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The EDC’s Next Boondoggle?

Wednesday, June 06, 2012

 

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.

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