News and Features: Features
Look who's talking
The man behind Cape Wind and the project's biggest opponent have been negotiating privately for more than a decade
April 09, 2013
AFTER SPENDING 12 YEARS
and $65 million trying to bring wind turbines to Nantucket Sound, Jim Gordon thinks the end of his struggle is in sight. “This is the year,” he says in February at a Boston conference attended by about 150 offshore wind industry officials from around the world. Gordon is cautious by nature, careful not to get ahead of himself in a struggle that has assumed Sisyphean proportions. But in front of a crowd that is counting on Cape Wind to become the nation’s first offshore wind farm, he offers reassuring words. The nation’s only commercial offshore wind lease is safely in his back pocket, along with all of the state and federal permits he needs. President Obama and Gov. Deval Patrick are firmly on his side. And Gordon says he is making progress in arranging construction financing for the project with the Bank of Tokyo and the federal Department of Energy.
All that remains is a handful of lawsuits in Washington challenging federal government approvals of the wind farm. Gordon tells the audience the lawsuits don’t have any merit, but it’s clear he’s also worried about the “coal billionaire” behind the litigation and the potential for delay. He doesn’t mention the billionaire’s name, but everyone in the room knows he is talking about Bill Koch, the flamboyant Florida businessman who opposes Cape Wind because he doesn’t want to look at it from his Osterville summer home. Koch has plowed more than $5 million into a group opposing Cape Wind, pursuing a strategy of “delay, delay, delay” in an effort to bleed Gordon financially until he gives up and walks away.
Cape Wind has become a symbol in the national debate over climate change, but the project itself has become a test of wills between Gordon and Koch, two 1 percenters with radically different views of the country’s energy future. Most news coverage of their long-running feud focuses on the actions of their surrogate lawyers, advocacy groups, and public relations people. What few people realize is that the 59-year-old Gordon and the 72-year-old Koch are on a first-name basis. In lengthy, separate interviews, they reveal that they have known each other since the 1990s, and been arguing about Cape Wind in private chats on the phone and in person for more than a decade. Koch, interviewed by phone, calls Gordon “a very good entrepreneur and a brilliant marketer.” Gordon, interviewed in person at his Boston office, calls Koch “a very amiable guy, an interesting guy.” Gordon courts Koch relentlessly, trying to win him over with logic, facts, money, and even veiled threats. Nothing has worked. Like the stalled national debate over climate change, the Gordon-Koch talks are going nowhere. Yet the two men keep talking.
Fittingly, Koch and Gordon first met in the mid-1990s on the ocean. Koch, the winner of the America’s Cup in 1992, recruited the first all-women team to compete for the Cup in 1995. As the team was preparing, Koch learned that Gordon was selling an interest in two natural gas-fired power plants he built in the 1980s. Koch was interested in investing. To get to know Gordon better, he invited him to Newport, Rhode Island, to watch the sailing team practice. Gordon smiles, remembering the day. He says he spent an afternoon on board a sailboat with Koch and a handful of other guests and attended a party later that night at a home Koch was renting. Some of the other party guests included Dennis Conner, known as Mr. America’s Cup for his four victories, and many members of the sailing team, including Shelley Beattie, who was known as Siren on the TV show American Gladiators. “I didn’t grow up in that milieu of Newport, so it was an interesting way to spend an afternoon,” Gordon says. “I felt like I was kind of watching a movie.”
Gordon ended up selling a stake in his power plants to GE Capital, so he and Koch didn’t talk again until 2002, when Gordon, trying to build support for Cape Wind, reached out to his fellow energy entrepreneur. At the time, Gordon says he knew little about Koch other than that he ran an energy business, liked to sail, and had a place on Cape Cod. On the phone, Gordon says he gave Koch an overview of Cape Wind; Koch responded by inviting Gordon to have dinner with him on the Cape so they could discuss the wind farm further.
Gordon remembers driving down to Osterville and pulling up to the checkpoint for the private Oyster Harbors Club, a very exclusive enclave that is home to assorted Mellons and DuPonts. It seemed promising that a ceremonial windmill sat next to the guard shack.
Gordon is a wealthy man, with more than $150 million in personal investments and a $4 million townhouse on Beacon Hill located a block away from Secretary of State John Kerry’s home in Louisburg Square. But Gordon is not in the same league financially as Koch, who is worth $4 billion and ranked No. 320 on the Forbes list of the wealthiest people on the planet. (Koch’s more conservative brothers, Charles and Davis, are tied for sixth at $34 billion each.) Koch runs Oxbow Corp., an energy company that mines and markets coal, petroleum coke (a byproduct of oil refining), steel, and natural gas with more than $4 billion in sales and 1,100 employees. Koch is an avid collector of fine wines, fine art, nautical gear, and western memorabilia. He owns a home in Palm Beach and is building a complete western town on land he owns near Aspen, Colorado, where he plans to play host to his wife’s extended family, his six children (four of whom are 16 or under), and various customers and suppliers. His sprawling Cape Cod land holdings, including his long-time summer place called Homeport, carry an assessed value of nearly $33 million.
