CAFE Standards and Auto Executive Dunces
Provide a chimpanzee with a computer loaded with MS Word and some sort of reward for pounding on the keyboard, and sooner or later it will produce a sentence, probably consisting of two words: subject, verb. Provide a workbook with a one-trick-pony energy calculation to an unqualified user who applies it to a scenario it doesn’t represent whatsoever, and they may return the “right” answer, once in a while. Allow 536 mostly clueless individuals[1] to craft laws and policies, and sooner or later by unintended consequences, they may achieve an objective. And so it goes with automobile fuel economy standards, also knows as CAFE standards, for corporate average fuel economy.
But first, as the energy BS whistleblower, allow me to dispose of some political BS regarding fuel efficiency for automobiles.
Fuel efficient automobiles are less safe than gas guzzling behemoths. In that case, we should demand military cargo trucks with an optional turret mounted marine with a fully loaded automatic machine gun. This is ridiculous. Smaller fuel efficient 
vehicles are less safe than a larger vehicle when crashing with a large vehicle, all else equal. Extremely rapid deceleration of mass (human body) causes injury or death. Each driver of a car or a truck plowing into a rock wall at 60 mph will suffer similar consequences. Persons in an efficient car plowing into a Tahoe will suffer greater injury, all else equal. But hey, if you want to be safe plowing into the Tahoe, I suggest the military cargo truck. Bottom line: if all vehicles are smaller and more efficient, there will be little, if any, degradation in safety.
Fuel efficient cars will cost more. This is really a load of crap, and I cannot figure out why the auto makers are going along with the aggressive CAFE standards. Fuel efficient vehicle buyers fall into two categories: wealthy and not wealthy. The wealthy buy hybrids and electric vehicles, and the not wealthy buy tiny cheap vehicles like the Ford Fiesta, Hyundai Accent, or Toyota Yaris – plain Jane, no frills, lowest total cost, low profit vehicles – the tin can class.
The auto makers cut a deal with the president in 2011 to raise the target auto fuel economy to 55 miles per gallon by 2025. The auto makers are out of their gourds unless something crazy happens like gasoline prices rise to $20 (not out of the question). The tin-can class is where the money is when it comes to hitting these targets; but the tin can class is barely at 35 mpg today. Why do I think the auto execs are fools about this? There is no profit in the tin can class (they say) and the demand for the hybrids and electrics is puny. Hybrids feature complexity, expensive controls/electronics/powertrain and thus have a bit of a price floor. The small cars have no pricing power because the market (people) is cheap, and they want low cost. Good for them. Bad for car makers. In order to meet the aggressive CAFE standards, car makers will have to practically give away hybrids and tin cans while losing money doing so. Or perhaps the auto makers believe the electric car will be their white night. Sorry, the frivolous novelty will still be a frivolous novelty 12 short years from now. Bottom line: When big business gets in bed with the federal government to make policy, they always contract disease, if you know what I mean.
So how can the 536 mostly clueless in-duh-viduals achieve such lofty goals? If they do, it will be with a combination happenstance of unintended consequences and underlying political agendas. One unintended consequence is high gasoline prices driving demand for efficiency caused by contagious, globalized currency devaluation. This is a consequence of massive government debt and money printing. But inflation is only 2%? Not for dollar-denominated oil on the world market – up over 100% since the latest easy money flood began five years ago. Not so with natural gas which is not an international commodity (yet). Meanwhile, domestic petrol production is up as sharply as natural gas, but unlike natural gas prices, petrol prices cannot escape the weak dollar.
The US is exporting inflation around the world. As the Ben Bernanke prints money, our currency falls against others’. Their import costs drop and their export costs rise putting them at a trade disadvantage. What to do? Fight fire with fire and devalue the currency. Last week Japan joined the Bernanke’s monetary punch bowl.
Don’t expect this to end any time soon. The Bernanke plans to keep the presses going 24/7/365 until employment numbers improve. It isn’t working. Hello? After five (5) years of this, last week’s labor report for March included 88,000 new jobs[2] while a whopping 500,000 people left the labor market. So gasoline prices could hit $20 by gosh / by golly.
Lastly in the non-disclosed agenda, we starve ourselves of energy and that isn’t bad for sustainability reasons. But Keystone pipeline is an environmental hazard? Give me a break[3]. The real agenda is constrain supply. Can we just be honest? Answer: no, because the masses already broadly favor its construction. I appreciate self restraint and sustainability but truth in advertising would be nice.
