General Electric's CEO Jeff Immelt threw a temper tantrum because the Office of Management and Budget and Treasury Department were holding up tens of millions in subsidies to the company for a wind farm project in Oregon, according to a scathing editorial in today's Wall Street Journal [sub required]. A leaked internal White House memo put together by economic aide Larry Summers and senior policy aides Carol Browner and Ron Klain apparently warns that GE was threatening to seek financing in the private markets for the $1.9 billion project, if the Energy Department subsidies were not quickly forthcoming. Really?
As the WSJ explains:
… OMB and Treasury found severe problems with "the economic integrity of government support for renewables." Developers had almost no "skin in the game," meaning that their equity in projects was well below ordinary standards in the private market. They were also "double dipping," obtaining loan guarantees for projects that "would appear likely to move forward without the credit support" in the stimulus because of
other subsidy programs. The reason for the roadblock was "an insufficient number of financially and technically viable projects."
Treasury and OMB singled out an 845-megawatt wind farm that the Energy Department had guaranteed in Oregon called Shepherds Flat, a $1.9 billion installation of 338 General Electric turbines. Combining the stimulus and other federal and state subsidies, the total taxpayer cost is about $1.2 billion, while sponsors GE and Caithness Energy LLC had invested equity of merely about 11%. The memo also notes the wind farm could sell power at "above-market rates" because of Oregon's renewable portfolio standard mandate, which requires utilities to buy a certain annual amount of wind, solar, etc.
But then GE said it was considering "going to the private market for financing out of frustration with the review process." Anything but that. The memo dryly observes that "the alternative of private financing would not make the project financially non-viable."
Oh, and while Shepherds Flat might result in about 18 million fewer tons of carbon through 2033, "reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules)."
So here we have the government already paying for 65% of a project that doesn't even meet its normal cost-benefit test, and then the White House has to referee when one of the largest corporations in the world (GE) importunes the Administration to move faster by threatening to find a private financial substitute like any other business. Remind us again why taxpayers should pay for this kind of corporate welfare?
That's a really excellent question.
In my column, "Wind Turbines Are Beautiful," I visit a Montana wind farm and look at how much they cost.