DoGooder Equity
Upon reading some manager/principal/owner interviews in business publications, the publisher asks, “What keeps you awake at night?” My answer to that would be: Nothing. The reason for this is utilities are regulated monopolies and the energy efficiency program portfolios they run are cost effective. I.e., we, as an industry, are contributing to net wealth generation for consumers and not just redistributing it – it’s EE or power plants, poles and wires and either way, the consumer pays, and we are helping them pay less.
A major reason I am a huge advocate of EE programs is that they are cost effective, and what does that mean? – it typically means it is cheaper to run programs than build power plants and requisite transmission systems to pipe the electricity to points of use (distribution). I sleep knowing I’m contributing to a wealthier, more efficient society that also happens to burn less resources.
One such cost-effectiveness test is the ratepayer impact measure test or RIM test. The RIM test “measures what happens to customer bills or rates due to changes in utility revenues and operating costs caused by the program”[1]. Programs that pass the RIM test have a benefit to cost ratio greater than 1.0, indicating unit energy costs are reduced as a result of programs and therefore, programs benefit all customers whether or not they participate in programs.
So, I’m really liking this. Customers that choose to do nothing benefit, but participants benefit even more. However, like everything else, politics, do-gooderism, and waste seep into program portfolios.
Regulators generally frown upon and disallow utilities to make money on their programs. This needs to change, and I’ve discussed this in the past. The regulated utility business was created on a forever upward trend in demand and sales. This has ground to a halt, and in some cases reversing largely as a result of EE programs. Well by golly, whaddya say we let utilities in on the action in a cost effective manner where all B/Cs are >1.0? Not allowing this is kind of the mirror image of do-gooderism. Do-gooders don’t allow utilities to make money because they are obliged to give it away, apparently.
Small business programs are generally not cost effective but they exist often in the form of direct install (DI) programs for equity, as in fairness, reasons. Small businesses as a whole send millions of dollars in EE riders (EE charges, typically 1% of the bill) to fund programs, but they are very difficult to serve effectively for a whole raft of reasons that can be part of another rant. Rather than market to, and actually get small businesses to pay for projects like everyone else, it is less expensive from a program perspective to just give them stuff – replace lighting for example. I.e. cost of free < cost of laborious arm twisting. I understand this angle, but it is doesn’t make a lot of sense in the presence of a RIM B/C > 1.
Another political thing that seeps in is workforce development and jobs. This torques me as it often adds to the cost and subtracts from the benefits to ratepayers. In our space (buzzword of the year, which means market), it takes years and years and years to gain expertise to look at a building and say, that was built in 1979[2], it has rooftop units[3], electric reheat[4], the comfort is terrible[5], and half the variable air volume boxes likely do not function properly[6], partitions (interior walls) have been erected and demolished four times over and the zoning is dorked – all information gathered by Google Earth and street views without even stepping foot in the building or even the state in which it resides. And so on and so forth for 20s buildings, 60s buildings, 80s buildings, 90s buildings. A person learns what to expect after having been in dozens of these buildings and simply looking at a satellite image, and a street view is a bonus.
Regulators, administrators, and possibly third-party program implementers in some jurisdictions expect to train contractors how to fix these buildings. Again, it’s do-gooderism over greater net wealth generation. I would hire business partners (subs) that are competent and highly qualified to deliver results, as needed and locally when it makes sense. I do not want to teach a 7th grade science class to set a broken femur – pins, rods, casts and all, which is essentially the equivalent of effectively indentifying and developing all cost effective measures that exist in a typical poorly-performing, wasteful facility or process. It takes years, not a couple days or week to develop these skills. Doing so is expensive, inefficient, ineffective, and bad for ratepayers.
We will create the need to hire people for our subs and ourselves. What difference does it make if Jimmy and Sue work on our team or someone else’s? That’s the way it works – the best for everyone involved. Does anyone expect Fluor to be forced to hire local schmucks to build its power plants? When it makes sense, such as buying concrete locally rather than trucking it from three states away, yes. For structural engineering, not so much.
[1] California Public Utilities Commission
[2] From the architecture – dark and depressing.
[3] Can see them on Google Earth.
[4] Because Jimmy Carter thought we were going to run out of natural gas – no kidding.
[5] Because they distributed heat from the ceiling and heat rises.
[6] Everyone on the perimeter has a 1500 Watt space heater at their work station.
Mad States of Saudi America
Remember peak oil? That was the glorious theory, which at some 
point will occur and no one will know, or maybe it won’t matter, that the stewards of the planet have maxed out oil production, and we would be headed for terminal depletion – and we adopt Mad Max-like diplomacy to survive. By the way, the Mad Max dog is an Australian Cattle Dog, or Blue Heeler, and his name is Dogmeat and he has his own Facebook page. We had a Red Heeler when I was a kid, and her nickname was Tough Dog for a reason. Not mean. Tough. So I’ve always had a soft spot for Dogmeat.
Last week the International Energy Agency, a French-based organization, declared the US would blow past the Saudis in oil production, a mere eight years from now in 2020. Eat your heart out, Vlady. That may actually be the case, but in this article from the Houston Chronicle, IEA goes on to make other absurd predictions. They project that with Obama’s push for vastly higher corporate average fuel economy standards to reach 55 mpg by 2025, we will be “all but self sufficient by 2035”. Stop the press.
Projecting energy and other commodity markets employ plenty of eggheads but this is for sure: they have a dismal record for accuracy. Years ago when I was clearing out some archive junk back at our old office, I came across a DOE projection of energy costs from 1980. The projected cost of natural gas then was $3 per therm, not dekatherm, by 2000. I think in 2000, natural gas was actually selling for 10% of that projected price, i.e., 30 cents per therm. Right now it is selling at the hub for 37 cents per therm. These long term projections are worthless as are promises to reach some goal by 2050.
Pumped up domestic production (pun alert) will put some downward pressure on prices, all else equal. And like the President says, “As I’ve said before”, the general populous doesn’t care about saving energy or being green unless it improves their own bottom line or somebody else is picking up the tab. When the benefits of saving energy and being green outweigh (another pun alert), the desired 4 ton hulk SUV, folks may instead buy a reasonable minivan or even a, gulp, station wagon.
