Did Cuomo Kill Fracking to Help SolarCity?

shale gas outrages - Tom Shepstone ReportsTom Shepstone
Shepstone Management Company, Inc.

 

The timing of Cuomo’s decision to kill fracking “at this time” in New York has many possible explanations, among them being to aid his pet SolarCity project.

Elon Musk may be the most successful con artist among today’s practitioners of cronyism at the expense of taxpayers. He’s brash guy with big ideas and successfully conveys the impression he’s on the cutting edge of everything, doing wonderful things that are changing the course of history. The fact he comes off as, perhaps, the raddest representative of everything that is politically correct, is a big part of his success. It makes him the perfect bandwagon for a guy like Andrew Cuomo to jump on; and Musk knows just how to play Cuomo. The chronology of Cuomo’s surprising fracking decision suggests Musk and friends played a role in that as well.

SolarCity’s manufacturing and service businesses aren’t so much about solar products as harvesting government subsidies. That’s the revenue that really counts – what it’s all about. It’s classic case of rent seeking. One only need to read SolarCity’s petulant explanation for recently leaving the UK to appreciate that fact (emphasis added):

A solar power company backed by the billionaire inventor Elon Musk has pulled out of the UK, blaming the government for not supporting the technology.

Zep Solar UK, which is owned by SolarCity where the Tesla boss is chairman, becomes the fourth UK solar business to close in a fortnight. SolarCity laid the blame squarely on cuts to solar subsidies announced by the Department of Energy and Climate Change in the summer.

A company spokesman said: “We had been exploring opportunities in the UK but based on the Decc decision we’re left to conclude that the UK government doesn’t support solar development. We’ve put expansion plans to the UK on hold indefinitely and will focus efforts elsewhere.”

Since when is it government’s obligation to make an industry profitable? Since renewables advocates convinced some policy makers and a good share of the public that promoting solar and wind without regard to taxpayer costs is right up there with national defense as a priority. It isn’t, of course, but when other more rational policy makers in the UK or elsewhere step in to note the emperor has no clothes, the rent-seekers wailed like two-year olds, quickly picking up their toys and leaving the room, choosing to target their efforts at more inviting suckers such as Andrew Cuomo.

Solar City Paul-Gallay-house-solar-panels-SolarCity_3085-600-450x291

SolarCity at work putting solar panels on Riverkeeper Paul Gallay’s house

Cuomo, like Bernie Madoff’s biggest clients, bought in early and invested deeply. Musk offered everything he wanted in a crony; a stylish appeal to Millennials and the trendy Manhattan types who Cuomo once thought might carry him on their shoulders into the White House (remember when?), a dependable source of campaign donations and someone who could turn the Buffalo Billion of taxpayer funds into the rescue of Upstate New York and make Andy a hero. A win-win-win for the Albany crime boss.

What wasn’t to like, after all? Nothing it seems, as Cuomo threw money at the solar industry like it was parade-worthy ticker tape, creating a market for Musk and his two cousins (Lyndon and Peter Rive) who together run SolarCity. He also went two-for-one by making the same type of largesse available to the Catskill Mountainkeeper as a fund-raising device to support NRDC gang fractivism. It was win-win on top of a win-win-win. Then he invested hundreds of millions of dollars into the SolarCity panel manufacturing facility and offered tax incentives to protect any money the firm made off taxpayers. It was a tri-fecta from Musk’s perspective, just as it was for Cuomo.

Tammany Hall types in government and industry are never satisfied, though, with just a little graft or even a lot of graft; they want every last bit of it and aim to crush the competition. Fracking is a threat to Musk’s ambitions. Here’s what he told Tesla admirers recently:

Put aside the fact the guy is a whole lot less inspiring in person than in print and focus on what he says; fracking competes with his electric cars and makes them harder to sell. That unrelenting fact also applies to his solar adventures, as this Motley Fool article explains;

Musk said the goal of the plant was to produce power cheaper than that of “coal or fracked gas.” Switching to renewable energy sources is in our benefit as a society, but it is still significantly costlier to install and use solar panels than to pay to use the power that comes from the grid. As the U.S. solar industry has grown over the past decade, even as much as 41% over 2013, according to a report by Green Tech Media research and the Solar Electric Industries Association, now may be the right time to break into the manufacturing side of things.

