Corporations with close and cozy relationships with Republican politicians engaged in fraud and featherbedding in Alternative Energy programs. A primary offender is the now-bankrupt Raser Corp. (Stock symbol: RZTIQ.pk).
Raser built a geo-thermal plant in south western Utah, dedicated as "Hatch Geothermal". The plant was named for Orin Hatch, a hometown champion of the company. Hatch, the senior republican Senator from Utah, helped arrange DOD funding, overseas trade grant funding, and other subsidies for the company.
The primary scam this company was involved in is a structural issue with the ARRA Section 1603 tax provision. This section pays alt-energy producers a direct subsidy of 30% of applicable costs when a project comes on line. The structural problem is that NO performance guarantees, NO performance standards and NO cost caps are applied.
Section 1603 applicants are reimbursed for 30% of their stated capital outlays. This creates a tremendous dis-incentive for any cost control, especially where related-party subcontracts exist. Artificial and fraudulent invoicing can be used to inflate the "federal cost" of project to astronomical levels.
Competitively constructed Western US Geothermal power plants produce power for between $2.8 and $4.4 million per megawatt, and the Hatch Geothermal produced power at about $20 million/megawatt. Cost-control was clearly lacking (or, more likely, the stated capital expenditure has significant fraud). "Technical work" was conducted by an LLC owned in part by the Raser Board Chairman, and the chairman purchased surrounding lease-lands through another private LLC.
Other strategies Raser used to extract "soft money" from the Sec. 1603 grant program were: 1) Recording costs even when invoices went unpaid. Raser never paid the balance for the turbine-generator units it purchased from Pratt and Whitney, yet it incorporated the major cost of these key components into it "Capital Basis" for the 30% subsidy. 2) Recording costs on a cash basis when invoices were paid in stock. Raser paid smaller contractors late, pressuring them to accept company stock instead of cash. However it incorpoarted the cash value of the invoice into its capital basis, fully discounting the non-cash advantage to paying out in company stock. 3) Reclassification of abandoned assets into capital expenses. Raser drilled and abandoned several unsuccessful production wells for its geothermal plant. It expensed these on its balance sheets as abandoned for several years, but when calculating its cost basis it recast the abandoned wildcat wells as "monitoring wells" necessary to project operations, and applied the cost to the Federal subsidy.
The Hatch Geothermal plant sold its power to Anaheim, Ca. Anaheim is protesting these invoices because of another fraud conducted by the company. Most geothermal plants power their internal needs (parasitic load) with locally produced power. The Hatch plant purchases low-cost Rocky Mtn coal power to run its pumps and other needs, and sells the full gross production as "Green power". Not surprisingly, regulatory bodies have refused to certify the gross production as "green".
When Raser ran into financial difficulties, it hired as its DC lobbyist Tim Bridgewater. Bridgewater was thought to be the shoe-in to replace Bob Bennett, the other Utah Senator, before a tea-party insurrection at the State Caucus convention eliminated his incumbency. Bridgewater successfully obtained a lucrative overseas commerce grant to design Geothermal plants in Indonesia.
The CEO of Raser during construction of the Hatch plant came from a position in the Utah company Headwaters (stock HW). This company was built on "tax-farming" another alternative energy provision. HW produced "alternative coal" and received a substantial direct subsidy from the Government. The typical process is to take fine coal and spray a binder (i.e. white glue) to generate briquettes that can be sold to power producers. The alternative coal subsidy sunsetted when crude oil rose above $75/barrel, and Headwaters has been suffering.
Sources and References:
http://energyoutlook.blogspot.com/...
http://www.bloomberg.com/...
http://www.energy-daily.com/...
http://www.rasertech.com/...
http://www.raserev.com/...