TANC puts Redding Electric Utility customers  at risk
I am one of many property owners in Shasta county who has been notified that my property may be required in order to build the proposed second TANC (Transmission Agency of Northern California) power line (TANC #2) to import electricity to California. Since I, like the great majority of property owners targeted, do not intend to sell an easement through my property, I have been threatened with seizure of my property by eminent domain proceedings. Taking private property by force of law should be considered only when absolutely necessary. This should have been the standard required of TANC and REU  before this project was even proposed. And this standard has clearly not been met.

I believe that It is unlikely this "Power Line to Nowhere" will ever be built, due to the extensive environmental damage that this financially unsound project would cause. But meanwhile millions of dollars will be expended, on further study and planning, and in extensive litigation. These costs will be borne in part by REU, and ultimately by its Redding residential and business customers. More importantly, the real solutions to the serious challenges facing REU are being ignored in favor of this impractical proposal. And of course, the uncertainty and extended (two to three years, and maybe longer) planning procedure of the TANC #2 proposal has blighted that huge part of Northern California covered under the multiple alternative routes and configurations proposed.

TANC and REU's business plan,  to finance the construction of TANC #2, a project of questionable utility, by borrowing between $1.2 and $1.8 billion by current estimates, is deeply flawed.  Utility customers, including REU ratepayers, will be of greatest risk in this project, specifically of large and unanticipated increases in REU electricity rates. On this basis alone, Redding should reconsider its decision to proceed with TANC # 2.

TANC has described the new power line as solving a variety of its members electric service problems. If you are new to the controversy,  a promotional brochure, described as a "fact sheet", is available from TANC here:

http://www.tanc.us/content/blogcategory/48/62/

TANC's fifteen members (of which Redding, owning an 8.41% project share, is one of the leading five partners) claim that TANC #2 will be a solution to their energy supply problems. According to this sales pitch, TANC #2 will provide multiple benefits, "reliability and renewable energy" among them. But TANC has made no effort to provide any explanation of how these  benefits will be delivered by the new power line, and in its promotional effort has completely ignored the risks to utility ratepayers the project entails.

In fact, TANC # 2 is a multi-billion dollar  investment so speculative that it might be more accurately described as a bet. The proposal  is based on the supposition that electricity-particularly "renewable"-will be available far into the future from out of state producers at prices low enough to outweigh the extremely high costs and inherent reliability disadvantages of long-range electrical transmission. TANC's own financial disclosures suggest that this is an unrealistic expectation, and that the proposal is in fact high risk for REU customers.

Look at TANC's "credit reports", the statements put out by the major bond ratings firms. TANC may be a good investment-for the lenders/bondholders. But REU customers must realize what is pledged as the ultimate collateral for the loan.-and that would be...you. REU has not only promised to increase its payments should any of the fourteen other partners default, REU has also specifically guaranteed its creditors it will raise your rates to whatever level necessary to cover bond interest payments. The quote below is from pages 2 of the most recent Fitch's TANC bond Ratings report:

"...The power supply agreements are unconditional, often referred to as a “take-or-pay,” obligations. Participants are required to make payments to TANC for the fixed and operating costs of the project, which include debt service, whether or not the project is operational. TANC’s members take operational risk once the project has entered commercial operation, not bondholders. According to the project agreements, each member-participant has agreed to pay for a percentage share of the project costs, including debt service. The project agreements constitute an absolute and unconditional take-or-pay obligation for each member-participant that extends for the life of the bonds. In the event of project disruption or damage, member-participants are obligated to continue payments under the project agreements. The unconditional nature of the obligation mitigates the single asset risk of the project. Project agreements include a 25% step-up provision, which would reallocate the payment default by any member-participant to the remaining non-defaulting member-participants. Member-participant payments are made as operating expenses of their retail electric systems and each member-participant has covenanted in the project agreements to establish and maintain rates sufficient to meets its obligations under the project agreement..."