The success of SolarCity, Musk tells us, will be measured by its ability to compete with “fracked gas” (among other things). Therefore, anything that discourages fracking is, presumably, of huge importance to SolarCity’s success. Is it just a coincidence that Cuomo killed fracking “at this time” when that time was at a critical point in the chronology of Musk’s project? His objective is to already be in the manufacturing business, courtesy of New York taxpayers, when and if solar really takes off and that takeoff will be delayed a very long time if electricity from the grid remains cheaper due to fracking.

The following timelines for the period leading up to the infamous December, 2014 fracking decision buy Cuomo provide some clues about what may have happened:

The SolarCity timeline is more fully laid out here, but Louis Ciminelli, of course, is the favored high-donor developer selected by the Cuomo gang to build the SolarCity complex (the state’s unusual direct involvement in building facility allows such graft-like activity). He and the whole deal are part of Preet Brahara’s corruption investigation, which is hugely complicated by a plethora of political entanglements typical of New York. The timeline, though, suggests Ciminelli had a role in assembling the whole idea of a “clean energy hub” and envisioned something big involving the Silveo solar company later acquired by Solar City.

Was Solar City already interested in Silveo when Ciminelli went after the big fish by bringing Cuomo to town? The idea wasn’t announced until June, 2014 but it was obviously hatched as an idea long before that and it was long obvious Silveo needed a buyout to survive its uninterrupted record of unprofitability. This also explains why Silveo pursued a solar manufacturing deal with New York that it couldn’t begin to deliver on by itself. Musk and SolarCity almost certainly had to have been in the background for a very long time, which brings up the question of what motivated Robert F. Kennedy, Jr.’s role in the February, 2013 decision by Cuomo to do a health study as a delaying tactic with respect to fracking.

RFK, Jr. is widely credited, as Cuomo’s former brother-in-law and a NRDC Senior Attorney, with getting Cuomo to pursue the health study. He was already an investor in Musk’s Tesla company at that point through Vantage Point, a company in which he’s a venture partner. VantagePoint is a big investor in BrightSource Energy, the developer of the Ivanpah boondoggle which has sucked up billions in taxpayer subsidies and bailouts and still needs natural gas to produce any solar power. One of the other investors, in addition to Google, is Draper Fisher Jurvetson, which is also an investor in SolarCity. Tesla also provides services to SolarCity, in addition to sharing corporate leadership. Kennedy, therefore, has at least a passive interest in SolarCity through his investments in Tesla, if not more.

That interest is also reflected in the unusual amount of positive attention his Riverkeeper organization has paid to SolarCity, giving the company it’s own “big fish” award:

SolarCity recently had the honor of receiving the “Big Fish” award from New York’s leading clean water advocate, Riverkeeper, for its transformative impact on the movement to protect our planet’s natural resources. As a solar energy provider, SolarCity is making it easy for people to become their own power generators – putting energy into the hands of every American. This pushes back against an energy system governed by the few and “democratizes the power system,” Riverkeeper’s Chief Prosecuting Attorney Robert F. Kennedy Jr. said at the Fishermen’s Ball.

The idea this sleazy champion of cronyism, who has zero credibility outside the environmental movement, wants us to believe he’s really a champion of democratizing the power system would be laughable if it weren’t so nauseating, of course, but let’s keep our eye on the ball, which is his relationship with SolarCity. It involves a pecuniary interest on the part of his Riverkeeper front. Yes, Riverkeeper has a financial relationship with SolarCity, as this article makes clear.

Any guest that makes the switch to SolarCity receives one month of free solar and Riverkeeper will get $250.

And, then there is this agenda from the Cold Springs, New YorkHistoric District Review Board indicating Riverkeeper President Paul Gallay helped himself to the rewards.

Kennedy’s Riverkeeper organization also includes NRDC founder John Adams, father of Catskill Mountainkeeper Ramsay Adams. Kennedy, too, served on the Catskill Mountainkeeper board and readers will note the Riverkeeper has popped up a lot on this site recently, most recently with respect to the new New York State Department of Environmental Conservation (DEC) Commissioner Basil Seggos, who comes from the Riverkeeper organization and has big-time NRDC connections.