Achieving a 55 mpg average in the projected market of energy independence is most likely not going to happen. The only thing holding me to “most likely” is the diesel engine, which to my knowledge, and I stand at least a 50/50 chance of being wrong on this, is unavailable in any domestically produced automobiles. It is entirely conceivable to design a diesel hybrid that is tire-squealing fast.
Stored electricity can pour enormous power to rubber on the road. A 1972 Datsun with a converted power train to a few dozen twelve-volt batteries, and a couple forklift motor drives, will blow away a modern Corvette, for example. People do this as hobbies, but I surely wouldn’t, Shirley. A fast diesel hybrid would be really cool, but boring, as I like manual transmissions, but it should satisfy many in the mass market. Note, however, that huge hulks like the Chevy Suburban would still have awful mileage – moving a four ton monster requires gobs of energy, period.
Despite every president from Richard Milhous Nixon (does anyone know anyone named Milhous?) promising to do something about dependence on foreign oil, it appears likely that we are going to get there, or at least virtually get there via greedy money grubbers developing new technology to extract energy stores here in the states. Ironically, the feds, who remember are supposed to want us to get off foreign oil, have yet to devise a way to greatly curtail this new gusher of energy supply, because it comes from beneath privately held land. If North Dakota, Ohio, Pennsylvania, Michigan, and other states with massive stores of oil and natural gas were a giant national park purchased by the federal government, like Alaska, we wouldn’t be in this position. I wouldn’t be writing about the Mad States of Saudi America.
Think of the fallout if this happens, and we no longer need 20% of our oil from the Middle East. The US has patrolled the region and kept the relative peace, sort of, since WWII, at an estimated cost of $70 billion per year, per The Wall Street Journal. This is the first estimate I’ve seen for this, and it is interesting because I have always heard from the peak oilers that oil from the Middle East is heavily subsidized. According to my calculations from information gleaned from the referenced WSJ article, the value of oil the US purchases from the Middle East is $131 billion per year. By golly, I would certainly agree with the peak oilers on this one. Why not get out of there and let the Chinese and Russians keep the rockets and bombs to a dull roar for themselves. Maybe even the Europeans would be forced to do something for themselves for once.
The potential implications here are extraordinary, but it remains to be seen how Washington will dork it up.
Opting to Make Money
In many states that are relatively new to energy efficiency, legislators often cave to large energy users and allow them to opt out of programs because hey, they use a ton of energy and therefore, OBVIOUSLY to any moron, they control and manage these costs as well as any dunce could. Why should they throw money at a program that won’t help them?
Come to think of it, programs available to these large users in many places are dysfunctional, poorly conceived, and not thought through from the perspective of the customer, so I can see their point to some extent. I already have a type of colossal program failure that has been proven to produce nothing in many jurisdictions and I’ll talk about that next week or some other time.
The only real reason for large users opting out is that they think they can better spend the relatively tiny bit of money they would contribute to the program or more likely, they’d rather not pay anything and continue with business as usual. Both are foolish.
Let’s just use an example of a large user with $10 million in energy costs, paying 1% to the EE fund, which is $100,000. This sounds like a lot of money. It is not for a company of this size.
Allow me to demonstrate how foolish opting out is, using a rule of thumb that program incentives typically equal one year’s energy savings at minimum (I have seen incentives as high as FOUR year’s savings, in which case a psychiatric evaluation should be ordered up for opt-outs). Companies that opt out generally have to meet the savings goals the utility needs to meet in return for opting out, and this too, is generally in the region of 1% of sales, or in the case of the customer, 1% of consumption.
Take an opt-out and opt-in comparison for the above $10 million customer for a $200,000 project with $100,000 savings. ASSUMING no difference in customer time (time is money) and expense[1], the ROI is exactly the same. The opt-in customer pays $100k to the EE pot and gets it all back as an incentive for doing the project. However, the reporting for the opt-out customer will take at least $10k, I would guess, if they do a decent job.
Now suppose the investment is doubled to $400,000. The opt-in customer still only pays $100k into the program but gets $200k back in incentives. The customer starts to take other peoples’ money as he implements larger projects. Suddenly, the ROI starts quickly rising above the opt-out scenario.
The only way the opt-out customer comes out ahead is if they plan to do nothing, in which case, rather than paying $100k into the EE pot, they pay nothing, all else equal. So, the scenarios become:
The “opt-out do nothing” scenario cannot stand, because customers agree to meet their goals, and this too, is where the BS continues. The typical opt-out customer includes manufacturers. Efficiency to manufacturers many times means high output and no shutdowns – not low energy use per unit of production – aka, ENERGY efficiency. Due to the lack of EE expertise beyond lighting, we see many doozers when evaluating projects from customers that opt out.
To use one example I used before (company name and project totally made up to protect the guilty), a baseball bat manufacturer switches from manufacturing wooden bats to aluminum bats. Wood requires the operation of a large kiln for drying, lathes, lacquer and all this sort of stuff. Making aluminum bats allows them to shut down the kiln, turn off the lathes, lay off half the workers, close half the facility, and increase production. The energy consumption per bat decreases. Problem: this is a totally different manufacturing process. The baseline is not the manufacture of wooden bats. The baseline is standard practice for making aluminum bats. What is that? At the point of evaluation, they don’t know. No alternatives were explored when they switched. There are no savings here. What a mess.
Another one includes a “behavioral” change where instead of running shifts every day of the week, the customer switches to running around the clock fewer days, primarily due to long wait times to start up and shut down every day, wasting energy and labor. Programs are not meant to incentivize avoidance of obvious absurdities. We probably don’t have the whole story, which may include going from 24/7 operation to 24/4 operation. No, reducing production is not energy efficiency.
Smart large users opt in and leverage the program for all it’s worth. Even the hugest, most goal-driven companies saving dozens of megawatts (no kidding) leverage programs to the max. Somebody has to save energy and demand and it may as well be me, large user. I take money paid from my less intelligent competitors and other citizens; my utility loves me because I am making giant steps toward their mandated goals; my colleagues in other parts of the country are envious; my CEO loves me because I’m substantially adding to the bottom line and reducing risk; and I take a huge administrative/management burden off my plate and give it to the program/utility.
If this is not a competitive advantage, I don’t know what is.
