Petroloons
A few weeks back in Evil v Clueless, I attempted to clarify populist, rhetorical BS that crops up in times of rising gasoline prices. True to form, a couple really stupid death-spiral proposals have surfaced: ending “tax breaks” for oil companies and reigning in speculators.
Bashing big oil has surfaced this gem again: we need to end tax breaks/subsidies for big oil. The angry mob of medieval grunts raise their clubs and swords to the air and roar approval.
The “tax breaks” they are talking about are the same ones every company in the US uses and rightly so: depreciation of assets. Oil companies buy access or mineral rights to extract oil and natural gas. It’s obviously a cost of doing business that can, and rightfully is deducted from earnings for tax purposes. Removing this deduction from tax filings essentially turns the 35% corporate income tax into a de facto 35% sales tax, and who pays for sales taxes, and all taxes for that matter? Consumers.
For example, assume the mineral rights for a parcel of drilling costs $1 million and the profit after all expenses is 5% or $50,000. If the oil company can’t get their “subsidy”, they have a new $350,000 tax bill on top of the $17,500 they would otherwise owe on their net income. Not only would the cost flow directly to consumers, there would also be a squeeze on earnings and supply would drop compounding the problem. But of course political hacks love to make policy that attacks the providers of necessities of life – utilities, oil companies and refineries, insurance, pharmaceuticals, and banks. It raises prices and as a result, companies are bashed again by the same dupes who are actually responsible.
The second one is less obvious but still a doozer. Bernie Sanders, Vermont’s self-proclaimed socialist senator wants to make it more difficult for the evil speculator to participate in the market. This brilliant policy would raise the capital investment requirements for hedging with commodities futures. Presently, the capital requirement is something like 10%. In other words, you can buy a futures contract for a $100 barrel of oil for December delivery for $10. The rest is due when you take delivery. Speculators don’t take delivery. They sell the rights to a company that will. Sanders, I believe wants to raise the capital requirement to something in the 50% range so the former online professional poker player can’t have a substantial position in the futures markets; but neither can bona fides.
Consider Southwest Airlines would like to lock in 5 million gallons of $3.00 jet fuel for October delivery to hedge against volatility. Their capital requirement to do so would rise to $7.5 million from $1.5 million. Because capital is scarce, the result is LESS hedging and MORE volatility. Once again the result is directly opposite the desired outcome – but it sounds good! To cap off how totally ignorant and stupid this is, speculators do not drive up the cost of the underlying commodity anyway. If one speculator is buying, one is selling. One guy is betting that Iran will blockade the Straight of Hormuz and another bets the Keystone pipeline will get the thumbs up in the next year. And BTW, when news of a new oil supply that will hit the market five years out breaks, it has an immediate impact on prices. Why? Because the gosh darn speculators know prices will drop and so output increases right away to sell at the higher prices, all else equal. Increasing supply lowers prices today.
Lastly, recall Bill O’Reilly, who incidentally agrees with Bernie Sanders, wants to force oil companies to only sell their refined products to the US to drive down prices. This only works in the world of the small mind. Recall the California experiment that deregulated wholesale electricity but not retail to consumers. Suddenly Enron, NRG Energy et al could raise prices as they wanted for their utility customers but utilities were stuck with their retail prices. Result: bankruptcy. Same thing for O’Reilly’s plan.
Oil is a global commodity. Forcing down prices here at home is good for consumers until all the refineries shut down. It would be like forcing McDonalds to stop serving females to drive down prices while letting Burger King sell to everyone. DUH! Refineries are already shutting down on the east coast because they do not have access to cheaper oil.
With new technologies, the US has under its control massive stores of energy for 100+ years. Prices can come down easily by increasing supply. The cartel in control is the legislative and administrative arms of the US government. You can contact them with your request in either direction and wait for a form letter sent by an intern that screams, you don’t matter.
Doerflinger Building, La Crosse
In the fall of 2008, Michaels Energy moved into the second floor of the 100 year old, former downtown department store, Doerflinger’s. The space was completely renovated including refurbishing the original maple floor, repairing plaster, replacing glazing in the original windows, and installing an efficient heating and cooling system with condensing boilers, water-cooled chiller and variable frequency drives on nearly all pumps and fans. By mid-winter, Michaels’ gas bills showed literally about one quarter of the gas consumption that the third floor was experiencing – 299 ccf versus 1,228 ccf. The third floor has nearly identical floor space (14,000 square feet), glazing, and exterior exposure and a similar variable air volume (VAV) heating and cooling system. The building owner asked Michaels to investigate the cause of this apparent wasted energy. Knowing the system type, the target before investigating was excessive VAV box reheat.