Beggos replaced Joe Martens, who came directly from the NRDC gang, of course. Beggos joined the Cuomo administration in February, 2013, about the same time the SolarCity/Buffalo Billion program started to unfold. He succeeded Richard Kauffman, the guy behind the NY Green Bank who also helped fashion New York solar initiative that has doled out dollars to fractivist groups such as Catskill Mountainkeeper, uneconomical energy projects and corporate welfare. Kauffman replaced Robert Hallman, who resigned abruptly as the Cuomo administration changed direction on fracking; as it began to court what became the SolarCity deal and initiated a delay game by simply ending meetings of its hydraulic fracturing advisory committee and going the health study route.

It’s quite the web, isn’t it? A New York Times article of October 25th regarding Cuomo’s bet on SolarCity provides some further perspective. Here are some key excerpts (emphasis added):

In doing so, he has not just bet big on solar energy, a competitive and rapidly growing business, but also on the success of SolarCity, a fast-growing California company that will operate out of the factory that the New York State will own…

If the demand for solar power grows, and the companies the state has attracted are able to capitalize on that, then it could be well positioned to profit…

Though SolarCity boasts a market capitalization of $3.8 billion and says it has roughly 14,000 employees, it has not turned an annual profit since going public in 2012. Also, the company has increasingly become a target of Wall Street short-sellers, traders who make money when a company’s stock falls in value. James S. Chanos is perhaps the best known short-seller to have targeted the stock, announcing in August that his firm had concerns about SolarCity’s business model.

Among the issues raised by investors is a federal tax credit for solar that has benefited SolarCity; the tax credit is scheduled to decrease to 10 percent from 30 percent for commercial customers in 2017 and be eliminated for homeowners

Beyond the business risk, there is also the specter of a federal inquiry associated with the project. In late June, federal prosecutors sent out several subpoenas for documents on how the facility’s construction contracts were awarded. One avenue of investigation, according to people briefed on the matter but not authorized to speak on the record, is whether a request for proposals was written in a way that would have favored a construction company whose chief executive had donated tens of thousands of dollars to the governor…

New York did not set out to bet big on solar panels or SolarCity…

In June 2014, SolarCity announced it was buying Silevo. Despite the lucrative tax credit attached to the deal, Mr. Rive [SolarCity executive], who is Mr. Musk’s cousin, said in an interview that the deal Silevo had in place with New York did not play a role in his decision to buy the company. “The primary economic value of the company was all on the technology,” he said.

By the time the sale to SolarCity was announced, Mr. Musk had emerged as a player in Albany. In March 2014, Tesla struck a deal with Mr. Cuomo and the state’s car dealers that allowed it to keep its five existing company-owned stores. It was a victory for Tesla, and a prelude to the much larger SolarCity sale that followed.

Then, three months after SolarCity bought Silevo, Mr. Cuomo said the state was expanding its initial $225 million investment in the Buffalo project to $750 million…

Mr. Zemsky, the chief executive of the development corporation, said the size of the investment grew dramatically because SolarCity was such a dominant player. “That increased the stability of the bet on solar by a lot and increased the size,” he said.

Solar stocks have fallen sharply recently, hurt in part by low gas prices

…a research report noted that the company was the industry’s “pre-eminent residential leasing company” with a “highly creditworthy customer base.”

Profitability has generally not followed, and 27.1 million shares of SolarCity, roughly 45 percent of its total shares available to the public, are held by short-sellers, according to the Nasdaq.

SolarCity customers tend to lease their systems, and pay the company a monthly fee. Mr. Chanos, the trader who has made a financial bet that the stock will fall, says it is a problematic business strategy.

“You basically lease the panels from SolarCity, they put them on your house and they collect the lease payments,” he said in an interview with CNBC.

“So in effect, if you put on the panels, you have a second mortgage on your home because you hope it is an asset, but in many cases it turns into a liability,” he added, because prices in the relatively new sector would drop…

Because SolarCity owns the panels, it benefits from a generous 30 percent federal-investment tax credit for solar power, which will be significantly reduced or go away altogether in 2017. Mr. Rive acknowledged that if the tax credit were not extended, there could be “massive, massive devastation that occurs in the industry.” However, he said, SolarCity was preparing for the tax credit’s elimination, and the company now had the lowest cost structure in the country. As a result, he said it would “thrive” regardless of what happened.