[1] 100 senators, 435 congress people, 1 president. Thousands of aids, advisors, and lobbyists not included.
[2] Not enough to keep up with population growth.
[3] The San Bruno CA natural gas pipeline explosion leveled about 40 homes and killed eight people, but I don’t recall any talk of moratoriums on gas pipelines nor do I recall any deaths due to an oil pipeline leak. And we have thousands of miles of pipelines of all ages and suddenly we don’t know how to do it safely? Laugh test score: F.
Bounteous Savings at Home
Continuing on from the surface scratch delivered in Refrigerator Sitcoms and Lethal Toaster Ovens, this post provides more fact, fiction, and maybe some things you’ve never considered for saving energy.
First, I came across some interesting data while reviewing evaluation reports for a major Midwest utility last week. Recall in Bait and Switch, and again backed by ACEEE as explained just last week, regulatory agencies need to stop stopping fuel switching from dumb uses of electricity to smart uses of natural gas. The specific item is the electricity guzzling clothes dryer. As it turns out, the saturation of electric clothes dryers in this utility’s service territory was 84%. The average number of loads per household is about 6.6 – call it 7. Doing a little ballpark math; with 117 million households[1] in the country, guesstimating about 85% have their own laundry equipment, we have available 106 billion kWh to dry clothes. That is equal to 24 typical 500 MW power plants running full tilt every hour of the year, or what China adds to their power supply in about four days[2].
A few more interesting tidbits on wash machines: savings from wash machines are due to the wash machine itself, (hot) water savings, and dryer savings as these washers spin more water out of clothes before being tossed into the dryer. Considering a residence that has electric everything (water heater and dryer), savings are roughly 210 kWh per year for an efficient wash machine. About 10% is from the washer itself; 50% from reduced water heating, and 40% for the dryer. To calculate savings for natural gas, find a consultant. Furthermore, about half the customers have electric water heaters (OMG!), but only about half the loads are washed with warm/hot water. This is figured into the mix above.
And BTW, swapping out all the electric water heaters would take down another 18 large power plants.
Speaking of China, here is another tip you won’t see anywhere: buy good stuff and keep it for a long time! As you know, since you are reading this, about 27 months ago, Michaels Energy was hatched out of Michaels Engineering. Last month, we dropped Michaels Engineering completely and rebranded with a new logo. The molt is complete. However, I still have clothing with the Michaels Engineering and the former Michaels Energy logos, and to me this stuff is as fresh as the cheese in the grocery store. Once you’re old enough to not be charged extra for car rentals and married or in some other committed relationship, no one cares or pays attention to others’ attire. So, now I have a bunch of date stamped clothes I would otherwise use for another 15 years. Energy saving tips: buy good stuff and don’t rebrand. You’ll save money and energy and reduce the trade deficit, but unfortunately may put someone making 78 cents per hour out of work.
Then there is this classic: use the dishwasher and not the sink to clean dishes. Question: does this factor in washing the dishes with the tap before putting them in the dishwasher? Does it also include not blasting water full throttle out of the tap when washing them by hand?
Energy saving tip: don’t buy so much crap. The street I live on is pretty typical of every neighborhood I’ve been familiarized with. Whether it’s one, two, or now typically three-car garages, peoples’ cars are parked outside because their garage is full of crap: toys, bikes, exercise equipment that was used for 11 days, various recreational vehicles, four or five half-completed projects. It’s especially hilarious when the vehicle is a behemoth SUV parked outside. These owners then start their cars 15-20 minutes in the morning before heading off to work to defrost the windows and warm the interior a little. In the summer, they are sizzling hot already in many cases. Save your upholstery, leather, vinyl, and paint job by clearing out the garage and parking the car where it should be. Buy good stuff and maintain it.
Energy saving tip: close the garage door already! Many homes with attached garages have substantial insulation such that they can lessen the heat loss through the connecting wall. Closing the garage door also keeps the cars warmer in winter to reduce the temptation for warming them up in the morning. It also helps thaw snow and ice off the car. A non-energy benefit is keeping varmints out of the garage. It doesn’t get any easier for mice to walk in through an open garage door. We also had a robin one spring that insisted on building a nest on our garage door opener. Wouldn’t be pretty.
