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Wall St Blowing in the Wind


I recently spoke at an energy roundtable in Rhode Island hosted by the American Association of University Women. The big issue in the state is the ratepayer cost of an offshore wind project by a firm called Deepwater Wind. The unusually high cost of the project is raising a fuss with consumers, while the financial backers of the project are a powerful and wealthy hedge fund and private equity firm.

But first a little background . . .

Wind resources off the eastern United States, stretching from Maine to the Carolinas, are among the best in North America, which is why the Department of Energy recently concluded that wind can provide 20% of Northeastern U.S. power needs by 2024.

Offshore wind is more expensive than onshore, as it features additional technical and engineering challenges than similar projects on land. But the costs for this particular proposal – 24.4¢/kwh to rise 3.5%/year over the proposed 20-year contract – are  50% higher than the average retail price in the state.

Deepwater Wind is a subsidiary of First Wind, which is controlled by the hedge fund D.E. Shaw and the private equity firm Madison Dearborn Partners. D.E. Shaw, named after its founder David E. Shaw, is more famous for paying Lawrence Summers – Obama’s Director of the National Economic Council – more than $5 million/year to work 1 day a week.

Madison Dearborn Partners is a private equity firm with a dizzying array of holdings, including 6,700 miles of gasoline, diesel and jet fuel pipelines and 8 power plants through its US PowerGen subsidiary. One of these, the 500 MW Astoria facility in New York City was featured in an Enron-style manipulation scheme that resulted in a $12 million fine by the Department of Justice paid by another firm.

D.E. Shaw and Madison Dearborn share additional ownership in a couple of 245 MW natural gas power plants: the Cottage Grove facility in Minnesota (owned by Goldman Sachs [7%], D.E. Shaw [38.22%], Madison Dearborn [28%] and Japan-based Osaka Gas [26.78%]) and the Whitewater plant in Wisconsin (nearly identical ownership structure as Cottage Grove).

Rhode Island’s 12.7% unemployment rate in January 2010 means that its residents are doing some financial belt-tightening – so why can’t the well-off  backers of Deepwater Wind reduce their rate of return to lower rates for the struggling families of Rhode Island?

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