Wind turbine electricity is something that deserves serious consideration, but Oregon schools should not be a participant in a high risk project.  Below is what makes the wind turbine project high risk based on data supplied by the school district:

•The cash flow statement shows $10 million lease payments including principal and interest over a 25-year period.

•If the cost of the two turbines is $5 million and total lease payments are over 25 years the interest rate is 15 percent.

•Cash out flow of $10 million over 25 years divided by the annual cost of electricity $422,255 gives a pay back of 23 years.

•Residents of the Oregon School District will be asked to approve a levy should the wind turbines not meet expectations.  Generally the voters approve capital projects of this magnitude.

•The general fund monies will be used to make lease payments should the production of electricity not meet its goal of 90-100 percent capacity.

•The SUREnergy $200,000 safety net to cover the short fall in the first year was used to prevent a negative cash flow.

•The cash flow projection shows that it could be profitable after seven years of operation or the district’s ability to sell electricity to Edison.

•The cash flow projection did not use the present value of money model.  A dollar today is worth more than a dollar 10 years from now.  Had this method been used a higher much higher risk would have been noted.

•A probability study would have been the preferred analysis.  This is an association of probabilities to the variables.  Only one scenario was presented.

•“Caveat emptor - Let the Buyer Beware.”  Cash flow analysis was prepared by the seller.  The school board did not do an independent study or seek competitive bids.

•The Port Authority approved $4 milllion in bonds for the project but the cash flow shows a cost of around $5 million plus.  How is the additional $1 million funded?

•Board attorneys stated that, while the cash flow projection provided by SUREnergy is reasonable and appears to err towards the conservative, in a long-term contract there are a number of inherent risks which cannot be predicted with certainty which is especially so when the contract is based on a volatile commodity, such as power.

•Over the long run there is a good chance there could be an abundance of energy with more and more wind turbines, solar panels, efficient use of equipment, and the possible coking plant in the area producing electricity.  The price of electricity could be dropping and not rising at 5 percent annually as was assumed.

It is not too late to protect your dollars from a decision that has no sound basis.

James Austermiller, CPA

Editor’s note. Mr. Austermiller is a former finance director of the City of Oregon

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