FINANCING HEADACHES FOR CAPE WIND

A Brief History of How Jim Gordon Got Rich

Now would be a good time for Jim Gordon to figure out where he will find $2.5 billion to build his Cape Wind project. If we review the $1 billion spent to build the Horn's Rev II project of the Danish coast (brought on line on September 17 of 2009) we see that it cost more than $4.5 million per megwatt to design and build. Scaling that project up to the size of Cape Wind and adjusting for the fact that the Cape Wind project will require shipping everything greater distances and paying American union wages we find the cost of Nantucket Sound's wind farm hitting $5 million/MW. 468MW X $5 million = $2.39 billion. Round that number off to $2.4 billion and add some cash for the time difference between the completion of Horn's Rev II and Cape Wind' hoped-for start-up fourteen months later (December 31, 2010) because costs are constantly rising and we easily reach $2.5 billion as a hard cost for Cape Wind.

Interestingly, led by the ever-pro wind Boston Globe, the press consistently peg the project's costs at $1 billion (sometimes or more). This, in my opinion, is either because the Globe folks are not too bright or because they have been fed bad information. Please note that I have not said here that the Boston Globe is intentionally understating Cape Wind's costs as a way of massaging public opinion into a favorable mood. However, as a former vocal critic of the way Massachusetts mismanaged the Big Dig project in Boston (originally estimated to cost $4.5 billion and actually cost more than $14 billion), "If you liked the Big Dig, you're going to love Cape Wind."

The simple question is: Can Jim Gordon raise the money to finance Cape Wind? And the answer is....who knows?

Gordon's career as an energy inn0vator and developer started in 1975 when he first formed Energy Management Inc. EMI, as it is known, is still his principle corporate identity. Every other energy deal he has done has been as a limited liability and non-recourse entity. Each power plant he built and each he intends to build appear as separate legal entities. Since each of his efforts remain privately held, even though he has sold power plants to publicly held companies, no one except EMI insiders and the IRS can ever know how much money he has spent and made. When, for example, in the late 1990s and 2000 he sold all six of his gas-fired power plants to various buyers, estimates of his profits, after all expenses, range from $150 million to well over $200 million. And, certainly by that time Gordon had accumulated some additional wealth, as seen in his plush town house in Boston's prestigious Louisburg Square and the massive black Mercedes he mistakenly drove to meet some press people on Cape Cod at the beginning of the Cape Wind saga. He now drives an old Audi sedan for public consumption, but he garages it in an indoor condominium parking space for which he paid something in the six figures (he owns two spaces). Why is he embarrassed by his wealth? If we can say nothing else about Jim Gordon we can say that he has worked both hard and smart for more than thirty years and has wrung considerable wealth out of the energy business. But can he raise $2.5 billion to build Cape Wind

Gordon claimed in early September of 2007 to have spent $30 million on the regulatory review process for Cape Wind, including project design. He said further that he anticipated spending another $5 million to gain final approval and reach the point of project construction. He has more recently claimed, in early 2010, to have spent a total of $45 million to date. As with his proclaimed cheap energy Jim Gordon's claims for out-of-pocket expenses are very flexible. He is, after all, a communications school graduate. Still, fast talk will not build Cape Wind. He needs four things.

First he needs the enormous federal subsidy still available under the American Recovery and Reinvestment Act (ARRA). this would pay him a cash rebate, tax free, of up to 30% of his capital costs. This works out to $750 million against $2.5 billion in costs. But, he must begin construction by December 31 of this year and complete the project by the end of 2012. Second, he needs continued huge tax breaks for the capital invested in and income generated by Cape Wind. This will help reduce the net cost to investors. Third, he needs power purchase agreements for all of Cape Wind's electricity. So far he has only a draft PPA for half of the total capacity. Fourth and finally, he needs a chunk of equity, cash, to show his lenders that he has the substance needed to pull off such a huge project.

