The EDC’s Next Boondoggle?

Wednesday, June 06, 2012

Stephen Beale, GoLocalProv News Contributor

A trendy industry. A small developer with big dreams. Assurances that public funds are not at risk. And promises of an economic windfall.

Sound familiar?

Proposed legislation would turn the East Bay Energy Consortium (EBEC)—a self-described, three-year-old volunteer group—into a new quasi-public agency, make it a subsidiary of the state Economic Development Corporation, and allow it to use the EDC to obtain as much as $60 million in revenue bonds for a small wind farm in Tiverton.

“This is the stuff … you just can’t make up,” said Ed Mazze, a business professor at the University of Rhode Island.

It may not be a repeat of 38 Studios, but skeptics say there are nonetheless troubling parallels that call the whole project into question, especially when a prominent private developer is interested in doing the same project on its own.

“This is just another example of ‘let’s pick up something which may be good, may be justified, and may be beneficial and let’s plunge into it, even though we don’t know what we’re doing,’” Mazze said.“This is definitely not the time for anything new to be added to the Economic Development Corporation,” he added. Instead, he said the state should be undertaking a review of its overall economic development strategy and what role, if any, the EDC should have in that.

Mazze, who believes that the EDC should now be dissolved, said it’s an example of individuals or agencies of questionable competence taking on additional responsibilities, creating further incompetence. It’s a common management problem that he has dubbed the “theory of creeping meatballism.”

Supporters: Not another 38 Studios

Backers of the project insist that state has learned its lesson from the 38 Studios fiasco and they say such concerns are reflected in the explicit wording of the legislation—which does not provide for a loan guarantee. “It’s different here, because the state is not liable,” said bill sponsor and state Sen. Louis DiPalma, D-Middletown.

Not everyone is not convinced, not the least of them Governor Lincoln Chafee, who issued an eleventh-hour letter last night to the House environment committee, announcing his opposition to creating a new division of the EDC and “the potential financial exposure” to the state, according to state Rep. Laurence Ehrhardt, R- North Kingstown, a committee member. (The Governor's office was not able to provide a copy of the letter in time for publication.)

That committee voted to table to the original House version of the legislation, accepted a dramatically altered version calling for a study commission, and then tabled that too. Tonight, the counterpart committee in the Senate is expected to vote on the bill.

Communities withdraw support

The legislation has been bedeviled with controversy since it was first introduced months ago. Critics initially took exception to granting the new quasi-public agency the power of eminent domain—a necessary power in order for it to be able to sell bonds, according to DiPalma.

It has become so controversial that even some of the nine East Bay communities that created the EBEC have either withdrawn their support from the legislation or distanced themselves from it, including the Barrington and Tiverton town councils. On May 21, Tiverton council members passed a resolution voicing “serious concerns” with “drafts of the legislation,” including granting the consortium eminent domain powers.

Since then, the bill has been changed twice and the eminent domain powers have been removed. In all, between the House and Senate, the legislation has been through at least five revisions, in an effort to accommodate concerns of local officials and others, DiPalma said. But some say the bill has been changed so much that they’ve lost track of what it would really do. “We were getting to the point of a blizzard of versions of this thing,” Ehrhardt said. “Nobody really knew what was going on and it was time to call a time out.”

He said some of the most important issues, such as how financially feasible the EBEC wind farm is, had yet to be addressed. In fall 2010, the EBEC published a consultants’ report that was predicated on the assumption that the organization would be able to use “net metering” to make it economically viable. (Net metering, put simply, allows anyone who generates renewable energy to deduct what they create from their utility bills.)

Since that study, the General Assembly passed a new law limiting net metering facilities to 5 megawatts, Ehrhardt said. The EBEC project would be six times that size.

For Ehrhardt, the last-minute legislative maneuvering and questionable financial projections make for troubling parallels with 38 Studios. The EBEC is even using the same law firm, Moses and Afonso, that was the bond counsel in the 38 Studios deal.

Private investors turned away

Some are questioning why the state should go to all this trouble, when at least one private wind farm developer, Apex Wind, has expressed interest in building a $55 million wind farm in Tiverton—on its own dime, without state assistance of any kind.

Apex had approached the EBEC about two years ago about forming a partnership, but was turned down. “They just completely closed the door and said we don’t need them,” said Andrew Shapiro, a former vice chair of the EBEC and now the New England representative for the EBEC. As a result, the two have become competitors on the project.

