What constitutes a “proven technology” with “predictable income” to the Biden administration? Apparently, it isn’t the oil and gas industry that has been powering the world, raising standards of living, and making entire nations wealthy for well over a century. On the other hand, the first-ever North American ocean wind turbine installation – unpopular with people who will have to look at it and part of a flailing, not-ready-for-primetime industry – is a sure thing to the Department of the Interior.
Per a recent report, on June 15, 2021, Interior’s Bureau of Ocean Energy Management (BOEM) waived the customary financial assurance for decommissioning on the lease of the Vineyard Wind project off the coast of Massachusetts. Decommissioning fees are typically required for every energy lease Interior grants so that if a project fails and the lessee goes bankrupt, taxpayers aren’t stuck with cleanup costs. Vineyard first asked for a deferment in 2017 and was denied by the Trump administration, but the Biden BOEM informed Vineyard the fee was deferred for 15 years into its 20-year lease. Why?
Well, the financial assurance fees were “unnecessarily burdensome for lessees because, at that point, they have not begun receiving project income.” Besides, Vineyard used “proven wind turbine technology,” and “guaranteed electricity sales prices that, coupled with the consistent supply of wind energy, ensure a predictable income over the life of the Project.”
But a June 2023 Barrons report said of wind energy, “Financially, the industry is teetering, with a parade of companies planning to renegotiate or pull out of contracts, jeopardizing plans for projects that were expected to provide electricity for millions of homes.” What’s more, “At least eight multinational companies in three states have quietly started to back out of wind contracts, or ask to renegotiate deals in ways that will pass more costs to consumers.”
That includes Ørsted, the world’s largest offshore wind developer, which recently pulled out of two wind projects off the New Jersey coast. Its stock price was down some 50% in 2023, and the company had “$4 billion in write-downs,” according to Barrons.
As for that “proven technology,” Siemens Energy shares fell almost 40% in one day in June 2023 because of serious turbine failures – failures that “might be a symptom of a wider issue for the industry,” according to CNBC.
BOEM, it seems, was overoptimistic about Vineyard Wind. Or they just wanted to give a plucky young upstart a hand. Or they were recklessly pursuing an environmental agenda, whatever the consequences for taxpayers. The evidence points to that last option. One need only look at how BOEM has wielded federal bonding against traditional oil and gas developers.
On June 29, 2023, BOEM published a proposal to amend bonding requirements. As the Daily Caller has explained, “The old bonding rules established supplemental bonding prices for lessees based on the net worth of that lessee, among other factors … the June 2023 proposal from BOEM would shift that calculus away from net worth and instead focus on the lessee’s credit rating.”
That shift would impact the 76% of the oil and gas developers working in the Gulf of Mexico that don’t happen to be publicly traded oil giants. Politico’s E&E News says it “would also protect some of the biggest drillers in the country from cleaning up abandoned wells when smaller firms go bust.” In many cases, the Chevrons and Shells did the initial drilling and then sold their lease rights to smaller companies. Under the proposal, these small companies would incur $9 billion in insurance costs that even the surety industry itself claims would not be financially viable. BOEM wants to finalize the new rules by April.
According to agency documents FGI obtained through the Freedom of Information Act, one of the reasons the BOEM proposal falls so heavily on small independent companies is because Big Oil had a seat at the table when BOEM was dreaming it up. BOEM met with The American Petroleum Institute and major oil companies about changing the surety requirements mainly in 2021. That was the same year BOEM gave Vineyard its sweetheart deal. Meanwhile, as gas prices skyrocketed, President Biden demonized those same energy giants.
Perhaps in the hope the crocodile would eat the biggest bites last, the huge oil companies fed their smaller competitors to the Biden Administration and its appetite for shutting down domestic fossil fuel production where and when it can. The proposal would drive many companies out of the market of completely under. The administration wins. The president’s allies on the left win. Big Oil wins. And Vineyard Wind must be laughing all the way to the bank.
If hypocrisy were combustible, we’d be paying $1 per gallon at the pump.
Peter McGinnis is with the Functional Government Initiative.