[1] Opt-out customers must file their own plans and reports just like the larger utility program and that takes substantial time to do any sort of reasonably acceptable job.
[2] A rider is an added fee, usually per unit energy used for energy efficiency, fuel cost adjustments and other things.
3 and Out
The New Scientist published an article by an economist saying that now is the perfect time to implement “long-overdue environmental regulations requiring US power plants to reduce emissions of mercury, arsenic and other toxic metals”. And the added cost will be a boon to the economy. That’s what the textbooks say, so it must be right!
As the article states in one place, yes, retrofitting power plants will create jobs somewhere, and the higher cost will be passed on to consumers. Do they equally offset on a macroeconomic level? I severely doubt it but no one can prove that.
In another theory, he claims added regulation is neutral because the Federal Reserve will juice the economy with low interest rates. We’ve had negative real interest rates for years. Capital is practically free. Mortgages are about 3.5% – zero in real terms as inflation is almost this high. What are home prices doing? Still falling. How’s that juice working for you? It’s doing well with increasing gasoline prices valued worldwide by the sinking U.S. dollar – sinking because of negative interest rates! House payment savings are going in the gas tank and grocery bag.
Regulation is likely to create jobs, the article says, for three reasons. First, capital is not scarce but opportunities for investment are. It is clear the author has never run a company. Recessions offer precisely the opposite. They produce shakeouts. Overleveraged, poorly managed companies go out of business or their stock prices fall, making them targets for acquisition – friendly or hostile. Normally, recessions provide opportunity for well-run companies to emerge with greater margins and market share.
Second, the article says increased energy costs are unlikely to be passed on to consumers (directly opposite of what it says above) because companies have no pricing power. With profit margins at 45 year highs, companies can easily absorb the price increases with reduced profits. OMG! What a ridiculous statement. The author has clearly never had to answer to a board of directors and shareholders. Yes. We will voluntarily not raise prices just because we can. You’re fired.
The third reason is Alan Greenspanesque in its gibberishness, so it is simply copied and pasted: “the boost to employment provided by new investments accompanied by muted price responses will not be neutralized by the Federal Reserve, at least not in the next few years, as it has committed to holding interest rates low until unemployment returns to more normal levels.” Sounds good. Translation: jobs created from this investment[1] will not be offset by higher interest rates as the Fed Chairman, Ben Bernanke, will keep interest rates low until full employment returns.
Ever heard the terms stagflation or misery index? Stagflation is a crappy economy with soaring inflation. The misery index is simply the unemployment rate added to inflation. These peaked in the late 1970s and are rising to painful levels again. The theory that low 
interest rates juice the economy is totally bogus, but yet we follow the ignoramuses like the Ben Bernanke who don’t look at history and instead follow the holy textbook. The chart nearby clearly shows low interest rates are associated with poor economies. Precisely the opposite of what the article implies. Data are from each of the most recent 40 years.
Yeah, but Jeff, you rube, the low interest rates move us to the dots in the middle where higher growth is present. Not so fast. I’ve got that clearly covered too.
The next two charts are what the president, congress, and the Federal Reserve would learn something from if they opened their minds and dropped the mud for a while.[2]
Thirty years ago interest rates were more than double what they are today and growth averaged 5% over four years of the recovery. We haven’t had 5% growth since 1999 and that lasted one year. The deficit, however, in the past three years is three to four times the average over the previous 37 years when it held pretty much flat. It hasn’t mattered but it does now.
Are spending and low interest rates working per the holy textbook? Uncertainty in a wide range of business – critical issues including taxes and energy-related regulation that we can control – is also a major brake on the economy.
Will emission controls ruin the economy? No, but stop with irrationalizing that it will help as described. While we are at it, let’s learn something from history rather than buying what the economics textbook is shoveling.
[1] Investment: Money that is invested with expectation of profit. I don’t think scrubbers produce profit for anyone.
[2] Sources: Bureau of Labor Statistics, Federal Reserve, World Bank.
A Radical Idea
This week I was gleeful to find American Council for an Energy Efficient Economy released a study on my two favorite subjects on which to rant: taxes and energy efficiency! Yeah!
I blogged about tax-distorting effects of EE about a year ago in EE V IRS,with many of the same arguments noted in the recent ACEEE paper. The ACEEE paper points out that:
- Since the cost of energy is a business expense, it is tax deductible and therefore, the tax code penalizes to the tune of 35% the bottom line improvement from saving energy. As I mentioned in EE V IRS, the United States had the second highest corporate tax in the electrified world and this week; congratulations (!), we’re number one as Japan has dropped theirs below ours.
- On the flip side, when companies invest in EE, 35% goes to the government.
- The EE investment is depreciated over time. This I discussed last week in Petroloons .
First, one sharp criticism of the above logic: not taking is not giving. In other words, avoiding tax payments to the government is not the same as getting something from the government. This drives me crazy. It’s the same as saying I give our company a case of soda every day because I haven’t been shoveling the contents of our soda cooler into my bag every night (steeling it) for myself. Do murderers save the lives of everyone they don’t kill? Ok.
Jack Kennedy was absolutely correct stating that cutting and simplifying the tax code results in efficient allocation of capital. Today, the tax code is corrupting with carve outs, societal engineering, and tax breaks for all kinds of crap that ties capital up in stupid stuff.
The feds tax repatriated capital, that is, money earned by US companies overseas and already taxed overseas by countries in which they operate. This is insane. Bring cash back home for investment and it first gets a 35% whack taken by Uncle Son of Sam? Washington likes to bash these companies for doing stuff overseas and the “tax breaks” they get for moving jobs overseas. The “tax break” is not getting slapped with a double tax. Not murdering is not the same as saving lives. Ok.
Another distortion is tax on capital gains and dividends. Trillions of dollars are parked in stupid stuff, like Apple’s $100 billion stash of cash. Why such a ginormous pile of cash? A major reason is shareholders don’t want to pay tax on dividends. Likewise, capital in equity in mature companies and starving the next generation of wealth creators. When an investor considers a 15% loss right out of the gate by divesting one place to invest in a better place, 15% is a huge barrier.
