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July 4, 2009 - Ray Hall (Archive)
Maybe it’s just me, but the economics of the planned Jamestown Power Plant seems iffy to me. A half billion dollars ($500,000,000) is an enormous investment to generate 9% of the electricity we use in our service area. While we can be reasonably certain a sizeable chunk of that half billion will come from the Federal Government it remains money collected from taxpayers. Although I do not look unfavorably on accepting money from the Federal Government, I always expect and hope that it will be used for a purpose that will generate measurable results.
Right now, it remains difficult for me to see any measureable results from spending a half billion dollars, regardless of whence it comes, on a power plant for Jamestown. The argument advanced that it will put Jamestown on the map; that we will be the first or one of the first in the country, maybe the world, to have a thoroughly modern and environmentally friendly power plant is probably true. But that is not a result that can be measured. It sounds so amateurish; bragging rights—where the best we might do is win a trophy.
Spending a half billion dollars in Jamestown will have a short term financial impact, but how much of that money will actually stay in Jamestown? The bulk of it will be spent on outside companies, contractors and engineers. Will that Oxy Coal plant attract a company in search of cheap electricity--a company that by nature consumes unusually high quantities of electricity; a manufacturer using plastic extrusion? No, if cheap electricity were the criteria for attracting manufacturers we would have companies standing in line to come to Jamestown.
Praix-Air is a fine company that has been mentioned prominently in this project, but does Praix –Air plan to locate a company here with 200 or more employees? I hope they would, because it would take a company paying a living wage of $15.00 an hour ($30,000 annually) to produce an annual payroll of $9,000,000. Assume that $9 million works its way through our community three times, those jobs have a measurable result worth $27,000,00.
In another instance, will the planned power plant attract industry because it is environmentally friendly and Jamestown will be a place where residents can breathe clean air? That might be an attraction, but we can do that for much less money and fuss. All we must do is stop producing electricity, or use the natural gas turbine to generate the 9% of power that we consume. That would be cheaper than spending a half billion dollars and natural gas is a clean fuel.
Phantom Gains is a term I have heard used by accounting firms to describe a gain in an investment that is offset by a loss in that same investment. Typically, a phantom gain occurs as a result of tax consequences. Assume a person purchases a vacant lot and rents it for $1,000 to the next door neighbor. Next, assume the lot owner is forced to sell the lot in that year for a loss of $750.00. The lot owner appears to have made a $250.00 profit; however that can be a phantom gain. Assume the lot owner is in a 28% state and federal tax bracket, or pays $280.00 in taxes on the $1000.00. In reality, his actual loss is $30.00.
Until I am persuaded otherwise the only results I can see from spending a half billion dollars ($500,000,000) on a local power plant are phantom gains and results than cannot be measured or quantified.
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