequately funded risk-based reserve could have helped reduce the impact of the difficulties encountered during this project. Western has significant financial exposure on the project, having permitted MATL to expend $152 million of Western's committed funding of $161 million on a project encountering significant delays and cost overruns. Since May 2011 the project has been at a standstill, is estimated to be two years behind schedule and may be as much as $70 million over budget. After citing a lack of resources to cover project cost overruns, Tonbridge, MATL's parent company, was acquired by Enbridge Inc., in October 2011.
Finally, we noted an impending gap in funding available to operate Western's Recovery Act borrowing authority oversight program. Existing funding will be depleted in Fiscal Year 2012 and revenues from MATL and other new projects will not be available to fund ongoing costs of the program for several years. Western is exploring alternatives for providing program funding.The Department concurred with our recommendations and indicated in their response that they were executing plans to address each of the issues identified.
Topic: Management & Administration