Any tax reform must lower barriers between capital and where it is best invested. This is what JFK meant by efficient allocation of capital. Now, on with the three ACEEE recommendations:
- Tax revenue, not earnings – a “radical” idea. Actually, this would be a sales tax or value added tax. Eliminating the current abomination and switching to a revenue neutral sales tax would be fantastic for the economy (and ¾ of Washington DC lobbyists would find themselves out of work). Capital would flood into the country and be cut loose from unproductive proverbial stuffed mattresses.
- The second is a “more surgical” approach that puts a cap on tax deductable energy costs. Bad idea. This would penalize energy intensive companies and distort the market again, nudging companies that produce jobs overseas.
- The third is a “more complex but perhaps more elegant approach”. Complex to me is butt opposite of elegant, but ok. This option would develop a standard deduction for energy costs that varies with the type of business. Screeeeeeeeeeaaaaaaaaach! Needle across the record. This again would be a market-distorting, game-the-system, screw-the-system approach akin to Rick Santorum’s proposal for zero income tax for manufacturers. Suddenly, everyone is a manufacturer. How does one define manufacturing? Is a brew pub a manufacturer (hardly) or a service company? Is printing manufacturing? We print stuff for sale. You get the point. Just imagine if we set this tempest loose. We should be generating wealth and not playing games to avoid the taxman.
Jeff Ihnen’s solution: Create revenue neutral tax cut by eliminating all market distorting tax breaks and carve outs, and eliminate the double taxation on repatriated greenbacks (I believe this was in the Simpson-Bowles committee that was/is entirely ignored). Here is a “radical” idea: let utilities invest on the customer’s side of the meter. Energy efficiency is a resource. There is concern about the old utility business model based on a forever growing market that doesn’t work anymore (because the market isn’t growing). So let’s allow utilities to invest in energy efficiency on the customer side of meter and let them earn their weighted cost of capital as they do selling energy. This fixes the problem of losing revenue and profit to EE and greatly reduces the tax-distortion and hassle of EE by making EE an operating expense rather than purchased assets.
Amen. Where do we start?
Monty and Me
Back in August I wrote about our “non-energy policy” and that our federal administrations since Nixon have vowed to reduce or eliminate our dependence on foreign oil, especially from hostile regions – and exactly the opposite has occurred. We are better positioned to control our energy destiny right now, for decades, more so than any time in my life.
Technology for tapping conventional fossil fuels has vastly outstripped and expanded the gap between inexpensive fossil fuel supply and alternative energy sources. Unfortunately or fortunately, this is reality. Two major energy sources being tapped of course include natural gas from shale using hydraulic fracturing and horizontal boring technology, and the second being oil extraction from the tar sands in Alberta. Predicting future energy prices is typically a waste of time, but I just don’t see the price of natural gas rising to $10 again for a long, long time. The NASDAQ might hit 5000 again before we see $10 gas. Future petroleum prices are certainly more volatile because most of it comes from overseas and subject to unrest, world economy, and the value of the dollar.
So let’s get on with some pie in the sky possibilities. The only reason it is pie in the sky? Dysfunctional Washington DC. What if they actually compromised to arrive at some decent solutions for the country for once? On the one side we have a third of the population that wants no more production of fossil fuels or nuclear power whatsoever. On the other side we have another third that wants no regulation or restraint on consumption whatsoever. So let’s make a deal, Monty.
Low energy costs resulting from abundant natural gas is a boon to the economy – first in its production. These freshly tapped sources of energy are a major job producer. Second, low prices spur the manufacturing sector, which I believe everyone agrees we need badly. The Wall Street Journal last week reported that industries that rely on natural gas as a feedstock are racing to build production facilities for manufacturing steel, fertilizers, glycol, plastics, and other chemicals. The upshot? One million manufacturing jobs in the next 15 years. Whoa!
While abundant and inexpensive for now, it isn’t infinite. The definition, or my definition anyway, of sustainability is to leave as much for future generations as possible. Getting sustainable policy out of Gomorrah – the place that borrows 30 or 40 cents for every dollar it spends is next to impossible. One quote worth sharing regarding the worthless 2 month payroll tax-cut extension, a guy quipped, “Why don’t we just cut out the middle man and ask for $40 a month from our kids?” Obviously, they don’t care about “sustainability” for future generations. But to get back on track – how about some reasonable restraints on consumption?
This is the conundrum of cheap energy. Vehicles today are huge and powerful. “This is what consumers want”, they say. Really? My personal preference for automobiles has gone the way of the dinosaur. That is, the smallish two door coupe – lightweight, zippy, with good mileage. Examples of discontinued models: Honda Prelude, Toyota Celica, Acura Integra/RSX, Nissan 240, Honda CRX. Honda and Nissan make the Accord coupe and Altima coupe but those are big honkers with two doors, a la the 1977 Chevy Monte Carlo like my brother had. The door alone weighed in at something near one of the Stonehenge rocks.
So how about some reasonable mileage standards? The EPA recently doubled it from 27 mpg today to 54.5 in a mere 13 years. This is crazy. How about a little reality? Why not something like 35 or even 40 mpg? Fifty-four mpg has no chance of becoming reality, whereas more modest goals do. Two ways to get there include diesel engines and petrol/electric hybrids. When in college I owned a 1984 Ford Escort diesel. That is correct, sir. It was a bit of a dog but it was reliable as the sun coming up, even in below-zero temperatures and it topped 45 mpg, easily. I could drive to Montana on a half tank it seemed. This was almost 30 years ago!
And why don’t automakers develop some sexy hybrids? I read an article a while back about drag racing freaks – and their power train for humongous power – electricity from a huge bank of 12 volt batteries. Stored electricity can deliver a huge amount of power. It can vaporize copper and ruin your day bad – arc flash, an explosion of gaseous copper. This is not exactly safe or recommended but the point is, gas/electric hybrids with relatively tiny engines can also produce huge bursts of power for those who like to burn a little rubber once in a while. Let’s face it, many people would rather decline a ride to the emergency room with a massive hemorrhaging head wound than be seen in a Toyota Prius.
There is a bogus argument that lightweight cars are not safe. They are safe unless you plow into a tanker somebody else is driving. If you want to be safe, drive a loaded cement truck or an 18 wheeler. How many collisions do these vehicles lose against the other guy? The people in the car, SUV, or van get walloped when tangling with these whompers and the truck drivers may walk away uninjured. That’s just the way it is. Small is only dangerous when tangling with something much larger.