Koch showed Gordon around the grounds of his waterfront property, pointing with pride to the Fernando Botero statues dotting the lawn and taking him down to the massive wine cellar modeled after the captain’s quarters of the USS Constitution. Gordon remembers the wine collection was so extensive that Koch used a scanner to track what they were drinking that night. Koch also remembers the night. “We had a nice dinner and a nice conversation, some nice bottles of wine,” he says.
Afterwards, they retired to a sitting room to talk about Cape Wind. Gordon says he went through his usual presentation, including a visual rendering of what the turbines would look like from shore. “I said, ‘Bill, we think this is a good project. It’s on a very shallow shoal. It’s away from the shipping lanes and the ferry lanes. Here’s what it will look like.’ I remember when I showed him the visual simulation, he said to me—I’ll never forget—‘Jim, I’m going to do my own visual simulation and if I don’t like the way these things look, I’m going to fight you tooth and nail.’” Gordon says he left that night feeling uneasy. “I sensed that this guy was going to be a problem,” he says.
Koch remembers the night a bit differently. “He went through his spiel, his salesmanship on how Cape Wind is so environmentally friendly, global warming, and all that stuff. And I was blunt with him. I said, ‘Hey, Jim, I’ve looked at the alternative energy business. I’ve used all those BS arguments myself. I know what’s really going on here.’” Koch says he felt the project wouldn’t work financially unless Gordon landed a big government subsidy or some “fat” power contracts. He also says he told Gordon that the wind farms would be “visual pollution” for him. Koch claims Gordon offered to bring him in as an investor on the project, a contention Gordon denies. Wall Street Journal entitled “Tilting at windmills.” The article made several assumptions about the type of power contracts and subsidies Cape Wind would need to succeed and concluded the project was a “giant boondoggle for the benefit of one developer.” Gordon responded with his own article, accusing “coal magnate William Koch” of misleading the public. The battle lines were drawn, yet Gordon kept calling and Koch kept picking up the phone.
Both men say the night ended with Koch still undecided on Cape Wind. Gordon says he and Koch talked several times by phone over the next few years, but had no breakthroughs. In 2005, Koch’s position began to harden. He became cochairman of the Alliance to Protect Nantucket Sound, the group leading the fight against Cape Wind, and the following year he wrote an op-ed piece for the
On one phone call, Koch says Gordon offered to reimburse him all the money he was spending to oppose Cape Wind if Koch switched sides. Gordon declines comment on that conversation. “I’m not going to comment on any confidential negotiations I’ve had or discussions I’ve had with him about settlement,” he says.
Gordon says he occasionally would visit Koch in Florida when he was visiting his mother, who lives there during the winter. At one meeting at Koch’s yacht club in West Palm Beach, Gordon says, he made the case that Cape Wind would reduce the wholesale clearing price of electricity in New England and cut the bills of the region’s power customers. Koch wasn’t interested. “I told him I was buying more property on the Cape for a family compound and the windmills would interfere with the aesthetics,” he says. “In addition to that, they cost too much. They’d up my power bill.”
The image of Koch complaining about an increase in his power bill is amusing. His property tax bill alone in Barnstable is nearly $342,000 a year.
|"I sensed that this guy was going to be a problem," Jim Gordon says. |
Photograph by J. Cappuccio.
The most recent call between the two men came late last year. Koch says Gordon called to warn him that environmentalists were going to start harassing him for his opposition to Cape Wind and the only way to avoid the pounding was to come out in support of the project. Gordon says his call was more of a heads-up than a warning. “I told him that environmentalists are furious with him and they are,” he says. Either way, Koch, who in the past has waged epic battles against his brothers, the state of Massachusetts, the Turkish mafia, and fraudulent wine dealers, isn’t backing down. “The environmentalists are already after me,” he says. “So bring it on, baby.”GORDON VS. KOCH
Jim Gordon, who grew up in Newton and worked at his father’s corner grocery stores during his adolescence, graduated from Boston University in 1974 with a major in broadcasting and the goal of becoming a movie director. Yet he quickly discovered he had a knack for business and a talent for sensing the next big thing in the energy business. While waiting in a gas line in 1975, Gordon says he hit on the idea of starting a company that would help people reduce their energy usage and lessen the nation’s dependence on Mideast oil. The company, Energy Management Inc., started by selling energy-saving devices and, over time, began retrofitting buildings to cut their energy consumption. By the late 1980s and 1990s, Gordon was building power plants that ran on wood chips and natural gas. The plants produced electricity in a more environmentally friendly way than existing coal and oil plants. In fact, Gordon boasts that three of his natural gas-fired plants killed off three proposed coal plants. Gordon eventually sold off all of his power plants by 1999 and made a killing.