Opportunity
The third floor included a substantial data center with waste heat available for free heating of the third floor. Within minutes, Michaels had determined that the distribution system for that heat recovery system was causing the adjacent space to “over heat”. This was driving the entire central system for the floor into cooling to cool that space. Not only was this resulting in excessive zone reheat for all the other zones, it was canceling the heat recovered from the data center.
The solution: take the temperature sensor serving the adjacent space off the system. Disable it.
Results
Gas consumption immediately plunged. The chart below shows gas consumption per heating degree day. The green lines represent the post implementation gas consumption. The other lines present gas consumption for months/years prior to “implementation”. Gas savings are approximately 50%. Payback period: instantaneous. This prompted the tenant of the floor to replace their control system to provide functionality that is more similar to the Michaels’ system. This generates even greater savings[1].
[1] Michaels and the third floor share chilled water, which is not sub-metered. Therefore, electric savings are much less discernable.
Caledonia High School
Tri-County Electric, a rural Minnesota electric cooperative investigated the 144,000 square foot Caledonia High School, in Caledonia, Minnesota, for energy saving opportunities in response to the District’s concerns regarding energy costs and a pending rate increase. The facility was approximately 4 years old and includes a ground source heat pump system. Tri-County identified potential savings with the water circulating system and referred the District to Michaels for further assistance.
Opportunity
Michaels conducted a walk-through investigation to identify potential opportunities and gather information for proposing the next steps. The pumping system indeed provided opportunity, but so did makeup air units, and ventilation controls. Michaels conducted the feasibility study and developed three primary energy saving measures:
Convert the primary/secondary pumping system, a parallel pumping system, to series only. This included removing one 100 hp circulating pump that operated at 60Hz altogether, installing isolation valves on heat pumps and interlocking them with the heat pump compressors, and controlling the remaining pump with circulating loop static pressure.
Revise the control sequence for makeup air units to allow the discharge temperature to float rather than continuously providing 70F air to downstream heat pumps. This provided an opportunity to eliminate heating at the unit and then cooling downstream – simultaneous heating and cooling, which is virtually ubiquitous when air handlers serve multiple zones.
Revise the control sequence on CO2 demand controlled ventilation to 700 parts per million above ambient CO2 levels rather than 700 ppm, absolute, which is only about 300 ppm above ambient. This resulted in a substantial reduction in ventilation volume and associated conditioning energy.
Michaels provided control sequences and implementation documents for the project and later provided functional performance testing of the measures.
Results
Energy savings for these measures was predicted to total 30% of the building’s energy consumption with a 3.6 year payback. Projects were implemented in the summer of 2007. Comparison of twelve months pre and post installation indicates a 40% reduction in energy consumption for a 2.7 year actual payback. In addition, a billing error was identified at the outset of the feasibility study resulting in an instant $5,000 refund from the utility.
As part of the project, the building earned the ENERGY STAR®, increasing its ENERGY STAR Portfolio Manager score from 37 to 93.
Nestle Nutrition
Michaels Energy, with funding assistance from Focus on Energy, teamed with Nestle Nutrition to incorporate energy efficient design features into Nestle’s production facility addition in Eau Claire, WI. The plant will produce infant formula from a liquid feedstock.
Michaels met with Nestle stakeholders to gain an understanding of the production process from receiving through packaging. Energy efficient upgrades were identified in this kickoff meeting. Additional measures were developed as the process was further studied by Michaels Energy staff in La Crosse. A second meeting with Nestle was held to discuss the potential design alternatives and select projects for investment-grade energy analysis.
Measures
Measures identified and analyzed include:
- Heat recovery from a continuous drying process to preheat process water with recovered heat further used to heat makeup air for the facility.
- Heat recovery from a batch process using a combination of large silos of water serving as the heat sink and heat exchangers for preheating and precooling product.
- Non-Condensing boiler stack heat recovery for the new boiler and a downstream condensing economizer to recover heat from both the new process boiler and existing process boiler.
- Outdoor air supply for air compressors and purgeless air dryers.
- Variable frequency drive for new boiler burner fan.
- Variable speed ammonia compressors used for making process chilled water.
- Floating ammonia compressor head pressure control.
- Thermosyphon free oil cooling for ammonia compressors.
- Process cooling tower heat recovery used for plant space heating and receiving area snow melt.
- Variable speed cooling tower fans and energy efficient motors.