And there is the Keystone pipeline football. To me, the choice is simple. We either build a pipeline and buy oil from our good neighbors to the north, a major blow to the oil cartel or we say no, Canada ships the oil across the planet to China and we continue to buy from the volatile Middle East. This is the reality. The choice is not (1) buy oil from the tar sands OR (2) power the car with an empty PBR beer can and banana peel in the flux capacitor. There are no other reasonable “or’s” at this point. Compromise this inexpensive, abundant, local energy source with higher fuel standards. The pipeline is an environmental hazard? Give me a break, the country is covered in a Byzantine labyrinth of pipelines.
Petrol and natural gas featured nearby.
The final bridge to energy independence: start converting the large transportation fleet to natural gas. Every single public transportation and school bus in the country should be converted to natural gas hybrid power trains. With dozens of start/stops every day, buses are a slam dunk for hybrid technology. Big rigs travel primarily on the interstate highway system so it would seem to me that getting a natural gas infrastructure in place to serve this network wouldn’t be that big of a challenge. It would be no different than our regulated natural gas and electricity markets are today.
Diesel fuel runs about 43,000 Btu/dollar today, compared to possibly 200,000 Btu/dollar for natural gas, depending on delivery charges. The commodity is hovering around only $3/million Btu. One fifth the cost, no refining. Help yourself to the emissions analysis.
Adding up the conversion to natural gas transportation and some modest, minimal sacrifices for fuel efficiency standards and we can probably cut our petroleum consumption by close to half – or at least 30%. Combine this with “domestic” petroleum (Canada included) production and suddenly, Vlady, Hugo, and the Sheiks will be crying. To this point, they are wallowing in our stupidity.
Quiz
Speaking of let’s make a deal – Monty Hall, the host of “Let’s Make A Deal” plays a game where participants dressed as the jack of hearts randomly pick one of three doors, one of which is in front of a grand prize. Another has a pair of goats and the third has a bunch of rabbits behind them. You want the grand prize. Monty knows what is behind each door. You randomly pick a door. Monty opens one of the doors to reveal the goats. Question: should you switch doors or stay with the door you picked? Will it affect your odds of getting the grand prize? First one to email me with the right answer gets some used Christmas cards.
Quote of the Week
From Elaine Gallagher Adams of the Rocky Mountain Institute: “Operating an uncommissioned building is like driving your car down the road with the gas cap hanging open and the blinker on; you look like an idiot.”
Occupying Ignorance
Have you had your fill of Occupy Wall Street, (OWS) which has spilled over into dinky, surrounding, wannabe towns including one nearby with a population of a whopping 4,000? Apparently, these in-duh-viduals are protesting rich people and the fact that the rich keep getting richer and the poor, well, are the poor. My response: that’s life. Life isn’t fair. I don’t like the word “fair”. Rather, I like “not cheating”. “Fair” is too often used by whiners. Some of these OWSers are self described anarchists and communists. Oh yeah, there you go. That’s what we need is communism. There’s a model of equal outcomes. How is that Venezuela model working?
I have not a covetous cell in my body. Steve Jobs, or at least his widow, is a multi-gazillionaire having lead his company from the brink of collapse in the 1990s to the world’s most highly valued company, ahead of Wal-Mart, Exxon Mobil, and Microsoft. Speaking of Microsoft, as Steve Jobs once said, Bill Gates has never developed any innovative products in his life, but yet he is a billionaire because he was good at steeling ideas within the law, I guess, and developing a monopoly. Good for him!
The real problem and reason the OWS whiners are misguided is crony capitalism. The DOE and administrations dish out billions of dollars to crony campaign donors who in turn send a big chunk back for reelection campaigns, before or after their ill-conceived company fails and the executives walk away with millions. Or it’s egg before the chicken. The cronies donate a bunch of money and get their investment in government back 10 fold once their guy gets into power.
Let’s see… in the underground economy, there is a name for this: money laundering. So all OWSers should be marching on and petitioning Washington, the root of their grievances. You have to understand the problem to solve it. This is clearly a bipartisan activity and nothing new. However, I would say the recent fanning of the flames, pitting citizens against one another is a bit unprecedented and shameless. Watch the hand! You guys get in a food fight while we (Washington) continue to rip you off.
While I have not a covetous cell in my body, I have billions and billions of cells of rage against crony capitalism, money laundering, cheating, dishonesty, malfeasance, and vast wastes of money and resources.
As mentioned before, Washington should, like utilities have done in recent years, get back to their core business of protecting and defending its citizens against enemies, foreign and domestic. This is the only thing they do remarkably well, although I’m sure there are gobs of waste, but how many plots have been busted and bad guys destroyed in the past decade or so?
Washington is a horrible venture capitalist because (1) they make decisions based on politics and not favorable or acceptable risk/reward, which follows with (2) they are using other peoples’ money so they obviously do not care. It seems there are failed green energy, green jobs companies and/or scandals in the paper each day. Or take my favorite, ethanol. Many are concerned about our ability to feed ourselves as the planet takes on its 7 billionth human, this month or thereabouts. Meanwhile, over 4 billion bushels of high energy corn go to make a tiny dent in our fuel needs and negligible impact on our petroleum imports. That’s roughly 30 pounds of corn for every human on the planet, or maybe 50,000 calories – enough to keep an offensive (as in the team with the ball) lineman going for a couple hours. No. Really it’s enough human fuel for 20-30 days for a mortal human being.
Similar to OWSers, there are end users of energy that whine about high energy costs and hate their utility as a result. Isn’t it ironic that nobody seems to care about energy costs, as in the total cost of running a business, except when prices rise? And end users should consider what is driving prices upward: I would guess the vast majority of price increases is due to emission regulation and construction of wind farms. These things are legislated at state and federal levels. I, unlike the prima donnas (think JFK junior, hypocrite in chief) living in population centers and telling everyone else how to live, do not mind the sight of these behemoths on the landscape.