As Gordon looked around for the next big thing, he saw an article in the Boston Globe about someone who was proposing wind and fish farms off Cape Cod. The wind farm idea intrigued him since it offered the possibility of producing electricity in Massachusetts that emitted no greenhouse gases, consumed no water, discharged zero waste, diversified the region’s energy mix, and had the potential to create local jobs.
Led by Sen. Edward M. Kennedy, Cape Cod elites reacted in horror. They gave all sorts of reasons for their opposition, but it always seemed to boil down to something unsaid: they were in favor of wind power as long as the turbines weren’t within sight of their oceanfront compounds. Koch has the courage to admit he doesn’t want to look at the turbines. But he also knew a NIMBY argument would never derail Cape Wind, so he began analyzing the project from an economic perspective. He says his analysis was informed by his own past experience trying to sell green energy to customers of Southern California Edison at a premium of 2 cents per kilowatt hour.
“Over 15 years, guess how much green energy I sold?” Koch asks. “Zero. No one would pay. What that said to me was that California wanted green energy, but homeowners didn’t want to pay for it. When it comes to dollars and cents, people want the cheapest energy possible.”
The power from Cape Wind, if it ever gets built, won’t be cheap. The utility National Grid, prodded by legislation pushed by Gov. Patrick, signed a deal to purchase 50 percent of Cape Wind’s output at an initial price of 18.7 cents per kilowatt hour, rising 3 percent a year. At the time, the price was nearly two times the going rate of electricity. In 2012, NStar, the state’s other major utility, was trying to win state approval for a merger with Northeast Utilities in Connecticut. Patrick used the leverage of the utility merger to force NStar to accept the same terms as National Grid for 27.5 percent of Cape Wind’s output.
Koch describes Cape Wind’s utility contracts as “fat—huge, huge, hugely fat.” The state Department of Public Utilities acknowledges NStar’s customers will pay $438 million to $513 million above market rates over the 15-year life of the utility’s contract, but concluded that these higher costs were more than offset by such environmental intangibles as the project’s size, its location close to energy users, and its advanced stage of development.
Interestingly, NStar in late 2011, just a few months before it agreed to buy Cape Wind power, negotiated renewable energy contracts with three onshore wind farms in Massachusetts, New Hampshire, and Maine. The combined power output of the three wind farms is slightly less than what Cape Wind is offering NStar, but the price is significantly lower—$111 million below market rates over the 10-year life of the contracts.
“If mankind was worried about CO2, rather than paying Jim Gordon $500 million a year and making him wealthy, why don’t you plant a helluva lot of trees because trees and bushes take CO2 and convert it into oxygen,” Koch says. “What Jim Gordon is feeding off of is perception, not reality. The perception is that windmills are good because the wind is free. That’s a very simple perception, but the reality is putting his windmills up is going to cost a hell of a lot of money that would take away from other purposes, such as feeding our families, getting good medical care, getting a good education, etc.”
But what about Cape Wind’s potential to slow the march of global warming? Where does the coal billionaire stand on what many consider the environmental issue of our time?
Koch pauses for awhile, and then launches into a long analysis that essentially acknowledges climate change is rapidly occurring but rejects offshore wind turbines as the answer. He says scientists who attempt to predict the pace of global warming cannot take into account all the potential variables, including the possibility that a comet could strike the earth or a volcano could erupt, both of which are potentially climate-changing events. He also talks at length about how the earth and its oceans are constantly adapting to changing environmental conditions.
“In fact, there’s a theory called Gaia, which means the earth is always self-adjusting. When something gets out of line, the earth adjusts back to it,” he says. “The whole point is we don’t know. All mankind can do is adapt.”
Adaptation is a central theme of the Gaia theory, developed in the 1970s by British scientist James Lovelock and the late University of Massachusetts Amherst microbiologist Lynn Margulis. The theory holds that living organisms interact with their surroundings on earth to form a self-regulating system that creates the conditions for life on the planet. Lovelock believes climate change is in full swing, brought on by the clearing of forests, carbon emissions, and overpopulation. He is dismissive of most green energy schemes, however, particularly wind power, as too little benefit too late. He favors massive development of nuclear power and a move to high ground to prepare for the rising tide.
“The real Earth does not need saving,” he writes in his 2009 book, The Vanishing Face of Gaia: A Final Warning. “It can, will, and always has saved itself, and it is now starting to do so by changing to a state much less favorable for us and other animals.”
| Bill Koch, one of the wealthiest men on the planet, is an avid collector of fine wines, |
fine art, nautical gear, and western memorabilia.
