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Home » State

Haywood College Solar Project Raises Red Flags

Submitted by on October 17, 2011 – 7:44 am

Government transparency advocates criticize secrecy of project

By Dan Way | Carolina Journal

CLYDE — Open government advocates believe a controversial solar project on the campus of Haywood Community College is ill-advised because it shields the names of investors from disclosure and involves a relatively new and risky industry.

FLS Energy of Asheville is under contract to lease the rooftop of a $10 million Creative Arts Building under construction for the 30-year project. It will operate solar thermal equipment and a solar photovoltaic panel array. While the college will sell power to Progress Energy throughout the duration of the project, most of the benefits to the college would occur after its 20th year. The proposal barely passed muster with college trustees.

The FLS business model, which includes partnering with Innovative Design of Raleigh to do the architectural design, has been criticized elsewhere, including Buncombe County Schools, where FLS won a similar contract.

Through a staff assistant, Rose Johnson, president of Haywood Community College, declined to grant an interview about the solar project. Approved by a slim 6-5 majority of college trustees, the contract allows unnamed investors to reap lucrative subsidies in the form of state and federal tax credits over the first seven years of operation, after which the trustees could buy the equipment.

FLS officials also declined to grant an interview, but agreed to take questions in writing. While not addressing all of the detailed questions submitted specifically, FLS marketing manager Joanna Baker issued a mostly general response about the company’s activities, which include growth from three to 78 employees in five years and “development of hundreds of solar energy projects” across the Southeast.

“The vast majority of our projects are developed in partnership with private sector businesses and organizations that want to utilize renewable energy,” Baker wrote. “In 2011, our company will develop about $36 million in solar projects. Of these, about 90 percent of the investments were made in partnership with private-sector business and organizations rather than government entities.”

She said two of FLS Energy’s “primary financing partners for our projects are New Energy Capital and RBC Bank,” through which FLS holds lines of credit. FLS also has made “direct investment from our own company funds” to develop projects.

“FLS Energy assumes all financial responsibility for maintaining the system during the time that we own and operate the solar energy systems. If the school decides to purchase the system, all equipment warranties transfer to the school,” Baker wrote.

Most benefits after year 20

Haywood Community College, located in Clyde, is the only higher education institution in Haywood County. The solar thermal component would heat water for the Creative Arts Building at a projected cost savings. Electricity from the solar panels would be sold to Progress Energy through year 20.

The power purchase agreement expires after that, yet the biggest benefit payout for the college is projected to occur in years 20-30.

“In any area where technology’s involved, it’s extremely imprudent to do a deal that plays out over a 30-year period” and the public body gets the lion’s share of its payback in the final years without a purchase contract, said Mark Prak. He is an attorney with the Brooks Pierce law firm in Raleigh and often represents media clients on cases involving open government. “That’s just absurd and, frankly, it’s irresponsible.”

Technology is rapidly changing, and the pricing system and economic conditions now underpinning renewable energy could swerve “very quickly to the detriment of a public body,” Prak said.

Shielding investors’ names from disclosure as trade secrets is “malarkey,” Prak said.

“The fact is that nobody on a public body ought to deal with somebody on that basis,” he said. “They have no idea whether there’s an inside deal going on. . . You have to have accountability and that requires transparency.”

Trustees divided

“These are some of the reasons why I voted the way I did,” said Haywood trustee Charles Boyd, who opposed the solar project. “You need more transparency and a little bit of burden of proof. It’s being the guardian of the taxpayers’ money.”

“I guess our president wants to be the leader in North Carolina” for solar energy, Boyd said. “I’m not in favor of building a resume for an architect or anybody else with taxpayers’ money.”

Trustee Robert Morris also opposed the solar project.

“I don’t see investing a million and a half [dollars] and getting my payback in 20 years,” Morris said. “Nobody in business does that. If we buy it from FLS or we buy the system back, yes, it’s going to cost. The taxpayers are paying for it” amid too many uncertainties.

“I think because the government is involved in it, it’s a convoluted thing,” Morris said. “There’s other ways to be green” on a smaller scale and with less expense.

“We did due diligence. I’m proud of the board for the hard work they did on it,” Morris said, and board opponents now must work to ensure the project succeeds.

Trustee Neal Ensley said he voted for the solar project because Innovative Design’s architectural proposal helped to meet state mandates to reduce electricity consumption by 30 percent.

“We probably could have gotten a whole lot of that 30 percent in savings through conventional means but could get a whole lot beyond that” with the solar thermal and solar photovoltaic equipment, he said.

FLS will buy about $260,000 worth of equipment the college otherwise would have to pay for to prepare the building for solar equipment, Ensley said.

“So part of their contract is they get to use our roof, they get to use our sun, but we have gained some equipment value and long-term they pay us a small amount of money,” he said.

If the college opts to buy the equipment at fair market and depreciated value after seven years, “we can then continue to take the sun’s energy and convert it to electricity and continue to sell it to the power company, which actually allows the college to recoup some of that money,” Ensley said.

He believes the college will come out ahead even if it is unable to find a buyer for its electricity after the 20-year power purchase agreement expires.

“We’ve never really looked at the 20- to 30-year time period to be honest,” he said.

He believes the use of anonymous investors is “an issue between FLS and their investors. I can’t tell you how their investors will be. I do know this, that none of this would work if our government wasn’t subsidizing solar energy.”

Secret investment strategies

But Connie Book, associate provost for academic affairs at Elon University and former director of The Sunshine Center for the North Carolina Open Government Coalition, believes secret investment strategies in the public arena are bad business.

“This is a problem,” Book said of not being able to get information from private businesses in public partnerships. “We’ve been lobbying to try to get the law changed to have an ombudsman” in the Attorney General’s Office to mediate such open government matters.

“To me, it’s just inherent to how we spend public dollars … to know who I’m doing business with,” Book said.

The public becomes alarmed “as people watch the federal government incent companies” in deals shrouded in secrecy, yet voters cannot decide how or whether to proceed with tax money or public property use, Book said.

In North Carolina there are “definitely some raised eyebrows” over government board actions “to favor one business or type of product, or one type of industry over another,” Book said.

“People are watching this issue and we’ve seen it rise since 2009” with the advent of federal stimulus money being filtered down to the state level for disbursement, she said. “It makes one highly concerned about the state of open government in North Carolina.”

Who the investors are in a solar project “rarely if ever comes up in our discussions,” said James McLawhorn, director of public staff electric division at the North Carolina Utilities Commission.

“I’m not trying to minimize the concern about it, but in terms of what we’re charged with doing it’s not something that really falls into something we’re required to look at,” McLawhorn said, especially for projects smaller than 2 megawatts of production.

“It’s not unusual to finance a project this way” for small projects, such as those at schools, community colleges, on government buildings or military installations, McLawhorn said.

Developers of projects 2 megawatts and larger “do have to provide information on ownership, balance sheets . . .and income arrangements” as part of a certification process, he said.

But the same Senate Bill 3 — North Carolina’s guiding legislation for renewable energy —requires financial disclosure on large projects yet exempts smaller projects from the same transparency.

“A lot of these developers are small, and these aren’t big projects and there’s not a huge financial risk overall,” McLawhorn said of the reason for the 2-megawatt disclosure trigger. Requiring burdensome financial disclosure paperwork would hamper small companies in competing or making a profit, he said.

It is unlikely the Utilities Commission would consider requiring greater financial disclosure for small projects in the future.

“They don’t want to undo what apparently was the will of the legislature,” McLawhorn said

Dan Way is a contributor to Carolina Journal.

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