On a side note, other hypocrites for renewable energy and lower energy cost protest construction of transmission lines from where the wind blows to where people live and wind doesn’t blow. In addition to transporting renewable energy to population centers, it adds reliability and more supply options to the grid. More options mean lower prices. The solution is simple if you ask me. See I-90 in southern Minnesota. Just run the transmission lines down the damn ugly interstate highways where there is already immanent domain and land! It’s flat. It’s open. What? Would it mess up the beauty of billboards for Wisconsin Dells, gentlemen’s clubs, and truck stops? This is a no brainer. What for the love of Pete is all the hassle about? And there aren’t even any dairy cattle near the interstate to pick up the electromagnetic waves causing birth defects like four headed two legged calves.
Whining end users share a loser trait with the OWSers – they would be far better off taking control of their own well being rather than itching and moaning about something they have little control over. And by the way, the control they do have is mainly with their corrupt finaglers in Washington. Very few are accountable. These people represent the very few competitive congressional districts, states, or the entire country, while most are not accountable. The unaccountable include political appointees like Lisa Jackson running the EPA, or Bonnie Fwank and Charlie Rangel, each of whom would have to be caught live on national TV steeling an armored car and maybe running over a few pedestrians to not get reelected. I don’t think felons can be elected from their jail cell but who knows. Felons, dead people, pets and alternate personalities can and do all vote.
For-profit end users that howl about their energy costs are very likely to have more energy cost reduction opportunity than those who don’t. This is Jeff Ihnen’s untested hypothesis. Why? Because the howlers don’t like, and in some cases, detest their energy provider and do not trust them. Detestment (a new word) does not foster cooperation, which is extremely helpful, bordering on essential to control energy consumption and cost.
I have also yet to come across a for-profit, with a strong efficiency track record at the corporate level, howl about their evil energy providers. Well known EE champions with track records that fit this profile include 3M, Pepsico, General Mills, and Simplot.
The message to end users of all shapes and sizes is first control what you can best control – yourself and your organization, and second, pay attention to what’s going on in state and federal governments – each of which are big drivers of energy supply, regulation, and generation sources – the primary drivers of energy price.
Tidbits
I thought this was a great headline for an opinion piece in Saturday’s Wall Street Journal, by Holman Jenkins: “Hooray, A Financial Firm Fails”, describing of John Corzine’s MF Global collapse. What’s even more impressive is that Corzine, formerly of Goldman Sachs, formerly U.S. Senator, formerly New Jersey Governor, is in the admiral’s club of crony capitalists. Failure is progress. Eat your heart out.
Fly High and Jump!
Natural gas utilities tend to howl about making EE goals because it is much more difficult to capture savings for natural gas than it is for electricity. With one giant exception, lighting, this isn’t really true and I do not agree. Lighting retrofit/replacement is indeed easy for a number of reasons:
- Utility DSM product managers and account managers understand it.
- Customers understand it.
- Lighting upgrades improve lighting brightness and color rendering.
- Some level of investigative analytical study is NOT required.
- With the exception of early T8 electronic ballast technologies, maintenance is reduced, at minimum because the customer has new equipment after implementation.
- Design services are not needed.
- Impacts are relatively easy to quantify.
- Evaluation-verified savings generally result in high realization rates.
- Everyone else is doing it so why don’t we, from the customer perspective.
Now consider custom efficiency, where huge potential exists; potential that is far greater than lighting in commercial and industrial facilities. Let’s apply the characteristics above to custom efficiency.
- No.
- No.
- If done right, which is too often not the case, custom measures can improve comfort.
- Yes, investigation/analysis is required.
- If done right, which is too often not the case.
- Yes, design should occur for success.
- Not for the typical program implementer.
- Not typically.
- No.
A few weeks ago the post was It’s Knowledge, Stupid! A GREAT deal of knowledge is required for custom efficiency projects. This is a ginormous barrier. Risk aversion is another huge barrier and that’s what I’ll get to in this rant. Lack of capital is another barrier but probably not in the way you are thinking exactly.
Implementing custom efficiency is a bit like skydiving, which I’ve never done. The risk-plus-hassle to reward ratio for that doesn’t pass my test. But anyway, everyone agrees that jumping off a concrete block is less risky than jumping off the back of a pickup truck, right? (yes – just work with me) As jumping height increases, risk of injury obviously increases. Then there is a huge range of heights that are off limits because it’s too high without parachute, but not high enough for parachute deployment and sufficient deceleration prior to getting your feet on the ground.
Customers that implement custom efficiency measures are scared of heights and typically don’t want to pay for an instructor, or a guy to jump in tandem with (which is what I would do), and they don’t want to pay for an extra few minutes and another couple gallons of fuel to fly to a safe altitude over an open field. The result is a twisted ankle and a bad experience at best, broken bones, death, or possibly worse – completely incapacitated vegetation. Yes. This is the range of possibilities for how a custom EE project could turn out. Many programs lack the airplane to even get off the ground.
Customers think they know what they want at the outset but when the rubber hits the road it’s with the brakes locked or heavily depressed. Sometimes customers will invest in the energy assessment with their own money, wanting to cut energy costs by 15% or some other aggressive target (more than one can get by janitors being vigilant about turning lights out in unoccupied spaces at cleaning time). They are presented with the information that gives them just what they asked for: more than 15% savings from measures with return on investment they require. Now they are frozen because they actually have something to act on. They can’t decide what to do next because… I’m not sure. Fear of the unknown? Risk aversion? They agree, we gave them exactly what they wanted. These people are like taking the ground course for skydiving but can’t get on the plane. They paid for the class but they are looking at more cost for the flight (design) and then actually doing something (jumping = implementation). So they strand the funds invested in the energy assessments.
The next type of customer doesn’t want to pay for anything; ANYTHING. They think since they pay the utility gobs of money, the utility should just invest their own capital to erode the return on the utility’s capital and give them everything, including the cost of implementation. They agree to have an investigative analysis of their facility to identify and evaluate measures available in their facility. The study includes the cost to do everything right – design, budget cost estimates from a contractor, and post-implementation functional testing the measures to ensure measure integrity. Once the study is completed and it’s time for decision making they start recoiling because it isn’t lighting replacement they are used to. Even though ALL the costs to do it right are rolled into the cost-effective measures, they want to start carving stuff out and chopping the measure list down and neutering the ones they sheepishly move forward with. We identify 20% energy cost savings with a 2 year payback and they end up retrofitting some lighting and adding a few points to their energy management system for savings of 4% – because they don’t want to pay for a damn thing, even though all the costs to do it right are in the measures that meet their criteria. These guys get their skydiving ground course paid for by the utility then they ride the plane to the end of the runway takeoff and jump out there and stub their toe – go through the motions and do as little as possible.