“Another quasi-public agency should not be created under the highly questionable EDC when it is on record that a private investor is interested in the project,” said Lisa Blais, spokesperson for the Ocean State Tea Party in Action.

One of the purposes of the Economic Development Corporation, according to its mission statement, is to bring new companies into the state, which raises the question as to why it has already invested more than $400,000 in the EBEC and now is sponsoring its efforts to become a quasi-public agency—effectively giving it an advantage over Apex Wind, which is based in Charlotte, North Carolina. A spokeswoman for the EDC was not able to answer that question in time for publication.

Even the bill’s sponsor, DiPalma, agrees that the state should not compete with private business. “Government should not be in the business of competing with private business,” DiPalma said. “We need to enable private business to flourish and thrive.” He said he was not familiar with the details of Apex’s interest in the project.

The current EBEC chair, Jeanne-Marie Napolitano, a Newport city councilor, confirmed that her organization had met with the EBEC and decided against any partnership with the company. But she questioned whether the company—which she described as a “johnny-come-lately”—was truly interested in the project.

The project could affect economic development in neighboring properties as well, according to Gerald Felise, the owner of hundreds of acres of undeveloped land next door to the proposed wind farm site. Felise told GoLocalProv yesterday that he had lined up as much as $150 million from a private investment firm for a project on his properties that would combine geothermal, solar, and wind power.

His investors, whom he declined to disclose, have told him that they will pull out if EBEC moves forward with the wind farm, Felise said. “They would disappear tomorrow morning,” he said. “Why would they put any money into any project when the government can go in, look at their economics and their models and go into the project themselves?”

‘We want the ability to compete’

Napolitano said the EBEC is not trying to stifle economic development. “I’d say, the more, the merrier,” Napolitano added. “We just want the ability to compete. I’m all for private investment.”

Their project, she suggested, would be as much economic development as anyone else’s. She said it would create jobs. Plus, there’s something in it for the nine East Bay communities: a promise of sharing in the profits made by the EBEC, at $200,000 annually per community, according to Napolitano. From her perspective, that’s what the EBEC is all about: a group of communities collaborating to promote renewable energy and help each other weather the challenges of cutbacks in state aid.

Last night, after Chafee’s letter and the House committee vote, she expressed frustrations that her group has been caught up in the political controversy over the EDC. She said her organization would be OK with operating under the auspices of another state agency. “That’s fine. We don’t care what agency it is—just give us the ability to compete,” she said.

If you valued this article, please LIKE GoLocalProv.com on Facebook by clicking HERE.

Enjoy this post? Share it with others.

Email to a friend Permalink

Comments:

louis rizzo

6:58am on Wednesday, June 06, 2012

the EDC presents the "TWILIGHT ZONE"

EDWARD WALKER

8:24am on Wednesday, June 06, 2012

Just what is going on with Senator DiPalma and the EDC - if this project, which is controversial to start with, all ready has private investors lined up, why does the EDC need to get involved? I would appreciate how a all-volunteer group, the East Bay Energy Consortium (EBEC) form their own company and have their volunteer be the MAJOR investors? Why are they reluctant to do this, but wants the State's backing. Definately has a smell about it.

Brian Bishop

8:35am on Wednesday, June 06, 2012

"just give us the chance to compete"

what a joke. this is all about tax arbitrage. their idea of competition is they will issue tax exempt bonds (with fees to the same folks who did the 38 studios deal). their version of competition is taking federal and state income tax moneys and electric ratepayer moneys and building a new quasi-public fiefdom.

And all this nonsense about language that the bonds would not be obligations of the state or municipality is utter bull. The same language is included in the 38 studios bonds. But the folks who milk this system pressure the legislature to back these bonds anyway because otherwise the spigot of 'free' money would be turned off.

Stop EBEC and give the 38 Studios bondholders a haircut, which we are quite legally entitled to, and you've got a downpayment on sanity. Go the other way and we're Greece -- or at least Turkey[s]

dis gusted

9:09am on Wednesday, June 06, 2012

Bottom line....especially after the 38 Studios fiasco, throw out the bill and throw out Sen DiPalma...
Let the private funding come into the picture here.
DiPalma must have had a personal interest in this...throw him out in Novemeber.....
Throw them all out...
When will the RI voters ever learn...the lawmakers in the
General ASSembly have their own private agenda ---themselves....
NO more controversial projects.....