Attractive Results
The above measures combine for $1.2 million in annual energy savings, resulting in a combined simple payback of 1.4 years using trailing energy costs. This includes savings of 1.3 million therms, 1.4 million kWh, and 1.7 MW.
Satisfied Customers
Larry Willi, Senior Facilities and Utilities Engineer for Nestle, plans to use Michaels and Focus on Energy programs for pending projects in the future.
Saints Are Marching In
One of the most rewarding aspects of our business is ensuring people get it right and customers get the legitimate energy and monetary savings they should be receiving. My answer to “why should we pick you?” is: we are passionate about what we do; we get things right; and we want to make a difference – improve things. The problem occurs when others don’t give a rip about these things.
Michaels’ primary thrust in the evaluation arena is impact evaluation, which is – what difference does the program make? The questions are (1) what is happening versus what would have happened and (2) would it have occurred without the program? The first question is difficult and the second question is really difficult. The result of the first question is adjusted gross savings and the result of the second question is net savings.
Adjusted gross savings is simply the actual savings verified at the site, with customer interviews, visual inspection, and data recorded over time to verify savings via the 80/20 rule, which means don’t sweat the little stuff. Net savings starts with adjusted gross savings and applies psychoanalysis via a battery of questions and hypnosis mixed with bat wings, chicken bones, and Ouija board viewed through a crystal ball.
Efficiency measures are generally broken into two categories: prescriptive and custom. Prescriptive measures, as the term indicates, prescribe fixed savings and fixed incentive for a specific measure, regardless of how it is applied. For instance, a compact fluorescent may have an incentive of $2 and deemed savings of 10 kWh per year even though it may save 5,000 kWh (that’s a hell of a CFL) in one instance and 3 kWh in another. When averaged, the population of CFL measures should save 10 kWh apiece. Custom measures have savings and incentives calculated for the specific application via customer, vendor, or program personnel.
Everyone agrees that calculating savings for June Cleaver’s new energy efficient clothes iron is stupid because everyone knows Ward, Wally, and the Beaver wear seven neatly pressed outfits per week. (I don’t know about you, but my mom used to iron EVERYTHING, except maybe grundies, circa 1960s-1970s). This is well documented and the savings aren’t that great. But consider a variable frequency drive on a 100 horsepower pump for a manufacturer. There might be a half million kWh savings or their might be zero. Engineers have a major conniption over such uncertainty.
There is a balance between accuracy, program cost, and equity (as in fairness to customers).
- Accuracy includes that for the customer so they have confidence in their investment, and that for the program as a whole such that the net answer for the program is reasonably correct.
- Program cost includes costs to calculate and verify savings via program QA/QC and independent evaluation.
- Equity includes not giving customers a huge incentive for a technology application that results in a one month payback but also not giving a customer a huge incentive for an application that results in a 78 year payback. In the first case, it would be moronic to not do the project with or without an incentive. In the latter case, the customer is obviously doing the measure for non-energy reasons.
A segment of humanity chooses to avoid problems rather than addressing them, wallowing in the bliss of ignorance. They want everything jammed into the prescriptive bin and never look at it again. It’s one thing to cram ridiculous stuff like a 500 ton chiller into the prescriptive column where savings could vary immensely but another to say the savings are correct on average and you evaluator don’t worry about it and whistle past the bank robbery. In some programs, measures are sanctified into sainthood and once there, they are untouchable. 
The implementer is “made”, like a mob boss (a little extreme but you get the point). The result of a less than glowing evaluation sometimes is sanctify the measure(s) and insert head in sand rather than improve the program for customers. This is depressing.
We don’t need to evaluate CFLs year after year although prices and technology adoption change so an update is warranted once in a while. We don’t need to evaluate programmable thermostats (which incidentally have been elevated to sainthood in some programs) because their net savings is zero. (see ”Oh Behave” for why) It is so ridiculous that in some cases, if “it” appears to be installed, it gets full credit for savings that don’t exist. It may never be used. It may not be connected to anything. This is the stuff 20/20, 60 minutes, Glen Beck and John Stossel live for. Bogus results and collusion. Thankfully, in most precincts this is not the case.
The Smoking Gleick
Last week I described a hypothetical, unethical scam to achieve a desired outcome, which leads up to this week’s rant, which I didn’t have space for last week.
I first came across this in The Wall Street Journal editorial page. The Heartland institute, which I had never heard of, or at best I forgot about, is a global-warming-crisis skeptic. From the horse’s mouth, they believe global warming is real, that man contributes, but they are skeptics of the alarmism and the magnitude of man’s impacts.
They are a privately funded non-profit and yes, they get money from big oil just like I do. I get a $20,000 per month stipend from the petroleum institute to write this stuff.
