The New York Times reports on another “politically connected clean energy start-up that has relied heavily on an Obama administration loan guarantee and is now facing financial turmoil.”
The company is Nevada Geothermal Power, which like Solyndra, the now-famous California solar company, is struggling with debt after encountering problems at its only operating plant.
After a series of technical missteps that are draining Nevada Geothermal’s cash reserves, its own auditor concluded in a filing released last week that there was “significant doubt about the company’s ability to continue as a going concern.”
If that sounds familiar, it is because that is exactly the same conclusion auditors from PriceWaterhouseCoopers came to in March 2010 after looking into Solyndra’s finances before a planned $300 million initial public offering, which was subsequently canceled. Andy McCarthy discusses the serious implications of the “going concern” language here:
The “going concern” language is not boilerplate. As Townhall finance maven John Ransom explains, it is a term of art to which auditors resort when there is an extraordinary need to protect themselves and the company from legal liability. Angry investors who’ve lost their shirts tend to scapegoat the loser company’s accountants. In truth, even if the accountants affixed a neon “going concern” sign to the company’s financial statements, investors would have no one but themselves to blame. But it is unusual: The language is absent from the statements of many companies that actually end up going bankrupt. Auditors reserve it for the hopeless causes — like Solyndra.
While the federal government’s investment in Nevada Geothermal — $79 million in loan guarantees plus about $70 million in grants — is substantially less than the $530 million (in loan guarantees) it put up for Solyndra, this has all the familiar signs of corporate cronyism run amok:
The Nevada Geothermal project has benefited from the support of a bipartisan collection of Nevada politicians, most notably Senator Harry Reid, a Democrat and the Senate majority leader, who has called his home state the “Saudi Arabia of geothermal energy.”
Nationally, geothermal energy produces only about 3,000 megawatts of power, a minuscule slice of the national electricity supply. The Nevada Geothermal plant generates just 35 megawatts — enough to serve about 35,000 homes for a year — and the company has only 22 employees in the state.
But Mr. Reid has taken the nascent geothermal industry under his wing, pressuring the Department of Interior to move more quickly on applications to build clean energy projects on federally owned land and urging other member of Congress to expand federal tax incentives to help build geothermal plants, benefits that Nevada Geothermal has taken advantage of.
“This project is exactly the type of initiative we need to ensure Nevada creates good-paying jobs,” Mr. Reid said in a statement in April 2010, after he visited the company’s Nevada plant. That was two months before the project even got conditional approval for the Energy Department loan guarantee.
$150 million in federal backing for a company favored by a top Democrat and that employs just 22 people. “Exactly the type of initiative we need,” indeed. As it turns out, the Geothermal industry is notoriously susceptible to financial difficulties, and is considered an even riskier investment than wind or solar. The Times reports that the Obama administration was well aware of the risks involved when it agreed to award Nevada Geothermal a second loan package worth nearly $100 million. But that’s not all:
During the tour, Mr. Reid had a chance to see electric generation equipment installed by a company called Ormat Technology, which is a Nevada Geothermal partner. Ormat’s lobbyist in Washington, Kai Anderson, and one of the company’s top executives, Paul Thomsen, are former aides to Mr. Reid.
Just last month, again with Mr. Reid’s support, Ormat secured its own Energy Department loan guarantee, worth $350 million, to help support three other Nevada geothermal projects that are expected to produce 113 megawatts of power.
Mr. Reid has received some support from the industry, in the form of at least $43,000 worth of campaign contributions from the geothermal industry since 2009, according to an analysis of federal campaign finance records.
Nevada Geothermal executives are currently working to renegotiate a loan agreement (worth $91 million) in an effort to avoid default, which could happen as soon as December. Whatever happens, one hopes that at the very least, private investors won’t be given priority status as they were when the DOE restructured Solyndra’s loan guarantee. Either way, the administration certainly has some (more) explaining to do.