Lance Chappell

9:12am on Wednesday, June 06, 2012

This is the last thing the communities in the East Bay need, another big government fiasco. Follow the players, the lobbists on this one. Big bucks are being paid to these people to rush this through the assembly. EBEC is already sitting on $500K of EDC money. Sound familiar?? This is terrible legislation and needs to be defeated. We need less government, not more of it.

Walt Barrett

9:15am on Wednesday, June 06, 2012

The state should get out of the loan business alltogether and let the private sector solve its own problems. The rest of us have to make it on our own and we are surviving. Who's better than us?

Wuggly Ump

9:16am on Wednesday, June 06, 2012

It has already been said... Private investors will invest if the project is worthy. Tax payer money should be off the table.

Art West

9:16am on Wednesday, June 06, 2012

I doubt very much that the East Bay Energy Consortium would be sharing any profits with the taxpayers. So why are they asking us to share in the liabilities?

Please present your business plan to a venture capitalist firm, not the taxpayers by way of the EDC.

Seth Steinman

10:37am on Wednesday, June 06, 2012

Stephan- I appreciate your investigation, and I understand this a very complex project in an ever-changing industry, but you leave out some important points. First, the EDC is investing in EBEC because they hold the keys to the Renewable Energy Fund- not solely because they are trying to create jobs. Second, you don’t even mention the Distributed Generation legislation, which this project would most likely fall under. It allows National Grid and renewable energy developers to enter into long term contracts at fixed prices, ensuring price stability for both parties. Third, does it really make sense that a private developer wouldn’t go forward with a profitable project just because somebody could “go in, look at the economics… and move forward with [a separate] project themselves”? My final point is that RI residents have expressed opposition to private wind turbine developers because they don’t see any of the financial benefits from the projects. EBEC would do just that- pass along any profits to participating communities and their respective residents.

jon paycheck

10:55am on Wednesday, June 06, 2012

seth steinman....you obviously havent lived in ri very long.

if you did, you would know that if there were profits, there would be jobs for who ever is on the in and the state would get nothing.

thats another reason why government needs to stay out of projects that can be done privatley.

Brian Bishop

11:48am on Wednesday, June 06, 2012

Seth,
if you've got any extra koolaid that doesn't have a jim jones label on it you could share.

I'm trying to take this seriously but I concede it isn't always easy. While I am equally cynical with jon[ny] paycheck, I realize that you make some arguments worthy of consideration in a godd political discourse that hasn't given way to pure cynicism.

The stability of contracts you are talking about comes at the direct expense of the ratepayers. Grid passes those overmarket costs directly to its ratepayers and often gets a percentage as if they were brokering the project as well -- see deepwater 2.75% on $750 million.

Makes 38 studios look like chump change.

Ironically, east bay town councils were told a major reason they needed to support this EBEC legislation is because Deepwater would raise their own energy costs so much. So it is fine to run up citizens bills in ways that the municipalities don't want to tolerate. And now its fine to run them up some more in order to get a few select communities off the hook? Communities most of whom don't want to host any major windmill farm but would skim from ratepayer money poured into one in Tiveron. Nice work if you can get it. Do you really support ratepayers in Providence, PAwtucket and Central Falls making payments to east bay towns? Maybe, if like me, you think that those communities get too much from the state without sufficient financial controls, you might think that sending money to relatively well off east bay communites was fair turnabout. But kudos to the town councils of the east bay that were chary about simply taking 'money for nothing'. That is a hard thing to turn down, regardless of the relative wealth of your community. The real point of all this is we should be considering clawing back from our commitment to Deepwater, not making another favored state actor who has already demonstrated a propensity for business models gaming the netmetering market to cost ratepayers more money as well as twisted itself in legal pretzels to make sure it would have the power to issue tax free bonds thus taking money from federal and state taxpayers.

I do agree and have regularly testified that the risk of EBEC is more subtle and insidious than 38 studios. It is fair to assert there are subtleties that could be offered in favor of EBEC that didn't make the story but there are many more subtleties.

And please spare me the, EDC is chaste here because they are required to invest in renewable energy. Why THIS project to the tune of a grant, not a loan, of $500,000 with no controls so $150,000 or so of our own money is being used to try to ram this thing through the legislature. The PUC routinely forbids recorvery of lobbying and government relations moneys to utilities, but our ratemoney given to the EDC has no such protections - although they could have made such protection when they adopted regulations.

EDC= dustbin of history.

And you don't suppose that Keith Stokes ties to Newport pols, which doesn't want to host windmills but would like a $200,000 annual check. Again, Kudos to the rest of Newport politicians for making Newport the only East Bay council NOT TO VOTE FOR THIS THING!. OF course Tereas and Jean don't want to explain that. They just let the highly paid flaks go out there and say - falsely - that all the concerns have been addressed.

