By STEPHEN POWER
WASHINGTON—President Obama’s top advisers recommended cutting off funding for a federal loan-guarantee program meant to spur the construction of wind and solar farms and other alternative energy projects, saying taxpayer dollars might be better spent elsewhere.
But the advisers, including Mr. Obama’s outgoing National Economic Council Director Lawrence Summers, energy policy czar Carol Browner and Ron Klain, chief of staff to Vice President Joe Biden, warned Mr. Obama that pulling money from the program would risk antagonizing powerful allies in Congress, and would “signal the failure of a Recovery Act program that has been featured prominently by the administration,” according to an Oct. 25 memorandum viewed by The Wall Street Journal.
The memo questions the logic behind subsidizing a big wind farm project in Oregon that Energy Secretary Steven Chu praised last month as “part of the administration’s commitment to doubling our renewable energy generation by 2012.” Mr. Chu said the federal government would provide, subject to conditions, a partial guarantee for a $1.3 billion loan for the project.
But Mr. Obama’s senior advisers wrote in their memo that the wind farm—sponsored by Caithness Energy LLC and General Electric Co.—”would likely move without the loan guarantee.”
“The economics are favorable for wind investment given tax credits” and state regulations that require electric companies to boost their use of renewable power, they wrote.
The memo adds that the project’s corporate backers “would provide little skin in the game (equity about 10%),” while the government would provide “a significant subsidy (65+%).”
The memorandum also questions the project’s environmental benefits, saying carbon dioxide emissions “would have to be valued at nearly $130 per ton for CO2 for the climate benefits to equal the subsidies (more than six times the primary estimate used by the government in evaluating rules).”
GE defended the project Wednesday. “This project, already under construction, is generating a significant number of jobs in an area of Oregon that has one of the highest unemployment rates in the state,” the company said in a written statement.
White House officials said Wednesday that the project was brought up in the memo only as way to illustrate that some renewable energy projects could move forward without a federal loan guarantee, and that the comments in the memo should not be viewed as signaling a final decision by the administration on the project. A spokeswoman for Dr. Chu didn’t respond to a request for comment.
The memorandum provides a rare glimpse of the administration’s internal debates over energy subsidies and Recovery Act spending.
White House officials said Wednesday that the administration has no intention of cutting off funding for the program, and that the options outlined in the document were simply meant to frame a discussion within the administration over the program’s future.
“We are taking steps to streamline the [loan guarantee] process while still protecting taxpayers who, ultimately, are the ones investing in these projects,” a White House spokesman said.
The loan guarantee program at issue allows the Energy Department to help finance certain renewable energy projects, electric transmission systems and bio-fuels projects that begin construction no later than September 30, 2011.
But Congress has slashed the loan guarantee program’s budget to pay for other priorities, such as last year’s “Cash for Clunkers” program to boost auto sales. The renewable energy loan guarantee program’s budget is now $2.5 billion, less than half the $6 billion Congress appropriated for it in early 2009.
The memo written by Mr. Obama’s senior advisers suggests the president “consider working with Congress to reprogram” the remaining $2.5 billion to pay for an extension of a separate federal program that allows renewable energy developers to convert the tax credits they get for such projects into cash grants.
The memo says the grant program “has been much more effective” and is “likely to have a more significant impact on renewable energy investment” than the loan guarantees. The grant program expires at the end of the year.
But the memo warns that “failing to make progress on renewables [sic] loan guarantees could upset the Hill (Sen. Bingaman, Speaker Pelosi)”—a reference to Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D., N.M.) and the outgoing House Speaker Nancy Pelosi (D., Calif.). Both have strongly championed the use of federal loan guarantees to boost alternative energy projects.
Mr. Bingaman “views [the program] as ‘his program,’ [and] would strongly oppose” taking money away from it, the memo says.
A spokesman for Mr. Bingaman said the senator would “not be happy” if the administration tried to take money out of the loan guarantee program, but added that Mr. Bingaman isn’t the only lawmaker who strongly supports the program.
“We’ve been frustrated and a little disappointed that the administration has used this program as an ATM machine,” the spokesman added.
A spokesman for Ms. Pelosi said the Speaker’s “longstanding support for this initiative is well known.” Read more here.