Breaking News

MOBILE — Alabama Power Co. is in line to be the biggest beneficiary in its home state of a federal program to spur recovery from Hurricane Katrina, records show.

The Gulf Opportunity Zone program has been beset by criticism that it hasn't done enough to focus on the most damaged areas or smaller businesses.

"For the most part, all three eligible states allocated GO Zone private activity bond authority without consistently targeting the allocations to assist recovery in the most damaged areas," the federal Government Accountability Office wrote in a review released last week.

After the 2005 storm, Congress voted to allow private entities to use tax-exempt financing for certain projects that aren't usually eligible as a way to spur economic activity in Louisiana, Mississippi and Alabama. Those Gulf Opportunity Zone bonds carry lower interest payments than taxable bonds.

Alabama had $2.17 billion in bonding authority to pass out, with each project requiring the governor's approval. Today, with all the money spoken for, Alabama Power has won permission to issue $419 million, or 19 percent of the total.

Across the three-state region, big projects backed by big businesses have been among the top beneficiaries. The big projects could crowd out other borrowers.

In Alabama, though, the power company's reliance on GO Zone bonds is cutting customer bills a little, according to regulators and the company.

"If they had to go borrow money at a much higher rate, it would adversely affect the ratepayers, so we didn't think twice," state Finance Director Jim Main said.

Main said "100 percent" of the state-approved projects had helped hurricane recovery. "The idea wasn't just to put roofs on houses," he said. "Every one of those stimulated economic activity."

Main, like officials in other states, said bond lawyers had to certify that the projects met the law's intent.

"On the state level, we just didn't get into judging the projects," he said, though Alabama refused to grant the full amount requested for at least 11 projects.

Louisiana eventually overhauled its allocation process to reserve remaining money for heavily damaged areas, the GAO said. But Alabama representatives are trying to get Congress to allow the state to use $230 million it has set aside to finance a rail car plant in Colbert County, almost to the Tennessee state line.

Good Jobs First, a Washington, D.C., group that often lobbies against government subsidies to corporations, asked states at the beginning of the bond program to earmark money to the most damaged areas and small businesses, limit individual companies to $100 million a year in bonds, and give preference for job-creating projects.

Philip Mattera, research director for Good Jobs First, said what's happened has confirmed the group's fear that a few large companies would get a lot of the benefit.

Main, though, defended Alabama's first-come, first-served policy, saying that state officials weren't sure there would even be takers for all its bonding authority.

Jerry Johnson, a Jackson, Miss., lawyer who worked on the Mississippi's largest deal - $650 million for the Chevron Corp. refinery in Pascagoula - said his state had the same uncertainty.

"If they had waited for other projects that might have materialized closer to the worst-damaged areas, we might not have gotten to use this huge allocation," Johnson said.

Today, 42 projects are on Alabama's waiting list, seeking $1.6 billion in bonds. The only project in hard-hit Bayou la Batre, $200 million to finance a natural gas storage facility under Mississippi Sound, is on the waiting list.

Mississippi officials refused to release the waiting list there.

The first-come, first-served rule may also have cost Alabama the chance to pump more money into rural areas with struggling economies. Among the $1.6 billion in additional requests to the governor's office are one for

$80 million to finance the New Gas Concepts wood pellet mill in Jackson, two requests worth $115 million from Sumter County and two requests worth $33 million from Greene County.

While tax-exempt bonds are available in normal times for some projects, there are typically a lot of limits. After the Sept. 11, 2001, terrorist attacks, Congress agreed to allow private entities approved by New York authorities to issue up to $8 billion in tax exempt bonds, free from most normal rules.

After Hurricanes Katrina and Rita, Congress did the same, allocating about $15 billion in bonding authority to Alabama, Mississippi and Louisiana.

Congress also agreed to other kinds of aid. Important among other business benefits was an accelerated depreciation credit giving eligible companies a first-year, 50 percent depreciation tax deduction for property placed in service after Katrina. But a business had to choose between bonds or accelerated depreciation - it couldn't do both.

Lawyers who have worked with GO Zone bond projects said that the borrowers most likely to use the bonds were those who needed to borrow a lot of money over a long period of time, whereas smaller businesses were more likely to take the depreciation break.

"If you're talking about doing a $2 million borrowing, it's probably not worth it at all, especially if you're borrowing over five to 10 years," said Preston Bolt, a Mobile bond lawyer.

Alabama Power had announced plans to cut the amount of air emissions at Barry Steam Plant in March 2005, five months before Katrina. The ongoing work is costing hundreds of millions of dollars, and the company is borrowing to finance about half of it, according to filings with the Alabama Public Service Commission.

That debt will be paid back between now and 2034. Alabama Power, with its long history of using bond financing, was perfectly positioned to use the GO Zone bonds. It won an allocation for $385 million for Barry Steam Plant, plus another $34.5 million for work at Greene County Electric Generating Plant, across the Tombigbee River from Demopolis.

Alabama Power customers are paying for the company's environmental work - about $75 a year for a typical residential customer, according to a Press-Register analysis of commission filings. The company plans to collect $208 million from its customers for environmental upgrades this year, according to filings.

John Free, who oversees power regulation for the commission, said a typical residential customer is saving $1 or $2 a year because of Alabama Power's use of GO Zone bonds.

"In the long run, this is going to save our rate-payers, on average, about $5 million a year," said Bernie Fogarty, Alabama Power spokesman in Mobile.