The ARRA hangover – waking up the morning after …


By Compos Mentis

An intense six-month binge of proposal writing, project delay and industry speculation recently culminated in the “morning after” headache as the winners and losers of part of the $3.4 billion of US Government ARRA (American Recovery and Reinvestment Act of 2009) stimulus funding for utilities sat down to think about what had just happened.

Most of the more than 400 proposals submitted had attempted to blend the true aspirations of the utility with what the proposal writers thought the US Department of Energy (DOE) and its proposal reviewers wanted to hear. (In the interest of full disclosure, I was one of those reviewers.) In a sense, the blend of aspirations, promises and appeals to the recognised needs of the other party resembled the scene in a busy singles bar, where – with a third cocktail in hand – each person posed, postured and promised, hoping not to go home alone. Some did go home alone and some didn’t. But everyone woke up with a hangover.

A number of utilities “maxed” the award, receiving the maximum $200 million. Notably, many excellent proposals from smaller rural electric cooperatives and municipal/public power utilities received awards of less than a million up into several million dollars – enough to launch and propel some very interesting projects that otherwise might have been beyond the financial reach of the proposing utilities. So how could these utilities have a headache? Wasn’t this all good news for them?

The hangover many utilities are experiencing is now in keeping the promises made in the proposal, waking up to the burdensome reporting and oversight requirements imposed by the award, adjusting utility operating processes, revising established procedures, coping with a host of unfamiliar government requirements. Even hiring and compensation levels must comply with government requirements. Moreover, the completion timeline required by DOE, and promised in the proposal, stands ahead, with the days ticking steadily away. Headache? Hangover? Yes!

And then there were the losers. Many had put active projects on hold or reframed them to fit the DOE RFP. Now they must scramble to reshape and restart those projects, recover from the loss of momentum, and decide what they can and cannot do within the internal budgets they live with. Now these utilities must face their directors, customers, investors and regulators and explain why their proposal did not attract the sought-after funding. By implication, they failed. Was it a poorly written proposal or faulty misdirected plan having dubious merit? Does the failure to attract funding suggest that the utility’s operating management is not doing its job or that it is out of touch with the smart grid technology vision of the DOE?

And then there were the losers who believed that there would be a second opportunity, and second round (tranche) of funding, and chose to wait for that opportunity. The painful hangover for them materialised when it was announced that there would be no second tranche – because all the available funds were already awarded in the first tranche. How much of the $3.4 billion went to projects that would have gone ahead anyway? In other words, did the award stimulate any aspect of the economy that would not have otherwise been stimulated?

How much of the money awarded was for huge quantities of remote devices or endpoints in load control and AMI systems, where those endpoints are actually fabricated in countries with very low labour costs? How important was job creation versus moving a reality of smart grid technology further along?

By 2012 we will be able to look back on many of these DOE funded projects – and those that were not DOE funded , but proceeded anyway without government oversight – and make better judgments about the merits of this degree of government intrusion into the utility industry. I have no doubt that many benefits will be claimed. How many jobs were created? How was the smart grid accelerated? How many outages were avoided? How much demand reduction was achieved – apart from the demand reduction implicit in an economic recession? Some benefits will be real, and some won’t. In 2012 let us have the clarity of thinking to consider the realities, remember the “hangover”, recognise the upsides and downsides, extract the lessons learned, and measure the adverse effects of government’s insinuation and manipulation of a utility industry that has done an admirable job of steering its own course for more than 100 years.