Feud erupts over Obama, China & Oregon wind farm

Editorial from Wall Street Journal
October 12, 2012

The President learns of a grave threat to national security: A shadowy overseas company is attempting to acquire a strategic domestic asset, perhaps to do us harm. He swings into action and hands down a classified edict blocking the sale.

That scenario did play out recently, and you may wonder what sensitive business the foreign investors had their eyes on. Perhaps a military contractor and state secrets? U.S. computer networks?

Er, no. It was a wind farm.

If this sounds like national security by way of Peter Sellers, try to explain President Obama’s executive order late last month shutting down a Chinese company’s green energy project in Oregon.

The government’s target is Delaware-based Ralls Corp., the domestic affiliate of China’s Sany Group. Unlike Dubai Ports World or the China National Offshore Oil Corporation (Cnooc), two state-owned companies that came under investment scrutiny in the Bush era, Sany is privately held by two Chinese nationals.

Earlier this year, Ralls purchased four U.S. limited liability companies that owned the rights to build inside an Oregon wind field. Basically the companies were shells for land easements, power purchase rights, government permits and the like. The development already has nearly 1,000 turbines in commercial operation. Ralls planned to add 20.

Enter the Committee on Foreign Investment in the United States, or Cfius. Since the 1970s this interagency panel led by Treasury has vetted foreign transactions to balance security and open capital markets. Cfius can inspect any global M&A deal, though more often companies apply for voluntary review, as Ralls did in June.

A month later and out of the blue Cfius retroactively rejected Ralls’s purchase of the companies, with no public comment. But Cfius has no formal enforcement powers, and it either works with applicants to mitigate risks or else delays until companies withdraw their bids. So Ralls sued Cfius. The decision then went to the top, and in late September Mr. Obama signed an unusual executive order that said the project “threatens to impair” national security. Ralls must divest.

The order cited “credible evidence” it never specified, but Treasury did provide a clue in a press release that said the project is “within or in the vicinity of restricted air space.” That’s the Navy’s Boardman bombing range and weapons training facility, including drones. The implication is that the Ralls windmills are cover for espionage.

But three of the four Ralls projects are between 1.4 and 6.7 miles outside of the airspace, and dozens of other turbines—many of them built by German and Danish companies—are already spinning inside its perimeters.

What’s more, the Defense Department had approved the location of the sole site within the airspace, finding no “adverse impacts on military operations, readiness and testing.” The Navy was working with Ralls to adjust the placement of the turbines to reduce potential conflicts with low-level aircraft and endorsed Ralls’s requests for state regulatory approval of the new sites before Cfius swooped in.

Cfius is a black box, so maybe there is evidence that Sany’s turbines would be bugged. Or something. But two federal highways run under the airspace, so if Sany was planning to spy, why wouldn’t a black ops team just pull off the side of the road in the middle of the mountains? And why ask Cfius to look in the first place?

Even more suspicious is the political background: New York Senator Chuck Schumer and others who fanned the 2006 Dubai Ports bonfire have been urging Treasury Secretary Tim Geithner to expand Cfius beyond national security. They want the committee to play middleman to extract Chinese trade concessions. In July Mr. Schumer wrote to Mr. Geithner urging him to “withhold approval” of a pending Cnooc transaction until China makes “tangible, enforceable commitments” to U.S. companies in China.

The larger danger is that Cfius is morphing into a protectionist weapon. A 2007 bill gave Cfius the power to scotch foreign control of “critical infrastructure,” an elastic term that Congress never bothered to define beyond “major energy assets.” Twenty windmills hardly qualify.

The Ralls-Sany case suggests that Cfius took Mr. Schumer’s advice and adopted a broad definition that could set a very bad precedent. All the more so because the only thing Ralls does is test the performance and reliability of Sany engines in a given environment. Sany can then point to this evidence to market its products to Pacific-Northwest wind-farm operators.

The green lobby is the subject of much build-it-here-at-home political chest-thumping, so perhaps its many friends in Washington pulled a favor to harm a foreign competitor. Another possible explanation is that the Administration wanted to make an example of Sany in an election year when China bashing is popular. In which case it sends a terrible message about foreign direct investment and overseas companies that want to “insource” jobs.

Cfius has a legitimate role in preventing security lapses and defending the national interest. But on the available evidence this Obama Administration ambush subverted it.

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