Assuming that Gordon can qualify for the $750 million ARRA rebate he still needs $1.75 billion. If he can borrow 50% of that sum, or $882.5 million, he will still need $882.5 million in equity (cash) to build Cape Wind. Who could possibly invest that much cash in such a project? And, does Jim Gordon have access to such people?

Perhaps he does. Gordon and two partners sold their 100% ownership in a 100/MW biomass power plant project in Austin, Texas in the fall of 2009. Construction on the plant never started and there was not even any financing in to build it, but Gordon's company, American Renewables, LLC had received a power purchase agreement at above-market rates from municipally owned Austin Energy. The project is called Nacogdoches Energy, LLC. American Renewables plans to build an identical plant in Gainesville, Florida. The Texas plant was estimated to cost $1 billion to build but without turning over a shovel of earth Gordon and his partners sold it to Southern Corp. for a rumored $500 million. Gordon's 25.5% stake in the project gained him $125 million before expenses and any debt repayment. He has not lost his touch.

American Renewables, LLC is owned by three entities: EMI (Gordon), BayCorp Holdings and Tyr Corporation. EMI and BayCorp each own 25.5% while Tyr owns 49%. BayCorp Holdings is a wholly owned subsidiary of the parent company operated by British currency speculator Joe Lewis and Tyr Corporation is the American operating subsidiary of the giant Japanese company Itochu, one of the largest corporations in the world with annual income exceeding $50 billion. But, should Cape Wind opponents be concerned that Jim Gordon can raise his needed cash from his two wealthy partners?

If his assurances about the prospects for profit in Texas and biomass were so ironclad, why did he and his partners sell out? Why did they not finance and build the project starting in October of 2008 as Gordon assured the City of Austin that he would. This is the assurance he gave publicly in August of 2008. Now, once again in Gainesville he has achieved an above-market PPA, nearly a year ago, but he has yet to finance and begin building the biomass plant he has said will be a boon to North Florida's lumber industry and power grid while achieving vast environmental improvement. Is this what he has in mind for Nantucket Sound; get an above-market power purchase agreement and all necessary permits and then flip the project for a fast but huge profit? Jim Gordon never told the Austin City Council that he intended just to get their approval and then flip his project for a quick killing. Quite the opposite, once again he portrayed himself as the environmental crusader striving to develop clean, renewable energy for the betterment of all.

So far only he and his partners have reaped any benefits, leaving behind higher electric rates for their victims.

COPYRIGHT 2010 By Peter A. Kenney

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Comments 2 comments

Rob Brinkman 5 years ago

Mr. Kenney, thank you for informing me that Jim Gordon has committed the unforgivable sin of being successful and making money. As for some of your other statements, The Nacogodoches plant is under construction as is the plant in Gainesville Florida. The Gainesville plant is now fully financed by Japanese and European banks. It takes a long time to obtain all the permits and arrange financing, especially in the current state of the world economy. I am sorry that they were not able to meet your timeline but they are getting things done far faster than anyone is able to build nuclear plants. I for one feel far more comfortable with windmills off the coast and burning logging debris to make renewable energy than I do with nuclear or coal power, even if Mr. Gordon is making some money along the way, do you really expect people to provide you with sustainable renewable energy without making any money out of the goodness of their hearts? Do you work for free?


p. a. kenney 5 years ago

Let me guess...the bank is Mitsubishi/Bank of Tokyo? That would fit with Jim gordon's partnership with the American wing of the Itochu Corporation. I have never said and do not feel that Gordon has sinned by becoming wealthy. That is your snyde interpretation. I do, however find his methods a bit on the dark side. Ask Jim how Bill Segal is these days...then ask him the story of Alexandria. Ask him how he managed to achieve above-market PPAs in both Texas and Florida. By the way, Massachusetts has effectively ruled that biomass is carbon-neutral, not a truly green energy source. And - why does an energy guy from Boston need to go to Texas and Florida to get biomass plants permitted --- could it be the Bush connection helped him in those states? Oh, you didn't know about that little item, huh?

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