Does it do my heart good to see Tom MOses go off in a huff when he sees the governor's relatively low level scan on this. Sure does.

That doesn't mean I'm not willing to get off the barricades shouting another 38 studios in the making, and get down in the weeds of public policy. But this thing looks as bad close up as it does far away.

You are absolutely right that private companies generating renewable energy are trying to make money and that they don't intend to take those margins and pass them out to anyone except Tiverton who gets property tax from a private developer on their equipment and a royalty payment because part of the project is on town land.

If the project can be built competitively with renewable energy we can get from Maine, I'm all for it. I hope that could be a positive outcome for Tiverton.

But you, as all the defenders, thoughtful and less thoughtful, of the EBEC idea are simply burying your head in the sand pretending this would just be some kind of competition that would keep this honest or capture some modest premium for municiaplities. How are private companies going to compete for these locations when EBEC can issue TAX FREE BONDS - taking money from the public coffers to bolster the subsidies we would be required to give them from national grid (and simulataneously increasing our borrowing costs for anything that might truly be called an "essential public purpose for borrowing".

Sure, in my own ramparts theory, there is no such thing, pay as you go, politicians who spend the money responsible for collecting it and the transparently garnish the full bill from the electorate in real time.

But if you do believe that say borrowing for schools or roads are appropriate public undertakings, creating more tax free bonds for marginal purposes actually increases the cost of borrowing for what middle america might more centrally recognize as government purpose.

So in the most comprehensive story, really the only story on this legislative battle, Stephen left out some of the subtleties both for and against EBEC. Nobody else even has the story. I'd think that creating a subsidiary of EDC at the last minute of the session with numerous rushed versions of complex legislation would be a story, even if the legislation was to make a motherhood and apple pie company.

Thanks for playing, try again.

J Veegh

12:31pm on Wednesday, June 06, 2012

The obvious risks are simply disproportionate to the potential “upside.” Especially, in light of RI’s fragile economic health.

Just what were the consequences again if such proposed wind-farm is not in the black by the time the first payment to bondholders comes due? The Plan B - where we dig up the extra money necessary to pay the EBEC’s obligations, if the electricity sales are not enough. Do we know?

Aside from the absurd rush to jam the nonsense through, citizens better ensure they fully grasp the potential ramifications - beyond the economic. Wind farms are a blight on nature, create noise pollution, are linked to human health issues, threaten wildlife, etc. Take a minute and research the massive dilemma other countries are having with equally massive blade disposal etc. – not particularly environmentally friendly buggers in the least.

Though technology of turbines will likely improve over time, wind power now - is not a viable solution. In short, because the energy cannot be stored. Wind energy is far from the sole renewable.

Brakes, please.

Howard Miller

2:37pm on Wednesday, June 06, 2012

how about this-in the middle of winter get all politicians together Dems and repubs and get them all at the same time to speak into a microphone and have there breath transmitted to peoples homes-- i bet they could shut down the thermostat for the entire winter

paul zecchino

5:08pm on Wednesday, June 06, 2012

Solar, Wind, Geothermal, and rats-on-treadmill were also the darling 'alternative energy' of another era, The Carter Glory Years.

Mr. Peanuts killed the breeder reactor, which would have made America permanently independent of the terror nations' oil.

He pushed Solar, Wind, and any other method of energy conversion provided it was costly, unworkable, improbable, and resembling of something from a Rube Goldberg cartoon.

Solar and Wind disappeared with Mr. Peanuts, not because the 'evil' Ronald Reagan put a stop to tax credits for these boondoggles but instead because they were boondoggles.

Without government to prop up these money-laundries, they fail.

Were solar and wind at all practical for large scale energy production, private enterprise would have developed and marketed them.

This stinks.

Paul Vincent Zecchino
Manasota Key, Florida,
06 June, 2012

paul zecchino

5:09pm on Wednesday, June 06, 2012

Commenting is not available in this channel entry.

The EDC’s Next Boondoggle?

Related Articles

Enjoy this post? Share it with others.

Comments:

louis rizzo

EDWARD WALKER

Brian Bishop

dis gusted

Lance Chappell

Walt Barrett

Wuggly Ump

Art West

Seth Steinman

jon paycheck

Brian Bishop

J Veegh

Howard Miller

paul zecchino

paul zecchino