These guys who jump out at the end of the runway are the most frustrating. They have enormous opportunity but don’t want to pay for anything. They don’t pay for independent design firms to design their systems either. They have contractors do everything each in their own bubble. The HVAC vendor is told to provide a rooftop unit for 60,000 square feet of sales floor but this a grocery store. The vendor looks up 60,000 square feet in their table for, say Syracuse, NY and it says they need 150 tons of cooling and 1.2 million Btu/hour. Ok. Give me one of those. Wait a minute! You have 80 tons of cold in the store in the form of refrigeration. What about that? There is no integration whatsoever in the facility design and as a result this customer type pays way too much initially, they have a system that performs like crap because it’s way oversized, and it’s an energy hog. Penny “wise” and brick of gold bullion foolish.
Then there is the miracle customer that does things right. They pay for the study almost entirely out of their pocket because their utility has minimal EE funding. The report indicates 30% saving potential from measures meeting their financial criteria. The board, lead by the district administrator discusses how to free up capital to do the project. They don’t have cash lying around or a huge endowment to tap. Creatively on one month’s time they carve out the capital they need to do the project and they are ready to go. The board approves moving forward with the measures, including paying for decent design documents. Measures are implemented and then tested per the initial study scope and cost. Wouldn’t you know it – they end up with 40% savings and a 2.7 year payback rather than the study-predicted 3.7 year payback. Serious, decisive, creative, bold, confident, and fully committed result in huge savings that exceed huge expectations, all in a timeframe of barely 7 months from start of study to final implementation test. These guys take their skydiving class, fly to 4,000 feet, jump in tandem and have a blast. Next step: Everest.
Tidbits
A couple weeks ago in It’s Knowledge, Stupid!, I was ripping the EPA a new one for paving over a farm field 20 miles from Kansas City for their new facility, leaving their old one which was in the urban center where they tell us to live and work. Do as I say but don’t expect us to follow. I mentioned some ridiculous costly regulations they are in the process of rolling out. Well Touché. Such regs would cause Nebraska Public Power District with a million people served a billion dollars, a thousand dollars per head served. Yeow! I’ll have to study risk mitigation by the reduced emissions versus cost for a future rant.
Lastly, don’t look now but the goofy right wingers may have a point about the price of CFLs soaring after incandescent lamps are taken off the market. Wow. That would cause a massive backlash which would be very damaging to the EE industry. Be careful what you wish for.
written by Jeffrey L. Ihnen, P.E., LEED AP
Choose Solutions, Not Facts
State and federal budgets are headed for the cliff to varying degrees with few exceptions. Here in Wisconsin, we’ve had the Battle Royale fight to the death cage match with the repubs on one side and the unions on the other while the dems were hiding out in a witness protection plan.
Meanwhile at the federal level, we are on a dangerous trajectory unseen in my lifetime. People have whined about the deficit and debt since my adolescence – the Miracle on Ice days against the Soviet Union. I kept saying, “It’s not a problem. It’s not a problem.” Why? Because the debt as a percentage of our economy was reasonable, and flat but very few people consider this metric – the one that matters most. They just clobber each other over the head and call each other names and we have Jay Leno fodder like “pay-go”.
However, this all changed since the meltdown Lehman Brothers in the fall of 2008. The debt as a percentage of our economy really IS becoming a major concern. We are staring at $1.6 trillion deficits for as far as the eye can see. Personally, I think the word trillion should be banned because it sounds inconsequential. How about $1.6 million million, or $1,600 billion?
Do we cut spending, take away grandma’s pharmaceuticals, sell her home, and set her and her senile dog up in a tent under the bridge, or do we fleece “the rich”. See, I’ve always believed when politicians talk about “the rich” they mean households with incomes of two freshly college-educated people, say an engineer and a nurse or a school teacher and pharmacist.
As a rational person, I did a little Saturday morning research and some pretty simple math to prove my point. The chart below containing data from the IRS paints a pretty clear and grim picture for those expecting a free ride from “the rich”. What it shows is total incomes and numbers of returns (households) by income bracket. The average income of those in the top 1% is $1.2 million and the next 4% the average drops sharply to $220,000. My analysis goes like this: suppose we just took everything these people made above $100k, $250k, and so on. Taking everything in excess of $100k from the top 10% of earners is “only” $2.4 trillion – $800 billion more than the deficit. I.e., if the government confiscated all household income above $100k, we would have an $800 billion surplus. But almost no one in this country considers $100k to be wealthy.
So let’s move to $250k, which apparently according to the President is the line between the rich and not rich because he’s said ten thousand times he’s not touching the piggy bank of anyone making less than $250k. Well guess what; if we take everything in excess of $250k, it doesn’t even balance the budget. Everything! Of course if we tried this, no one would make more than $250k. If we took 90%, there would be very little income over $250k and so on. Lastly, if we take everything in excess of $1 million, you know, stick it to the rich, it has practically a negligible impact on the deficit. Hello Pesky! And remember, this is EVERYTHING above $1 million.
I conclude with facts that raising taxes on “the rich” is akin to fixing the weather-stripping on a large commercial building that is hemorrhaging energy waste.
And so it goes for energy savings. One has to ask themselves, what can I expect for savings to pay for a renovation I want? Start by considering you can’t save more than the building or a piece of equipment is using. Sound pretty ridiculously simple? Some end users could learn from this.
If you are on a buildings and grounds committee, you should know a few basic rules of thumb. I will use schools as an example here. New construction costs around $150 per square foot. The cost of lighting and HVAC for the building is probably 20-30% of that cost with HVAC costing $20-$35 per square foot. People should consider their own energy costs per square foot, but it’s most likely going to be in the $1-$2 per square foot per year.
