Shepherds Flat Wind Farm: The seamy side of green energy

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U.S. Department of Energy/Caithness Energy: Shepherds Flat Wind Farm near Arlington, Oregon.

SALEM, Ore., February 25, 2014 — The path to President Obama’s green energy utopia is littered with government waste, mismanagement and shady corporate public-sector business practices.

Nowhere is that spelled out more clearly than in a 2010 Larry Summers White House memo about double dipping into the 2009 Stimulus (Recovery Act) money trough.

The White House memo specifically identifies one double-dip green energy project and its sponsor. The project is the $1.9 billion Shepherds Flat Wind Farm built near Arlington, Oregon. The double-dip sponsor is Caithness Energy, LLC, out of Long Island, New York.

The president had full knowledge of shady corporate dealings involving Shepherds Flat before the fact, yet less than two months later he approved full project funding anyway. It was built and went into service on September 22, 2012. Government paid for 65 percent of the project.


Caithness Energy’s shady business practices didn’t stop with the federal government. It also tripled-dipped the state of Oregon for tax breaks it didn’t deserve. That case is still being investigated by the Oregon State Legislature.

For it’s efforts, Caithness is full owner and operator of Shepherds Flat — at only an 11 percent stake. It has a sweet fixed-rate 30-year power purchase agreement with Southern California Edison that guarantees it a return on equity of 30 percent.

Rarely has one company taken greater advantage of federal and state public policy, and taxpayer investments than has Caithness Energy, LLC.

Shepherds Flat Wind Farm

 

DOE fact sheet on Shepherds Flat Wind Farm
DOE fact sheet on Shepherds Flat Wind Farm

Shepherds Flat was the largest wind farm in the world when it went into service in 2012. Wagon ruts left by 1840s Oregon trail settlers can still be found where it is built.

By wind power standards, everything about it is big:

  • Covers 30 square miles spread out over two counties.
  • Cost $1.9 billion.
  • Received $1.3 billion in DOE loan guarantees.
  • Has 845 megawatts of electric generating capacity.
  • Advertised it saves one million tons of CO2 emissions annually.
  • Has 338 windmills
  • Each 2.5MW GE windmill is 360 feet tall with 60 foot long blades
  • Created 400 construction and 35 permanent jobs.

Even though Shepherds Flat is in northeastern Oregon, 100 percent of its electricity goes to Southern California Edison of Los Angeles.

Its electricity is delivered south through the federal Bonneville Power Administration grid. That helps Southern California Edison meet a state mandate requiring that all new electricity deployed by utilities in California are 33 percent renewable energy by 2020.

2010 White House Memo

The DOE’s fact sheet doesn’t tell the whole Shepherds Flat story.

Ted Sickinger, investigative reporter for The Oregonian newspaper in Portland, uncovered two damning White House memos. One described “A big meeting at the White House on Friday with Treasury and OMB” about Shepherds Flat. The other summarizes green energy double-dipping practices involving Shepherds Flat to be shared by Energy Secretary Stephen Chu in a meeting with the President.

The appendix of the Larry Summers White House memo, titled “Shepherds Flat Loan Guarantee,” identifies $1.2 billion in outright double-dip gorged giveaways:

  • $500 million: Federal 1603 grant
  • $300 million: Value of $1.3 billion loan guarantee
  • $220 million: Premium paid for power from state renewable electricity standard
  • $200 million: Accelerated depreciation on federal and state taxes
  • $18 million: State tax credits

Saying that Caithness has little “skin in the game,” the memo asserts the government paid more than 65 percent of the cost of the wind farm while Caithness put up just 10 percent.

Further, it says due to favorable market conditions the project probably would have gone forward anyway without the loan guarantee.

It even casts doubt on the project’s carbon reduction benefits. It estimates a savings of 18 million tons of CO2 emissions through 2033. It then says that CO2 savings would have to be valued at $130/ton to equal the cost of the subsidies. That is six times more than the primary estimate allowed in government evaluation rules at the time.

In March, 2013 a U.S. Government Accounting Office report on wind energy subsidies exposed 82 overlapping federal wind related initiatives spread out among five different federal government departments — DOE, Interior, Agriculture, Commerce and the Treasury — and across nine agencies. GAO concluded “fragmentation” resulted in duplicate funding.

The $30 million Tax Credit Scam

Apparently a $1.3 billion dollar loan guarantee, $1.2 billion in freebies and a guaranteed 30 percent profit for the next 30 years wasn’t good enough for Caithness. It had to get greedy and stiff the state of Oregon for $20 million more in tax credits than it doesn’t qualify for. $20 million is one percent of the total cost of the project.

Here is how it was done. Caithness set up three subsidiaries that, on paper, split Shepherds Flat up into three different wind farms. By doing so, it applied for and got $10 million in Oregon tax credits for each farm, $30 million in all.