In addition to Fitch, the S&P and Moody's ratings reports with similar conclusions are also available from the TANC "Financials" link below. They also indicate as further risks the additional debt burden that will be imposed by TANC #2. Whether REU and other utility ratepayers may be relieved of future liability by means of Federal grants, loan guarantees, or in the final case, a Federal "bailout", if either power line cannot generate sufficient revenue, cannot be determined at this time.

http://www.tanc.us/content/blogsection/10/70/

You don't think that bondholder/creditors, rather than local REU or elected officials, may ultimately determine your electricity rates? Note that REU already names existing bond covenants (the threat that Creditors will seek a court order to raise electricity rates as is their right under loan agreements) as justification for their currently scheduled rate increase. See "Current Retail Rates" in the REU rate increase slide show below.

http://www.reupower.com/1208pres/index.html

Remember, the references above are to new bond issuances to refinance the original (TANC # 1) power lines built almost a generation ago. That deal was based on the assumption that the project would never need be paid off-that it would simply be refinanced indefinitely by future loans by bond reissues. To make an analogy to a real estate loan, in order to build TANC #1, REU and other TANC members took out a fifteen-party-tenants-in-common-interest-only-balloon-payment-no-documentation (AKA "liars loan") mortgage on the original power lines, and apparently plans to use the same "creative financing" to build TANC #2. Why would any bond buyer in their right mind make such a loan? Again, the terms of the bond guarantees that electricity customers rates-your rates-will be raised to whatever level is required to make the bond interest payments.

What makes this project particularly risky for REU ratepayers is the inherently unstable value of the structure financed. Unlike most other financial assets, a power line's only value is in the very limited specific service it can provide, the transportation of electricity from one site to another. This requires that a willing supplier at one end can be matched with a willing buyer, either a TANC member, or another purchaser willing to pay transmission costs, at the other end of the line. The essential flaw in the TANC #2 scheme is that it involves borrowing and spending huge sums and making fixed interest payments, without securing a permanent revenue stream to cover these costs. In the future, TANC and REU may find the Income generated inadequate to pay interest on the bonds. REU will then find itself legally obligated to raise customer's rates to whatever level is required to meet the shortfall.

This is a very real possibility. Obviously, many factors can lead to construction delays and cost overruns in a project of this size and complexity. And the operation of such a project carries it own risks. But perhaps the greatest risk to REU ratepayers is that TANC # 2 may be obsolescent, if not obsolete, by the time it is completed. Due to the current severe recession, all forms of energy (except the one that America is a significant net importer of, oil) are in surplus supply, and relatively cheap.  TANC #2 would likely find willing electricity sellers were it built to connect to the western power grid through Lassen County to Nevada, as planned, at least for the first few years of operation, and if current market conditions persist. Power producers in other states should be more than happy to ramp up their idle (highly polluting but cheap to operate) coal power plant capacity to meet their own electricity demand, as they sell their "renewable energy" to California, at an appropriate premium price befitting the designer label, of course. So TANC should be able to purchase electricity for its members own use, and/or charge sufficient tariffs to other buyers to service its bond debt, in the short run.

But what happens when demand increase in neighboring states and their exportable surplus declines?  Will there be a permanent supply of electricity importable to California on TANC #2 power line at a  low enough price to produce enough revenue  to service the bonds? What if changes in government policy, either "renewable energy" mandates in other states, or national carbon cap and trade/carbon tax policies, are enacted that cause "renewable energy" prices in other states supplying TANC #2 to rise significantly? What If technology develops to make the currently obsolescent, expensive and inefficient, long-range power line obsolete?  And won't REU also be liable for huge decommissioning, removal, and environmental remediation costs, when TANC # 2 can no longer operate profitably? Do you think it impossible that any condition reducing the future value of TANC #2 could occur? Obviously TANC lenders do hold that opinion, or they would not demand the covenants described above making you, REU ratepayers, guarantors of interest payments as conditions to their purchasing TANC bonds.