Energy saving tip: eat venison. That’s right. This would save enormous quantities of energy. These 150 pound rodents are a bane to farmers, motorists, gardeners, and arborists. The DNR should eliminate bag limits altogether. Savings include no artificial resource consumption, unlike cattle that produce one pound of meat per ten pounds of food, generally corn, and an ocean of water. It’s locally grown. It’s practically organic. It reduces garden damage, increasing home-grown food production and all the savings with that. It would save millions of dollars in car damage and reduce injury, and even death, due to crashes. Do you realize how much energy an auto body repair shop uses? And finally, it allows my beloved trees to grow above waist height. Speaking of waists, it’s much leaner and healthier, packed with iron and protein, and just might keep some people off the defibrillator[3].
[1] Census.gov
[2] Enlarged to show texture (i.e., a mild exaggeration)
[3] Provided pork or beef fat isn’t mixed in 1:1 to make sausage.
Bait and Switch
The day after last week’s election, the headlines included discussions about the “fiscal cliff” coming on January 1, 2013, when the “Bush” tax cuts expire and substantial automatic spending cuts kick in. I guarantee this will not come and go without high drama. First thing after the election comes the ceremonial token olive branches, and five minutes later both sides return to sharpening their heals and digging in.
I would say energy efficiency has it’s own version of the fiscal cliff coming, and that is the end of the gravy train – lighting retrofits – the so-called low hanging fruit, a term I adore as much as the end of the day. Actually, it will be more of a descent into Death Valley as mandates phase out old-fashioned T12 and incandescent light bulbs. So what is the solution to the Death Valley Spiral? Vampire loads! This I read recently on a blog post or email. Going after vampire loads would be like making car radios use less power to improve gas mileage. Vampire loads don’t amount to squat, and I mentioned this in a blog a long time ago, but I just reran my own home tests.
First, what is a vampire load – energy consumed when a device is turned off. Leaving things on – like stereo and home entertainment equipment is not a vampire load. Here is my vampire load study:
The cable box DVR takes about 15 minutes to boot up, and it seems to not really have a power off mode, but if one likes to wait 15 minutes three times a day to save $20 in a year, go for it. Granted, this could certainly come with better not-in-use power characteristics. Nevertheless, this IS NOT a phantom/vampire load anyway. The VCR/DVD player burns a stunning 1 Watt, most likely to burn the digital clock on the display.
What is one frontier you never read or hear about? Stupid use of expensive fuel, and the most expensive fuel is electricity. If the country wants to take giant steps toward reducing energy consumption, why not promote fuel switching from dumb uses of electricity to natural gas wherever possible.
Last March or so, I bought a retractable clothesline for $12.95 at Menards. Simple payback: about 7.5 weeks (5kW, half hour per load, load per day, 10 cents/kWh). With the deck and clothesline on the north side of the house and winter coming, the “efficiency” of the clothesline is not so grand, so I’m staring at my 5 kW electric dryer.
Why do I have an electric dryer? Because in the La Crosse area, the standard apartment lease comes with “hookups” for washer and dryer but no washer and dryer. So, the hookups of course include electric-only energy sources for clothes dryers. Our choice, therefore, when moving here was electric dryer or the thrill of the Laundromat.
These hookups without appliances are as commonsensical as the Wisconsin bubbler.[1] Tenants have to buy and lug washers and dryers from place to place? Why not refrigerators and stoves too?
The mom and pop stores around here, where I prefer to shop because service to me is king, do not even carry gas dryers. Electric water heaters are another travesty. Using electricity to dry clothes and heat water is the same as buying a Husqvarna 5kW generator that burns gasoline to make toast in the morning.
In a triple or quadruple irony, it reminds me of the Nissan Leaf commercial. Speaking of double ironies, you have to sit through an ad to watch the Leaf ad on YouTube. Electricity is actually a smart fuel for cars, just as wind is for power generation, but there are about 46 physical limitations and barriers for making it a decent full blown alternative to liquid or gaseous fueled transportation.
Some barriers to smart fuel switching include old school energy program thought. Without an exhaustive investigation, I am not aware of any programs that provide incentives to switch from expensive, and from a resource perspective, more wasteful electricity to less expensive natural gas.
