Shepherds Flat developers took full advantage of federal, state and local taxpayer subsidies to fund the $2 billion wind farm
For Shepherds Flat wind farm, the $30 million in tax credits that received final approval from Oregon Department of Energy last month were frosting on a multi-layered cake of federal, state and local subsidies. Its developers gorged themselves on hundreds of millions of dollars from taxpayers, and government officials were well aware it was over-subsidized.
At the White House, top advisors balked at the largesse for Shepherds Flat, warning President Obama of potential backlash as opportunistic developers “double dipped” on public money. In Oregon, the dicing of Shepherds Flat into three came in spite of state prohibitions against developers subdividing projects to garner multiple taxpayer subsidies. In Gilliam and Morrow counties, elected officials rolled with it too, slashing property taxes on the project and urging the state to sweeten the pot.
In the end, the lesson of Shepherds Flat may be that it was too big to fail. Its timing was ideal. Developers were offering the biggest wind farm in the world, a 338-turbine behemoth with a price tag of $2 billion, in eastern Oregon, in the midst of recession, using American-made turbines (never mind the Chinese towers).
And once the project gathered momentum, no bureaucrat was willing to stand in the way.
New York-based Caithness Energy showed up in Oregon in 2007, submitting it application to build a massive wind farm on the Columbia Plateau just as the outcry over global warming was peaking in the wake of Al Gore’s call to arms, “An Inconvenient Truth.”
Conditions were ripe in Oregon. Existing high voltage power lines ran right through the state’s geographic wind tunnel, giving California utilities a veritable extension cord to import green energy to meet looming targets under that state’s aggressive renewable energy standard.
The cherry on top: Oregon’s second term governor was anxious to create an economic legacy that resonated with the state’s green ethos. Gov. Ted Kulongoski was harnessing the state’s entire economic development apparatus to his goal of making it the clean energy capital of the nation. After lobbying by industry heavyweights – Goldman Sachs even sent former presidential candidate Dick Gephardt as its emissary – the governor and Legislature enacted a law forcing utilities to meet 25 percent of their demand with renewables by 2025, then heaped on the most generous state subsidies in the nation.
The state offered developers up to $10 million in tax credits per project. Where there was no tax liability, the credit could be sold at a discount to raise cash. And developers quickly set about gaming the system, subdividing projects to multiply subsidies.
Nationally, powerful interests were pushing in the same direction. A new president’s desire to build environmental credibility became an economic keystone to restore the collapsed economy. The Obama administration fast tracked loan guarantees to pump stimulus money into job-generating projects. Meanwhile, deep-pocketed companies with powerful lobbying arms were busy greasing the skids.
The political action committee, employees and affiliates of General Electric – Shepherds Flat’s turbine supplier and an equity investor – gave more than a half million dollars to Obama’s 2008 campaign. The PACs for both GE and Caithness also have sprinkled sprinkled money among Oregon’s congressional delegation during the last five years, including Sens. Ron Wyden and Jeff Merkley, Reps. Earl Blumenauer, Greg Walden and Peter DeFazio.
According to e-mails released by the House Oversight Committee investigating federal subsidies after the bankruptcy of solar startup Solyndra, the Obama administration pushed hard on incentives for Shepherds Flat. Months before officials at the U.S. Department of Energy approved a loan guarantee for the project, General Electric was being told it was a done deal.
In April 2010, Kevin Walsh, managing director of GE’s renewables business, emailed the director of the U.S. DOE’s loan program: “We have been advised by the White House and other sources that we are likely to get the “green light” this week to move forward with the Shepherds Flat wind project…Les Gelber (a partner at Caithness Energy) and I will be in DC tomorrow and would like to stop by any time between noon and 2pm to briefly discuss.”
The deal took more time to fully bake. Four months later, DOE Loan Program Office Credit Advisor Jim McCrea emailed a contractor: “Pressure is on real heavy on SF due to interest from VP.”
Later that day, McCrea sent staff an all points bulletin to promptly provide answers on Shepherds Flat: “To do otherwise would leave us firmly on the political path and give agencies an opportunity to blame us when they are pressures (sic) to make decisions. As you all know, the pressures to make decisions on this transaction are high so speed is of the essence.”
Meanwhile, top Obama advisors worried that Shepherds Flat could become a political albatross. In October 2010, economic advisor Larry Summers, energy czar Carol Browner, and Vice President Joe Biden’s chief of staff Ron Klain sent a memo to Obama: the project was “double-dipping” on federal and state subsidies. Its backers had “little skin in the game.” And that the project “would likely go forward without” the federal loan guarantee.
In the end, however, Shepherds Flats got its $1.3 billion loan guarantee in late 2010.
Two years later, Oregon finalized its decision to provide three, $10 million tax credits.
There’s little doubt that Shepherds Flat adds luster to Oregon’s green ambitions. Though its renewable energy credits flow to California, it generates lots of clean power. Politicians can point to property taxes and community service fees for rural counties, big lease payments for handful of landowners, and 45 permanent jobs.
Yet the causal link between state’s approval of multiple tax credits and the decision to build Shepherds Flat is dubious. The arm twisting for three subsidies didn’t even start until a year after Caithness filed its original application to build one wind farm, and a month after the new rules were adopted to prevent developers from subdividing projects to harvest multiple subsidies. Before the state indicated any willingness to provide multiple credits, Caithness had sold the entire output and signed procurement contracts for the turbines. The project was up and running before Oregon made its final decision.
Caithness ultimately built a single facility, as defined by state rules, not the separate and distinct project it promised in preliminary applications for tax credits. If Oregon had balked at its second and third $10 million tax credit, Caithness might have sued, and given economic development officials a black eye in the industry. But state rules clearly define separate and distinct facilities. And according to an analysis by The Oregonian, Shepherds Flat doesn’t meet them.
In the end, Caithness sold its three tax credits at a discount to WalMart and Comcast. The extra cash from the sale of the wind farm’s second and third tax credit will generate less than 0.7 percent of its price.
“These tax credits would not have made a whit of difference in the construction of this project, and yet $20 million would make an extraordinary difference to the people of Oregon,” said Lynn Frank, former director of the state Energy Department.
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