So put some numbers together to get a SWAG (scientific wild ass guess) of what your return on investment may be for an HVAC system replacement. At Michaels we call such a limit of savings or return on investment a bracket or a bracket calculation. For example, if you are paying $1.50 per square foot per year and a new HVAC system costs $30 per square foot, your best possible return is a 20 year payback – that is if you save ALL the energy being consumed now. It is safe to say that actual payback is twice that long. Ditto for adding a variable speed drive to a pump. One of our engineers may consider a variable speed drive for a pump and I may pull out my calculator and within thirty seconds conclude it’s never going to fly. The motor uses $750 electricity at most, and installing a drive is going to be at least $2,000. After screwing around with more detailed data and analysis, it will be a 12 year payback and that’s going nowhere.
Imagine being hired to analyze options for an HVAC replacement, considering several alternative systems. Wouldn’t you know it! The payback was infinite because the new system would cost more to operate in energy than the 90 year old steam system that provides no ventilation and no air conditioning. The board is shocked at the price tag and doesn’t want to pay for the study! They were “misled”. Wha? I would call it an introduction to the real world, circa 2011.
This is like going to the optometrist because the patient can’t see very well, thinking they need a $100 pair of glasses. The doctor does his series of tests and he diagnoses cataracts. The exam costs $150 and the cataract surgery costs $7,000. Otherwise, the eyes are fine. The patient is enraged and refuses to pay for the exam. The patient still wants the eyeglasses – prescribed by said optometrist! This is a perfect allegory to a real story.
You may be able to choose among solutions, but you cannot rewrite history, pick your own reality, or defy the arithmetic.
Tidbits
Checking in after my rant No Brazil Syndrome, how many radiation-related deaths have occurred as a result of Fukushima’s damage sustained in March 11’s massive earthquake? Zero. Meanwhile, in the same period, probably more than 3,000 Americans have died in car crashes and deaths from the tsunami in Japan alone exceed 13,000.
Like most other things, you (you) have infinitely more control over your well being than that thing poses. Stay out of the sun or wear strong sunscreen, don’t smoke, keep your BMI within better than recommended limits, skip the red meat, wear your seatbelt/helmet, exercise, don’t break the speed limit, check your cholesterol and blood pressure, get your colonoscopies…
written by Jeffrey L. Ihnen, P.E., LEED AP
Planet of the Alpha Ape – EE Killer
I know next to nothing, no, make that nothing about anthropology. However, on several occasions I have read that throughout the animal kingdom, every social group, pack, pod, litter, colony, team, board of supervisors, has an alpha that leads the bunch.
This holds true for humans although the outward authority of the alpha differs a lot from one group to another. Take for example a board of directors for a non-profit, a school board, and for-profit enterprises. The alpha may simply guide discussions at meetings, keep things on track and moving along and assist the group in coming to a consensus or at least a voting majority. This works well and is beneficial to the team. People are allowed to voice their opinions, listen to others, persuade and/or be persuaded and the group as a whole makes decisions that a true majority is in favor of.
Then there is the alpha ape. The alpha ape is an ignorant, chest thumping, loud mouth who is going to save the rest of the loutish boors on the board from their own stupidity.
On one occasion, we were in the early stages of design for a major building project for a college facility. The college’s mission or vision statement (or something like that) explained that they were essentially committed to be an isolated ecosystem. The only mass that enters and exits the system is people. They grow their own food, recycle their waste, generate all the tiny bit of energy they use, and have no runoff. Of course this is facetious, but the statement indicated they have the greenest campus in the world.
So there we were – on a teleconference with their board, the architect, and some other stakeholders when the subject of LEED is put on the table. The alpha ape takes over for the client’s board essentially saying, “No way. Costs a fortune. I know all about it. It’s a waste of money and we’re not going follow the 10,000 other morons who do this LEED crap. We can follow the LEED stuff without messing with those drones.” We on the other end of the phone were rolling our eyes and shaking our heads so loudly we had to put the phone on mute. If these people did this project and didn’t “waste their time and money” with LEED, they would regret it big time. It would literally be an embarrassment for a long time, we thought. They would look like fools with that mission statement and how would their donors respond? And wouldn’t you know it, a couple months later we got a call from the college president. They wanted to know how much LEED would cost, anyway. I wonder how alpha ape got out of that with his ego intact. Months later the project gets LEED Gold and this puts the president is in a state of euphoric nirvana as a result.
In a more recent case, we presented a school district with a project that would cut their energy costs by one third with a payback of barely over a year. In another case, we presented a financial institution with the opportunity to cut its energy costs by more than half with a 1.6 year payback[1]. In the former case the administrator exerted his brilliance and authority by killing the project. Meanwhile, he wanted to do a lighting project that had a payback of about 10 years but it didn’t work out financially – the monthly savings would not be greater than the monthly payments. But he wasn’t about to look frail by lumping that in with our project that has a 1.5 year payback and would save 30% of total consumption. Brilliant! How do these people think? I wonder how they fit their ego through the door in the morning.
What are the traits/proclivities of the alpha ape?
- Cannot believe how much smarter he is relative to everyone else in the room.
- Revels at the challenge of shooting down the most obviously beneficial projects, just to demonstrate his power and influence.
- Sucks every bit of intellectual capital he can get from a consultant for free, and then feels a strong sense of accomplishment for paying nothing and wasting thousands of dollars of consultant’s time and expenses.
- Drives an expensive car.
- Is less charitable than Joe Biden.
- Won’t engage in any competition such as video games, golf or pinochle where he knows he may lose.
- Screams at his 10 year old for booting a ground ball in little league.
- Gets into fights with parents on the opposing team.
- Budges in line at the airport.
- Is rude and obnoxious with wait staff and leaves $2 tips.
- Won’t give Wiffle balls back to neighbor kids who are able to clear his 15 foot backyard fence.
- Dogs growl and bark wildly in his presence – like the Terminator.
How does one overthrow an alpha? In the world of the predator, say a pack of lions, a challenger will fight the alpha perhaps to its death, and then kill the loser alpha’s cubs. An energy efficiency or LEED project in most cases does not rise to this level of importance. But seriously, if you can make an alpha ape look like the fool that he is, and this is typically not difficult – it just takes some gastro rectitude, he can fade like a day-old poppy.
[1]You may be thinking: “30%, sure. 50% sure.” We haven’t come up short on actual savings versus predicted savings yet.
written by Jeffrey L. Ihnen, P.E., LEED AP
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