An astute reader of this blog took note of the timing of all these activities, the fact SolarCity depends on growing solar demand propped up by potentially declining tax credits and threatened by low natural gas prices and drew these conclusions:

Setting aside the federal investigation re Solar City construction contracts, I see a parallel set of abuses aimed at creating a stronger set of market conditions to make it less likely that Cuomo’s Solar City gamble would fail.  Cuomo saw himself in a position to shut down the largest natural gas basin in the U.S.   He wanted to be able to assure Solar City that he would eliminate or at least inflict severe damage on Solar City’s main competition—the natural gas industry.

Cuomo, with the cooperation of Commissioners Martens and Shah/Zucker, stalled then hijacked the SEQRA review for HVHF.  In 2012 DEC ceded its SEQRA authority to DOH by commissioning a “health study,” the intent of which was to:  1) Keep New York’s Marcellus gas from being developed; and 2) Create the false perception that shale gas cannot be developed safely anywhere.  During this period of stall Cuomo was provided with a lot of cover via high-profile anti-fracking activists and manufactured studies, all funded by anti-hydrocarbon, pro-solar organizations—as NaturalGasNow has exhaustively documented.  RFK Jr. appeared to have a key role.

By 2014, Marcellus/Utica production in PA/WV/OH had ramped up considerably, keeping gas commodity prices low, weakening the viability of Solar City/Buffalo.  Cuomo needed his DEC and DOH commissioners to declare that shale gas development could not be done safely in New York or anywhere else.  In June 2014 Commissioner Shah abruptly resigned—not willing to cross the line by fabricating a bogus “health study”?  Zucker apparently had no such qualms, and in December 2014 Cuomo/Martens/Zucker banned HVHF in New York, justifying this unprecedented action by insisting the technology was inherently unsafe.  At the time, I was struck by their recklessness—all three men seemed so goofy and transparently ridiculous.  The all-important “health review” turned out to be a glorified Google search.  DEC is now stalling gas pipeline development, so the abuses continue—same Solar City motivations.

This is a prescient analysis and the facts support it. Cuomo had his own political reasons for dithering on fracking and the NRDC gang that controls the agenda was trying to steer things toward a solution that wouldn’t threaten their own attempts to make a wilderness out of the Catskills. That’s where he was headed until Elon Musk and family came along, probably introduced by RFK, Jr.. That’s also when the dynamics shifted toward a total ban “at this time” to allow better hopes for the success of their big solar bet.

It’s a unique form of New York political corruption that has existed since the days of Boss Tweed. Preet Bharara isn’t the first guy to tackle it and won’t be the last. Still, one hopes he dampens it for a time. One of the things he ought to be looking at in that regard is the matrix of relationships between not just Cuomo and SolarCity, but also with RFK, Jr., his Riverkeeper/Waterkeeper organization (already on the periphery of the Bharara investigation) and the NRDC gang:

SolarCity

The central role of former Cuomo brother-in-law RFK, Jr. in all this is very apparent. He is the thread that unites Cuomo with the NRDC gang (essentially a Rockefeller family enterprise) and the Riverkeeper (proponents of SolarCity and part of his Waterkeeper group). He is also a Musk investor. Put that together with the fact two Riverkeeper/Waterkeeper associates have already been targeted by Preet Bharara for information gathering purposes and you a full picture one hopes the prosecutor sees. Fracking may well have been killed, not only to satisfy the NRDC gang, which would have been happy to just keep it away from them, but to ensure Cuomo’s SolarCity bet and Elon Musk’s con worked as planned.

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4 thoughts on “Did Cuomo Kill Fracking to Help SolarCity?

  1. Tom – this is an absolutely brilliant expose, including the insight from another blog reader. incredible detail.

    solar panels will only unreliably offset your electric bill in this climate- not heat your home or water. long payback period, huge taxpayer subsidies. wanna put ’em up? fine.

    the literally industrial scale manipulation of this process for the financial gain of a handful of oligarchs is stunning. and they are gambling with our money as usual.

    let the little people and their natural gas be damned.

  2. Pingback: SolarCity: It's Worse Than We Thought

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