Actually, that’s a fat lie. I don’t get a damn thing from anyone, other than applause to write this stuff. On a side note, the empire howls that Heartland is funded by big oil. Well golly. The empire is funded almost entirely by state (universities), federal (DOE, DOC, EPA, NASA), and foreign governments (UN) around the globe with marketing (activism) by other non-profits. Hey – I’m just telling it like it is, man.
The WSJ piece above talks about the tiny budget of the rebels compared to the marketing arms of the empire, the International Panel on Climate Change. It is interesting but not so much a scandal. Here is the major scandal that is almost totally unreported:
In order to get dirt on the Heartland Institute, a guy named Peter Gleick, one of the “peer reviewers” and most outspoken guy on global warming, PhD, distinguished scholar, blah, blah, blah, (PUKE), impersonated a board member from the Heartland Institute.
He made his way to a receptionist at the institute and in a moment of weakness, the receptionist forwarded a bunch of internal documents in hopes that Gleick would find the smoking gun. There was none.
Here, he completely loses it, like going postal all over the internet. He writes a two-page memo in the name of a board member, otherwise known as forgery, and “leaks” it to the press. The press goes wild on the smoking gun forged by the despicable Gleick. The guy is a PhD dunce and apparently doesn’t know smart people can use electronic fingerprints on a document to determine its origin and the neon arrows all point to Gleick’s computer.
Where is the outrage? TIME reports “Cheating Hurts Climate Science”. ABC reports “Why The Heartland Scandal Doesn’t Matter”. Give me a break, man. This wasn’t a no-name, know-nothing hack in junior high doing this for fun. This is like the Watergate scandal times a thousand because it wasn’t just the impersonating the opposition and hacking his way in, it was fabricating documents (lying) and “leaking” them to the press.
You can draw your own conclusions, but a leader of the empire hacks his way into the rebel network (bad enough) finding nothing, he lies and forges documents and sends them to the press. When a formerly respected leader of the empire breaks in, can’t find anything, and fabricates a scandal, it paints a pretty clear picture. An apology would be a joke. Resigning from his quackery and operating a rickshaw in Cambodia for the rest of his life would be more appropriate.
If the empire has any credibility, they will tar, feather, and excommunicate Gleick. If his name shows up on anything for the cause going forward, it will clearly demonstrate there are no standards. Put another way, if we have to make things up to demonstrate EE programs are cost effective for ratepayers, I’m out of here.
Tidbits
In the uh-oh, I told you so category, General Motors is idling 1300 from their Volt manufacturing line. Uh huh. That’s what candidates say right before they drop out and what GM said a few weeks before bankruptcy.
Also in the news, plug-in delivery van maker Bright Automotive is shutting down, as is Aptera Motors, a California three-wheeled electric vehicle maker.
This one is really good – in the name of our children, let’s all sing kumbaya, set the climate wars aside and save the world. That’s the headline. Then in the article, Friedman knees all those on the one side of the “war” in the groin: “If you are so reckless as to dismiss all climate science as a hoax, and do not accept the data that our planet is getting hotter and the oceans rising, I can’t help you. That’s between you and your beach house – and your children, whose future you’re imperiling.”
Now there’s a truce If I’ve ever seen one.
Integrity Police
There are a number of things any respectable consulting firm simply does not allow – because there is no good, reasonable, defensible, or Hail Mary excuse. For example, there are proposal deadlines or interviews with contract selection committees for big projects. As long as there is reasonable time to prepare a proposal there is no excuse to ask for an extension or plead forgiveness for an inept, disheveled pile of dung. Reasonable preparatory time for a straight forward project not requiring subs might be four weeks. A more substantial project in the $1-2 million range requiring subs should get six weeks to produce a proposal. A multi year project in the $10 million range might take eight weeks, requiring a couple weeks to jockey for partners – it’s like a game of poker where you show a card or two to these guys, don’t look at those guys, talk in the third person anonymously about still another group of guys, and his other brother Daryl.
There are skanky tactics any upstanding firm would never consider or even admit to having considered these several years after the fact, let alone talk about, let alone do even in their weakest moment of temptation and desperation.
As I’ve mentioned in this blog several times, government projects almost always, always, always, always, go to the low bidder, unless possibly one can afford full time lobbyists for mega projects and there are no bids – just a price.
