October 18, 2010
Red Flags in the Wind
On first hearing that Tiverton might be the site of a new on-land wind farm, I was more or less ambivalent, but with the feeling that the project would provide more benefit than detriment. But details on the structure of the initiative raise concerns more fundamental than Rhode Island's habitual not-in-my-backyard (NIMBY) attitude:
Nine communities in the region have banded together to form the East Bay Energy Consortium, a group that proposes building a land-based wind farm that would provide enough clean, renewable power for as many as 7,500 homes.
What's notably different about this new form of economic development is that the towns are the entities receiving the grants and hiring consultants. In other words, this isn't a matter of a private developer working with municipalities to smooth the path toward construction and industry. It's the small-time elected officials of towns and cities deciding to go into the wind business, with a start-up cost "between $50 million and $63 million."
The insidious aspect arises with the intended handling of the money. Although the collaborative idea began as a way to "save taxpayer money," the wind farm isn't being envisioned as a sort of utility that would lower taxpayers' energy bills. Rather:
The group would sell power at market rates, and the member communities would then share revenues to help cover their municipal budgets. Initial estimates for total benefits to the consortium over 20 years range from $23 million to $39 million.
These nine communities might as well be opening up a video game development company. Their notion is to start a profitable business, claiming that the profits will enable them to lighten up on tax collections. If you believe that means tax cuts, well, then you haven't lived in Rhode Island for very long. More likely, the powers who be have observed that even the confused and apathetic electorates in their towns are chafing at tax levies that double every decade. Municipal leaders are therefore looking for a way to continue spending and to avoid reforms in their inefficient operational practices.
The generally positive view of green energy — which ranges out to cultish adoration on its fringes — provides them cover to dive into a speculative investment, with our tax dollars, probably through bonds, as their initial cash infusion.
Operating a commercial business is not a legitimate function of government at any level. As Justin points out, the towns probably figure to raise their "capital" by issuing bonds for which the taxpayers will be liable. This is not equity. And if the project becomes economically unviable, there will be great pressure to increase taxes to cover the bonds "so the municipalities can maintain their credit ratings".
The current example of the various county water authorities in Rhode Island. The relatively wet summer of 2009, combined with increased consumer attention to conservation, caused a decrease in demand for water throughout the state. This caused lower sales revenues at the authorities. So the water authorities in Bristol County, Warwick and other areas tried to ram through price increases of 12% to over 20%, saying that they had to maintain their interest coverage ratios under the bonds.
This would happen if the project sells power directly to users. If it sells power wholesale into the grid, then without specific consumers to rip off through rate increases, the towns will raise taxes instead.
A large part of California's debt problem is due to similar government-sponsored projects issuing their own bonds and then claiming that their bankruptcy would bring down the entire state, forcing taxpayers to prop them up.
The correct solution? If the wind farm is slated to be on town land, have the taxpayers vote to authorize granting a franchise in exchange for rent. This rent could be a fixed amount per year or a percentage of the project's revenue. If the project is viable, private companies will bring their own capital to the project. The franchise can be granted to the highest qualified bidder in an honest auction. (Not like the phony FCC spectrum auction that granted rights worth billions to a company owned by Democrat cronies, which almost immediately went bankrupt.)
If the project doesn't pan out, taxpayers are not on the hook.
Posted by: BobN at October 18, 2010 7:22 AM