The problem is, Oregon requires a project to be “separate and distinct” to qualify for the tax credit. A project is considered to be a single facility if it meets any three of these criteria:

  1. Projects are located on adjacent parcels of land.
  2. The projects have been recognized or licensed as a single entity by federal, state, county or local authorities.
  3. Construction performed under one contract, or interdependent contracts using shared resources.
  4. Projects share expenses, personnel, equipment or capital investments.
  5. Equipment was purchased through the same person(s).
  6. Facility connect to the grid through a single connection.
  7. Other factors like construction, operation, maintenance or output demonstrating it is singular.

The Oregonian’s Ted Sickinger extensively researched each item and found six of seven criteria met the qualifying standard defining Shepherds Flat as a single wind farm. His analysis is detailed in an article titled “Oregon Energy Department blows past facts in review of subsidies for Shepherds Flat wind farm.”

If Sickinger is right, Shepherds Flat qualifies for one $10 million tax credit instead of $30 million.

The Oregon State Legislature is investigating, but has not yet ruled.

Conclusions

Only in the United States can a New York firm build the world’s largest wind farm in Oregon to sell all its electricity to Los Angeles at a 30 percent per year guaranteed profit so a southern California utility can meet its California state mandated renewable energy requirement.

It would be considered inspired capitalism except for one thing: Most of it was paid for by taxpayers. It enabled a private company to gain total ownership, then to reap profits from ill-got gains obtained from incompetent governments going all the way up to the White House.

Yet that is exactly what happened at Shepherds Flat outside sleepy Arlington, Oregon.

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  • stopcronycapitalism

    The beat goes on. Now they are planning to build an addition to Shepherd Flat called Saddle Butte. It is the same developer using the same contractors and wildlife studies, the same transmission system and is attached to Shepherd Flat, but of course it is a separate development! Not only that, but a group of citizens have been gathering signatures to require a vote on whether or not Oregon taxpayers should get credit for all our hydro-power which is currently by statute in this state not “renewable”. The governor got to the chief petitioner and negotiated a bill which resulted in them withdrawing the initiative petition. The thousands of Oregonians who have been gathering signatures and signing the initiative have been thrown under the bus. This is probably the most aggregious abuse of political power I have ever heard of. Governor Kitzhaber and the legislature supported an end run around the citizens rights to use the initiative process. I personally believe that there must be a bunch of our tax dollars that the politicians are giving to wind and solar developers coming back to them as campaign contributions. The Renewable Energy Standard is being manipulated so that Oregon taxpayers are being forced to spend millions of dollars supporting wind and solar developments. The legislature has passed legislation that does not recognize most hydro-power as renewable, legislation that says that there can be no evaluation of “need” when siting wind or solar developments, there is no cost/benefit analysis done, and they only count energy “used” in Oregon which means that even when we give the very generous subsidies to wind farms, 75% of the energy is sent out of state, and we get no credit for that 75% helping meet the Renewable Energy Standard. We are now working on a grass roots effort to resubmit the initiative to require the 60% of energy in this state that comes from our dams as renewable. We won’t be able to get it on the ballot until the next voting cycle, but we are developing a listing of people who will be willing to support our effort in any way. Anyone who would like to offer to help or would like information on the abuse of political influence in this state requiring the citizens to dump public money into unreliable, costly, environmentally damaging wind and solar is welcome to call me at 541-963-8160. Thanks so much. Irene Gilbert

    • Steve Davidson

      I looked up Saddle Butte and verified everything you said. The project was approved and the state says Caithness expects to being construction within 5 years. I looked on the Caithness web site but Saddle Butte is not even mentioned!

      Things are different now, the federal “stimulus” money that financed Shepherd’s Flat is all gone.

      I’ve always thought it strange that hydro isn’t treated as renewable. Hydro is as renewable as renewable can be. I think that “renewable” is a narrowly defined category that only includes newer technologies. If hydro were accepted as renewable then Oregon would already have met its 2025 standard and utilities would have to worry about meeting renewable standards until after 2025.

      • stopcronycapitalism

        Thanks for doing the fact checking and responding. We have a governor and a bunch of legislators in this state that do not appear to have the necessary ethics to do the right thing. Oregon will continue to be a dumping ground for renewable projects, and Oregon taxpayers will continue to be forced to provide financial support until either the initiative is revived or the governor is replaced along with a bunch of legislators. Ethics is really the issue when our representatives decide to negotiate way the citizens right to utilize the initiative process to stop the flow of our tax dollars to these private developers.

        • Steve Davidson

          Oregon and the federal government both got hoodwinked by Caithness. But no one should be surprised to see this sort of thing happen when the federal government throws $10s of billions at questionable technology solutions.