2009 Natural Gas Electric Generating Project - Glenn Schleede

I'd suggest viewing Iberdrola's California natural gas - wind generation project as a rational "tax play" for Iberdrola and a fairly clever way to get political backing for building a gas-fired plant.

By building "wind farms" in the US, Iberdrola is racking up huge amounts of tax breaks of two kinds:

a. Production tax credits from "wind farms" that are NOT covered by the new direct payments (authorized by the stimulus bill).

b. Five-year double declining balance accelerated depreciation (deductions from taxable income over 6 tax years (20% 1st year, 32% 2nd year, etc.) Depending on when facility is built, there is a 50% first year "bonus" deduction (total of 60% in 1st year, 16% in 2nd year, etc.).

For these tax benefits to have value, Iberdrola must have taxable income. Otherwise, the tax credits and depreciation deductions would be of no value. (That's why some "wind farm" developers hook up with other companies that DO have taxable income.)

Iberdrola bought Energy East's gas and electric distribution companies in New York and New England about a year ago. Those companies will throw off taxable income.

So will the new gas-fired plant in California -- and other income producing stuff that Iberdrola buys or builds.

Our clever political leaders have found a way to maximize the outflow of wealth (i.e., untaxed profits) from the US to other countries -- and they wonder why the US is in debt and short of jobs.*

Incidentally, once the California "wind farm" and gas-fired plant are built, the gas-fired plant may actually "back down" reduce its electrical output (and fuel use) when the "wind farm" is producing electricity.

As many have observed, gas-fired turbine-generator plants often serve in a "back-up" or "balancing" role for "wind farms" because they can be started up or ramped up and down quite quickly to keep an electricity grid in balance. (Hydro also works well in the balancing role.)

Please don't interpret these comments as saying that building "wind farms" is in the US national and public interest. No, in this case it is in the interest of Iberdrola and its shareholders.

Glenn Schleede

*This FACT didn't slow down NY political leaders (Governor, Sen. Schumer) from their push on the NY PSC to approve the sale of Energy East's distribution companies to Iberdrola.