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Lights go dim on another energy project

Geothermal losses pile up

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Secretary of Energy Steven Chu (right) and Sen. Harry Reid, Nevada Democrat, announce construction of a hybrid geothermal/solar power plant in Nevada last summer. (Associated Press)

A geothermal energy company with a $98.5 million loan guarantee from the Obama administration for an alternative energy project in Nevada — which received hearty endorsements from Energy Secretary Steven Chu and Senate Majority Leader Harry Reid — faces financial problems, and the company’s auditors have questioned whether it can stay in business.

Much like Solyndra LLC, a California solar-panel manufacturer with a $535 million federal loan guarantee that went bankrupt, Nevada Geothermal Power (NGP) has incurred $98 million in net losses over the past several years, has substantial debts and does not generate enough cash from its current operations after debt-service costs, an internal audit said.

“The company’s ability to continue as a going concern is dependent on its available cash and its ability to continue to raise funds to support corporate operations and the development of other properties,” NGP auditors said in a financial statement for the period ending March 31.

“Consequently, material uncertainties exist which cast significant doubt upon the company’s ability to continue as a going concern,” the statement said.

Mr. Reid, a Nevada Democrat who led passage of the $814 billion stimulus bill and worked to include the loan guarantee program to help finance clean-energy projects, predicted in 2010 that NGP would “put Nevadans to work” and declared that Nevada was the “Saudi Arabia of geothermal energy.”

Mr. Chu celebrated NGP’s potential in his June 2010 announcement of the loan guarantee, saying the federal government’s support of the company demonstrated its commitment to geothermal power to achieve the nation’s clean-energy goals.

But Rep. Jim Jordan, Ohio Republican and chairman of the House Oversight and Government Reform subcommittee on regulatory affairs, stimulus oversight and government spending, is concerned about NGP’s finances and the timing of the loan guarantee.

“The company was in danger of defaulting on its financial obligation, and the [Department of Energy’s] assistance served as a de facto bailout,” Mr. Jordan said. “After receiving a taxpayer-backed $98.5 million loan guarantee, the company is still struggling.”

He said the loan guarantee “essentially served to prop up an already-faltering firm.”

In January, Rep. Darrell E. Issa, California Republican and chairman of the House Oversight and Government Reform Committee, told Mr. Chu that the NGP loan guarantee raised questions about why the Energy Department was investing significant taxpayer resources in a company with well-established financial problems.

‘Save the failing company’

At the time the Energy Department announced its conditional approval of the guarantee, Mr. Issa said NGP would have defaulted on a loan from TCW Asset Management Co., then its primary lender, “had DOE not swooped in to save the failing company with taxpayer money.”

A committee report said the loan did not finance any new construction and “did not help to create a single job.”

During a House hearing in May, Rep. Frank C. Guinta, New Hampshire Republican, asked why NGP needed a government loan in 2010 just a year after it had received financing to get its plant up and running. He said it didn’t sound like a loan but a bailout.

“I don’t see it’s a good practice for the Department of Energy to use taxpayer-subsidized loans to provide to an entity that already has an existing facility,” he said.

Mr. Jordan said the Energy Department handed out more than 20 loan guarantees to companies with an average credit rating of BB-, or “junk status,” meaning they were vulnerable to default if economic or business conditions changed. NPG was rated BB+, which is considered speculative or junk and a step below investment grade.

Mr. Jordan and Mr. Issa have questioned why taxpayer money was “put at such risk.”

Brian D. Fairbank, president and CEO of NGP, defended the company by saying its auditors were required to list all risks the firm faced because its stock is traded publicly. But, he said, NGP is making its payments on its federally backed loan.

“The loan is in good shape. The loan is fully supported,” he said, noting that the federally guaranteed loan went to an NGP subsidiary known as NGP Blue Mountain 1, for which he also serves as president and CEO.

The Energy Department guaranteed nearly $79 million, or 80 percent of the $98.5 million loan, financed in 2010 by John Hancock Financial Services. The loan is secured by assets from Blue Mountain 1 and gets paid from revenues generated by a 20-year power purchase agreement with NV Energy (formerly Nevada Power Co.).

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Chuck Neubauer

Chuck Neubauer

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