Take for example a hypothetical program-evaluation bid. This would be for all new programs – an entirely new portfolio, which hasn’t even been developed yet. Evaluations start in parallel with program development regularly as utilities and regulatory agencies want instant feedback and guidance as programs are developed. Everyone – the buyers, the selection team, hiring consultant, bidders, the waterboy, janitor and the pizza guy all know the scope is entirely nebulous and that detailed strategies and budgets are therefore impossible to nail down, write, and put numbers to. Everyone knows it is a qualifications-based selection and detailed scope of work and budgets will be negotiated as implementation contractors and programs are rolled out.
The entire process goes as usual. The 500 page proposals are developed and submitted. A couple weeks pass and a few firms are invited to interview in person. This all goes down by the book; very rigid and detailed with each firm having 1.5 hours and a dozen surprise questions to answer on the spot. A couple weeks hence, team A gets the call and later an official letter of intent to award the contract.
Now suppose firm B protests they were the low bidder and should have won. All professionals in this business recognize a low-ball bid when they see one. Do you suppose a firm bidding a commissioning project for $50,000 is going to produce the same quality, thoroughness, and value to the customer as everyone else – whose bids all fell within a relatively tight range of $105,000 to $120,000? Hell no. This is like expecting the Honda store in Madison to sell a new Accord for $15,000 while the best the Milwaukee store can do is $32,000. Yes, it is.
Suppose in the discovery process (of learning everyone’s bids), firm B finds the selection committee noted in their discoverable interview notes that firm B couldn’t describe how to make a peanut butter and jelly sandwich and couldn’t manage a two car parade. Any visitor who wouldn’t shovel handfuls of candy into their pockets from the receptionists dish when she is away from her desk would sheepishly drop the protest and respectfully ask for feedback on the PB&J and parade thing. But noooooo!
Next imagine firm B, which has a million years of combined experience like everyone else, argues the RFP didn’t clearly define what the interviews were for or how that would enter into the proposal-evaluation team’s decision. Mind you everyone has been through this same process a couple dozen times on other bids. And they go on and on about a bunch of other technicalities to which anyone with any experience in this business knows is complete, 100%, Grade A, prime select, B. S.
If this were to happen, it would be cool to conduct a trial by peers with a jury of consultants and utility representatives.
Prosecutor: Sir, please explain in detail how you determined your bid. You are under oath.
Defendant: It’s very complicated sir. I can’t possibly remember that.
Prosecutor: Just provide some sort of methodology, some sort of basis for developing your fees.
Defendant: It depends on what “just” means. If “just” means “simply”, that’s one thing. If “just” means “only”, that’s another thing.
Prosecutor: Your honor, the defendant is evading common sense examination and I respectfully request that he cease with the petty games.
Judge: Listen twit, answer the questions. I have an appointment to have my car waxed and buffed for my date this evening so let’s get on with it.
Defendant: Well, you see we took the average of the dozen other project portfolios we have evaluated and weighted each program within those by…[he rambles on like Cliff Clavin 20 for minutes as the jury starts nodding off in boredom]
Prosecutor: Stop! Stop. Stop. Notwithstanding the fact I’ve never heard or seen such a preposterous approach, did you do any sort of benchmarking? I remind you that you are under oath and I remind the jury that you claim to have provided these services for 30 years and 67 evaluations.
Defendant: What do you mean, benchmark?
Prosecutor: For the love of Pete, a rule of thumb, a ballpark guesstimate, such as what are your fees as a percent of the portfolio budget? You’ve been in this business for 30 years. You must have some reference point.
Defendant: None at all sir. It’s vastly more complicated than such simplistic metrics.
Prosecutor: How many interviews similar to the one you did for this project have you participated in over your career?
[Skipping some back and forth unsuccessful evasive tactics]
Defendant: Perhaps 30 interviews.
Prosecutor: You claim to not understand the purpose of these interviews and indeed make the argument that the interview results are irrelevant in this case. Then why did you go? Why did you attend the previous 30? Did those have specific quantifiable consequences or do you just waste your time for all of these interviews? If those were well defined, and this one was not, why waste your time on this one? Why no questions before the interview regarding its purpose?
It would be so easy to turn this into a Lieutenant Kaffee / Colonel Jessup battle royal real easy but I’ll let that one lie. The good guys win. The case makes headlines in all the major newspapers across the country.
This would make the vast majority of good people in our industry feel like puking. We are not in the proverbial used car industry where things are bought as is but facts like flood damage are withheld. “Gee, I didn’t know that” – and he can get away with it because it isn’t written down or captured on film anywhere.
Well, I burned up the entire column this week just as a lead in to the real scandal that should be getting headlines, but isn’t. I’ll deliver on that next week unless another sizzling blockbuster lands in my lap.
