Putting the EDC in the Wind Farm Business

Back in early April, The Current’s liveblog from a House Committee on Environment and Natural Resources Committee hearing highlighted the controversial proposal for an East Bay Energy Consortium (EBEC) that would operate a wind farm on behalf of a handful of cities and towns in that region of the state.  The probable site is an industrial park in Tiverton, and the concept began, a few years back, as a more direct entry of the municipalities into the business.

In order to secure financing and mitigate risk, however, the city and towns concluded that the consortium should actually be a quasi-public entity of the state.  The controversy arose because, in order to offer tax-free bonds, the organization would require one of three powers indicative of a government entity: the power to tax, the power to police, or the power of eminent domain.  The authors of legislation creating the EBEC opted for the last, which was more than even liberal members of the House committee could stomach.

Last night, The Current obtained a copy of rewritten legislation that appears to have been prepared for sudden unveiling during this evening’s hearing of the Senate Committee on Environment and Agriculture.  In its new incarnation, the EBEC would be a subsidiary of the state’s quasi-public Economic Development Corp. (EDC), operated with the vague participation of Barrington, Bristol, East Providence, Little Compton, Middletown, Newport, Portsmouth, Tiverton, and Warren.

The reworked text of the bill is explicit that no powers of eminent domain will be exercised for the purpose of the organization, but it doesn’t offer very many details of its operation.  Whereas the existing language provides guidance for negotiating payments in lieu of taxes to the towns in which the EBEC places its structures, and municipalities had some autonomy in appointing their representatives, the new bill more or less relies upon EDC regulation.  The EBEC’s board, meanwhile, would be appointed by the governor, with only “due consideration” of candidates suggested by the municipality that the members would ostensibly represent.

With the EDC’s initiation and oversight of Curt Schilling’s 38 Studios now in question, Rhode Islanders may wonder whether expanding the organization’s power would be a wise move.  The 38 Studios controversy also makes conspicuous the assurances, in the legislation, that neither the state nor the municipalities will be liable for any losses should the EBEC misstep.

Increasingly, it appears, governments are setting up conduit loans to quasi-public organizations, presenting the deal as one in which bondholders ultimately take the risk, with the public merely offering cover to make the loans tax free.  If the loans begin going bad and the state begins denying responsibility, bondholders may think twice about future investments.

More important, though, may be the possibility that government involvement in these organizations creates a more subtle type of guarantee: in the incentive that such arrangements create for legislators and regulators to mold policy favorable to the quasi-public organizations and the loan recipients at the expense of other people and groups operating in the state.  Wind farms, in particular, rely for their profitability on governments’ willingness to force energy consumers to pay inflated prices for their product.