Weathering the Storm

Though AEP-PSO officials announced a suspension of their underground conversion program for overhead power lines in November 2008, work on the program did not come to a halt until the end of March, they said.

Work continued on projects that were already underway and needed to be completed when the suspension was announced, said Steve Penrose, manager of operations support for American Electric Power-Public Service Company of Oklahoma.

"We couldn't just stop mid-stream. We had to complete these particular pieces, and that's just wrapped up in the last week," Penrose said on April 2.

Four conversion projects in the Tulsa area have been completed, according to the utility's Web site, with 11 others now delayed. Original plans had targeted 800 miles of conversions, most of which was in the Tulsa area. Penrose said three companies employing an estimated 150 to 200 people involved in the work.

But now that all work on the underground conversions has stopped, some ratepayers are wondering how long it's going to be before the project is resumed.

Among those who are calling for a resumption of the program, which consists of burying existing overheard power lines in an effort to make them less susceptible to inclement weather, is Tulsa resident Daliea Thompson, who works for Contracting Solutions Inc., a Tulsa-based firm that has served as a subcontractor for MasTec, a south Florida-based company that contracted to do much of the underground conversion work for AEP-PSO.

Thompson moved to Tulsa last year from Oregon, a state she described as having a much more activist citizenry, and wonders why more local residents aren't demanding a resumption of the program, which has a high success rate at reducing power outages caused by storms. Thompson said she's contacted numerous local, state and federal officials seeking their help in pressuring the utility to resume the underground conversions but has received nothing in response, in most cases, and only acknowledgement of receipt of her letters in others.

AEP-PSO spokesman Ed Bettinger said the utility's decision to suspend the program is based on the tightness of the U.S. credit market and the company's inability to secure capital to finance the work, which is very expensive. A 2008 state Corporation Commission report stated the cost of burying all of Oklahoma's electrical lines would cost more than $57 billion at an estimated price of between $435,000 and $2.5 million per mile, though the idea of burying every mile of line is not considered feasible. Bettinger said AEP-PSO has spent approximately $45 million on underground conversions since launching the program in 2005, reaching approximately 10,000 customers.

AEP-PSO services customers primarily in the northeast, southeast and southwest corners of the state. On its own, the utility lacks the resources to finance the work, for which it is later reimbursed through a Corporation Commission-approved billing of ratepayers, company officials say.

So AEP-PSO has to borrow the money up front, Bettinger said, and if it can't, the program has to be put aside.

Thompson disputes that notion. She has produced a sheath of documents downloaded from the AEP Web site that she believes indicates that PSO's Ohio-based holding company has the money to continue the program but for some reason has chosen not to.

She points to an Oct. 10, 2008, letter from Charles E. Zabula, treasurer and senior vice president of investor relations at AEP, addressed to the company's investment community in which he reports AEP drew approximately $1.4 billion on its credit facilities on Oct. 8 after drawing $600 million in September.

"AEP believes that his drawdown was a necessary measure during these uncertain times when access to the capital markets cannot be guaranteed," Zaebula wrote. "We took this proactive step to increase our cash position, and protect us against any continuing disruptions in the short-term and long-term debt markets."

Thompson also cites a company-issued press release from Feb. 19 in which AEP announces it has signed on as a corporate sponsor of the energy independence plan proposed last year by oil and gas tycoon T. Boone Pickens.

In the release, AEP officials tout their proposal to build more than 2,600 miles of extra-high voltage transmission projects to enhance the transmission grid, including a 1,000-mile project linking the wind-rich upper Midwest with the heavily populated East Coast. Thompson wonders why AEP would be willing to fund that kind of project instead of underground conversions in Oklahoma.

But she isn't the only one displeased with the utility's suspension of the program. Corporation Commission Vice Chairman Jeff Cloud issued a statement last fall in which he said, "While I understand the credit market turmoil that has prompted PSO's decision, I am disappointed at the suspension of burial of existing lines. However, the company has assured the agency this is only a temporary suspension. This agency will expect AEP-PSO to respond accordingly when market conditions improve. The commission remains committed to not only line burial, but other forms of 'hardening' the electric infrastructure in order to improve its reliability."

Corporation Commission spokesman Matt Skinner said his office has received dozens of calls from AEP-PSO ratepayers seeking answers to why the program has been suspended. Skinner said most of those callers reported they had been told by utility officials to expect line burial over the coming months.

Even if credit markets loosen up soon and the utility is able to secure financing for the work, Penrose said it likely would take six to nine months for AEP-PSO to resume the work.

Ultimately, PSO officials must wait for a signal from AEP before continuing the program, he said. The decision is complicated by the fact that the underground conversion program is considered a discretionary project, one the utility is not legally required to undertake, and therefore doesn't represent as much of a priority as non-discretionary capital projects.

"It's very important to us, but it's a discretionary project," Penrose said, explaining that even though the program has proven benefits, it's not as if customers in neighborhoods that haven't been serviced yet are dealing with facilities that are broken.

While the Corporation Commission does not have direct regulation over a utility's day-to-day operations and can't dictate the resumption of the program, it has applied pressure to AEP-PSO to improve its record of reliability. Severe ice storms in January and December of 2007 led to lengthy power losses for tens of thousands of Tulsa-area homes and businesses, along with numerous deaths and injuries, and turned up the heat even more on PSO to improve its reliability.

As part of that effort, AEP-PSO also has been engaged for several years in an aggressive tree-trimming program designed to keep Tulsa's dense urban forest from interfering with power lines. Ratepayers were charged a small monthly fee, approved by the Corporation Commission, which helped fund AEP-PSO's reliability enhancement program by covering the utility's "carrying costs" on the work until it is reimbursed for the total cost by customers.

Earlier this year, on Jan. 14, another rate order was signed by the Corporation Commission that separates funding for the vegetation management program from the underground conversion program. Bettinger said PSO is allowed to recover up to almost $23.7 million in vegetation management costs annually and another $7.7 million each year for the overhead-to-underground conversion program, though that latter fee is not being collected while the program is suspended.

Bettinger said both programs are effective.

"But the advantage, once you've moved the lines underground, is that they're far less susceptible to a tree, wind or act-of-nature outage, even though there will be failures with underground cable," he said. "But generally, they're far more reliable."

One electrical subcontractor who worked on the underground conversion project estimated the change would result in a $3,000 upgrade for each house on the service.

"It's a great deal for the homeowner," he said.

Bettinger said some customers have seen a 100-percent improvement in reliability after the underground conversion, and he acknowledged its popularity.

"It's a longer-term solution more people would like," he said.