Finally, consider also that TANC #2 is being proposed specifically because the existing power line-TANC #1, designed and built less than 20 years ago-no longer meets either the route (TANC put it in the wrong place, it now seems)  or reliability standards required today. In fact, the argument to build TANC # 2  is based on the fact that TANC #1, on which about 350 million dollars are still owed by TANC and REU, is already obsolescent. What assurance can be offered that TANC #2 will meet the changing energy market requirements years from now? So is another unfunded liability for Redding and REU ratepayers-in the form of TANC power line #3-in Shasta County's future?

While California will probably be an energy importer for the foreseeable future, It is unwise for REU customers to place such a large bet on increasing electricity imports. This is because Electrical transmission is the least reliable and most expensive means of moving energy long distances. As to reliability, think of how many times in your life, the "power has gone out". How many times has the (natural) “gas gone out”? The main reason we all share this experience is that electricity, unlike other energy commodities, is extremely difficult and expensive to store, so it essentially requires 100% transmission reliability to produce 100% consumer reliability. Liquid and gas fuels are  far cheaper to transmit, by dependable underground pipelines, and are easily stored prior to being converted to electricity on demand.  And for the foreseeable future, natural gas will likely remain relatively cheap and plentiful. The recent Wall Street Journal  article below explains that:

"...Huge new (natural gas) fields also have been found in Texas, Arkansas and Pennsylvania. One industry-backed study estimates the U.S. has more than 2,200 trillion cubic feet of gas waiting to be pumped, enough to satisfy nearly 100 years of current U.S. natural-gas demand. The discoveries have spurred energy experts and policy makers to start looking to natural gas in their pursuit of a wide range of goals: easing the impact of energy-price spikes, reducing dependence on foreign oil, lowering "greenhouse gas" emissions and speeding the transition to renewable fuels..."

http://online.wsj.com/article/SB124104549891270585.html

So why are TANC and its members like REU not utilizing this relatively cheap, abundant, and less-polluting domestic energy source? For TANC the Answer may be simple. It is a single purpose entity. Building power lines is all it does, and the more it builds, the bigger its budget.  And as TANC itself admits, TANC # 1 is already obsolescent, and no longer meets reliability standards or services the areas deemed necessary to future operations. TANC may therefore need a new power line to continue its existence. But REU does not need TANC #2 to meet either total electricity or "renewable" demand.

Burning Natural gas to produce electricity does produce CO2 pollution, but only about half as much as the coal-fired power plants which TANC #2 will be servicing. And the pollution factor, as well as cost, is further increased for coal-to-power-line electricity, due to the extremely inefficient energy delivery method, by burning coal in distant plants and then losing a further large percentage  of the energy in transmission line losses. Natural gas will likely remain much cheaper-today its current retail energy cost is about one half that of electricity-for those consumer applications for which it is suitable, such as heating homes and other buildings, water heating, and cooking. Burning fuels to convert heat into to electricity, transmitting the energy over long power lines, only to convert it back to heat in your home or business, will never be cost competitive as long as combustible fuels can be delivered to the point of use. REU is particularly at risk in speculating on a big bet on Electricity imports because PG&E, not REU, holds the major competing Redding  energy franchise, natural gas.

Long range electricity transmission is largely a relic of the late 19th and  20th centuries when specific energy resources-hydroelectric dam and nuclear power plant sites-were developed for distant consumer markets. Long lines do remain useful to allow seasonal and daily peak demand transfer. But today, California imports over 26% of its total electricity, at great cost, and greatly reduced efficiency and reliability.

http://www.energyalmanac.ca.gov/overview/energy_sources.html

California does not need more power lines. California needs either more electricity generation, or better yet, lower consumption. Conservation is ultimately the least expensive and environmentally preferable option. However, REU actually discourages energy conservation, through its regressive rate structure.  In order to maintain market share in its competition with cheaper and more reliable energy, in the form of PG&E supplied natural gas, REU now actually charges less per KWH to residential customers who consume more electricity,  The not-quite "flat rate" pricing schedule employed by REU undoubtedly keeps a lot of inefficient electric water heaters, clothes dryers, and stoves operating in Redding, even if it also causes a great waste of energy resources. But even given the slight discount below PG&E KWH charges, the rate structure REU employs means low usage individually metered residential customers already have to pay more for REU power than PG&E customers do. This is due to the monthly "service charge" REU tacks on to your bill. So if you are such a REU customer who uses less than about $70, or 600 KWH of electricity a month, you are now paying more than a PG&E customer using the same amount of electricity.