Photograph by Mark Randall/MCT/Landov
Gordon believes the Earth does need saving, and he thinks his wind farm can be part of the solution. He also makes no apology for building a project that will yield him a profit. “It’s important that people in this industry see that it’s not just coal and petroleum coke people that can make money, but renewable energy developers can also make money,” he says. “Because if we don’t, we’re not going to have innovation in this industry and we’re not going to have projects two, three, and four.”
Gordon bristles at any suggestion that it’s too late to combat climate change. “The choice of heading for higher ground is not one I’m willing to accept. I have three children. One is six, one is nine, and I have a 24-year-old. This is the greatest environmental threat,” he says. The wind entrepreneur also seems amazed that Koch and many of the other Cape Cod opponents of his project yet occupy waterfront properties that are likely to be among the first to feel the effects of climate change. “Cape Cod being a low-lying coastal community, it’s most susceptible to the impacts of climate change,” he says. “There’s a biblical irony here. For someone like Bill Koch to fight this project, it is a biblical irony.”COUNTING DOWN THE CLOCK
It’s coming down to crunch time for Cape Wind. Gordon must begin construction of his wind farm by the end of 2015 or face losing the contracts he has with National Grid and Northeast Utilities. The time frame seems doable. He has most everything he needs except a loan for the construction work. Lenders are probably skittish about the pending Washington court appeals related to the project, but if Obama’s Department of Energy approves a loan guarantee for the wind farm those concerns are likely to evaporate. “We feel we’re in a very good place,” Gordon says.
In fact, Gordon is telling Massachusetts electric ratepayers that it’s in their self-interest to see Cape Wind begin construction this year. His utility contracts mandate that the price he receives for his power will rise by 2 cents a kilowatt hour if the project is unable to obtain a federal investment tax credit. To qualify for the tax credit, Cape Wind must start construction before the credit expires at the end of this year.
Koch says he is pursuing two Cape Wind strategies. “One is to just delay, delay, delay, which we’re doing and hopefully we can win some of these bureaucrats over,” he says. “The other way is to elect politicians who understand how foolhardy alternative energy is.”
The court appeals in Washington are part of the delay strategy. They challenge Cape Wind approvals granted by the Interior Department, the Fish and Wildlife Service, the Federal Aviation Administration, and the US Coast Guard. The Alliance to Protect Nantucket Sound is footing the bill for all but one of the court challenges. The Alliance is also mobilizing opposition within Congress to giving Cape Wind a federal loan guarantee.
The Alliance hasn’t had much success in court, except in the US Court of Appeals for the District of Columbia, a conservative-leaning body that has been caught in a political tug-of-war between Obama and Republicans in Washington. The appeals court has only seven of its 11 justices, and a majority of them were appointed by past Republican presidents. Obama nominees to the court haven’t survived the Senate approval process. In 2011, the court ruled the FAA failed to adequately review whether Cape Wind would pose a danger to pilots flying by visual flight rules. It took another year before the FAA affirmed its earlier decision, a ruling that is again being challenged.
Charles McLaughlin, the assistant town counsel in Barnstable, which is suing the FAA over its decision, says Cape Wind’s opponents have an advantage over Gordon. “We only have to win one of these,” he says of the Washington court cases. “He has to win every one.”
On the political front, Koch pumped several million dollars into efforts to elect Cape Wind foe Mitt Romney as president, but he hasn’t made an effort to influence any races in Massachusetts even though Bay State Republicans generally don’t support the wind farm.
Koch seems just as amazed as Gordon that the Cape Wind fight has dragged on so long, but for different reasons. “Christ, this has been delayed for 10 years and any rational guy would have said there’s a time value of money and say, ‘Why am I doing this?’” says Koch. “He’s not that rich a guy to be able to fund it all himself or to even fund the portion of the equity that has to be put up by the investors.”
“He’s done a masterful job and he’s sold a great line of BS. I’ve really got to compliment him on that,” says Koch. “But I think he’s made the mistake of falling in love with this project. I don’t know how he’s ever going to get his money out.”
Koch says Gordon keeps calling him but he hasn’t been answering lately. He says he may write him a note at some point explaining his opposition, but he has no plans to give up the fight. “Why should I?” he asks.
Gordon, for his part, says he plans to keep reaching out to Koch. It’s what he did with the late Walter Cronkite and state Sen. Dan Wolf of Barnstable, men who were opposed to Cape Wind before he convinced them of the merits of the project. He says he still hopes Koch will come around.
“This isn’t a contest,” Gordon says. “It’s not, does Jim Gordon ultimately win or does Bill Koch ultimately win? The real winner is the environment, it’s preserving the environment of Cape Cod, enhancing our health, energy security, creating jobs, and a new industry for Massachusetts. That is what’s at stake. This is not a clash of egos. If Bill is leading me on, if that’s what he’s doing, I’ve got to go down that path. I’ve got to go down every path that I can to try to make this project move forward.”