It is quite possible REU electricity demand will actually fall even as the future population of Redding rises. Large business users likely will continue to move to cheaper  cogeneration, whether fueled by fossil or renewable sources. And residential customers will both increase their energy efficiency as they upgrade their homes, replace inefficient appliances, and continue to favor natural gas over electricity as their preferred energy source as the already high electric energy cost disadvantage increases. When did you last see the term "all electric home" as a sales pitch in a real estate ad? And there is also the risk (to REU ratepayers-a great benefit to the rest of us) that technological advances such as cost effective photovoltaic or fuel cell energy could reduce line electricity demand dramatically. In 20 or 30 years, will Redding businesses and residences  have the option to get their "electricity" through a pipeline carrying "natural” or hydrogen gas, then power their homes, and perhaps also their cars, from this energy converted to electricity by fuel cell? REU is facing  a particularly difficult competitive environment, and TANC #2, by committing Redding to a costly and inferior energy supply, will only aggravate the situation.

In fact, it's impossible to accurately predict future energy technologies.  Energy costs are even more unpredictable, even a few months in advance. Do you know how high gasoline  prices will be this summer? REU's own past efforts to hedge their natural gas costs used to run their own power plants prove this point. The current REU rate increase proposal shows REU locked in prices to supply their own natural gas fueled power plants for the next few years at prices up to 50% above current market prices. See the "Natural gas" slide,  on the REU rate increase proposal below:

http://www.reupower.com/1208pres/index.html

While I've mentioned only a few of  many possibilities, I'm not trying to predict the future. But I want to point out that TANC and REU are. And they are placing a very large bet on that prediction, using your future Electric bills as collateral, that TANC #2 will retain its value forever, matching its permanent bond debt interest payment obligation. So I suggest REU residential and business customers contact their City council members, and ask for answers to these questions, and the many others that this Ill-conceived project raises.

I Can't address all of the alternatives to TANC #2 here, but one in particular deserves consideration. TANC claims that large-scale "California renewable" energy will be developed to be accessed by the new line are demonstrably false. TANC has repeatedly presented the RETI (Renewable Energy Transmission Initiative) process as the definitive study of renewable energy supplies in Northern California, and cites this study as justification for building TANC #2. In fact RETI indicates that the small Shasta and Lassen County renewable sites TANC claims might be built, after TANC #2 is completed, are all either extremely costly, environmentally unsound, or both. RETI does actually identify renewable energy that could be developed to meet the needs of Redding, and the rest of Northern California.  But TANC #2 will be worthless in accomplishing this end:

"There are, however, significant biomass and solar photovoltaic resources in Northern California. These resources are generally distributed and do not require large transmission upgrades." (Page ES 11, footnote 13)

http://www.energy.ca.gov/2008publications/RETI-1000-2008-003/RETI-1000-2008-003-F.PDF

Redding is fortunate to have abundant renewable energy resources locally available. These resources do not require new multi-billion dollar power lines to access, and will produce local business opportunities,  jobs, and tax revenues when developed. In fact, quite a bit of this potential energy is located in the forested areas of the 600 mile corridor TANC #2 would clear-cut, destroying all future responsible timber and biomass production. While the financial costs will be borne by REU ratepayers, The environmental and economic degradation that would be caused by TANC #2 affects all Shasta County Residents, wherever you live, and wherever you get your energy from. Everyone has the right to comment under  the current Environmental review procedure, ending  May 31, and I suggest you take the opportunity to do so. For more information on this subject, please go to:

http://www.stoptanc.com/


Thank you for your attention in this matter,

Ed Marek