The fuel switching is a matter of cross-subsidization where, for example, an electric customer gets a rebate from the electric utility for switching to natural gas. The electric rate payers are benefiting the gas customers. If you stop and think about this a little bit, it is entirely foolish. When the electric utility throws money at a customer for installing more efficient lighting, it benefits the light bulb manufacturers – in CHINA! What is the difference to the electric rate payers OR the electric utility? Electric rate payer money via EE programs is used to reduce demand and sales of electricity while benefiting others customers and other retail sellers of stuff. What difference does it make whether the stuff is light bulbs, insulation, windows, automatic controls, or natural gas?
And consider this, nearly all the new electrical generating capacity is produced by natural gas. We pay to build natural gas plants, poles and wires to produce electricity at perhaps 70% efficiency (roughly for combined cycle plants) to power water heaters, clothes dryers, stoves and other stuff. Therefore, we use more natural gas, not less. As a result, we require more infrastructure for both natural gas and electricity delivery.
Not promoting fuel switching costs consumers at every turn. What is the problem here? Figure it out. Let’s go.
[1] Not knowing what a bubbler is is about as shameful as not knowing the name of a character on an HBO drama series, or the third string center for the Packers – from the 1988 squad.
Tea Party On, Dudes
Jeff Erickson of Navigant Consulting presented an interesting paper at last week’s American Council for an Energy Efficient Economy (ACEEE) Summer Study for Buildings. The title was, “Occupy Wall Street and the Tea Party Battle over Energy Efficiency.” I thought it was just clever (aka bait and switch) advertising, but the presentation featured, almost exclusively, how the free market, small government tea party and the profit-bad, regulation-good occupiers might view energy efficiency.
The tea party would favor consumer choice for incandescent light bulbs and gas guzzlers over government regulation of these common, and other uncommon for that matter, consumer goods. They would also advocate free markets for energy supply. The problem with this notion, however, is that the utilities were developed on a regulated monopoly business model, I would guess for economies of scale reasons. Also, natural gas and electricity are more like public benefits, as are roads, water, and sewage systems.
Free enterprise exists where barriers to entering a market are reasonably affordable, where access to consumers is vast, and/or where the product or service is pretty much optional. In my case as an electricity consumer, for example, the street transformer, the wires feeding it, and the wires going to my house from the transformer up to and including the meter, are owned by Xcel Energy. I can only guess where the electrical supply actually comes from, but it is safe to say Wal-Mart is not an option for buying electricity at this point.
Consumer choice for electricity, for me, realistically includes: (1) Xcel Energy, (2) a natural-gas-fired generator, (3) photovoltaic / batteries, or (4) other options that are even less cost effective. At the current bargain basement cost of about 70 cents per therm of natural gas delivered to my house, I could generate electricity for roughly 12 cents per kWh. This, of course, does not include the $4,000 (or whatever) cost for the electrical generator churning out electricity with a stunning 20% efficiency.
Switching gears for a moment, I’ve overheard discussions of how the deregulations of the telecom and airline industries have been failures – how? Apparently because many carriers filed for bankruptcy. These are failures of adaptation, not failures of market changes. Nearly all, if not all the legacy airlines have filed for bankruptcy and others like Eastern and PanAm were essentially liquidated. These legacy carriers were saddled with unsustainable contracts with unions. The “solutions” included crippling strikes and/or eventual bankruptcy to put these doomed-to-fail contracts through the shredder and start over.
I was just explaining to my friend how Delta Airlines had retrofitted their planes to have skinnier chair cushions to shoe-horn another row or two of seats into their cattle-class cabins. His response: “Dude, but you can still fly practically anywhere for $400.” True. In twenty years of business travel, plane tickets haven’t budged much at all, EVEN with much higher fuel costs. I bet that non-fuel cost per passenger mile has actually declined over the same period because new low-cost carriers like Southwest, Frontier, and Jet Blue have joined the market. I call this a huge victory for consumers. Telecom, the costs for which I know much less about, has been a similar smashing success. Long distance is so cheap at any time of the day, it isn’t worth tracking – better than the buck a minute for “collect calls” from the 1970s. Half the readers probably don’t know what a collect call is. Again, a few bankruptcies of cement-shoed companies later, consumers have benefited hugely.
Deregulating utilities, electricity in particular, has never been successful to my knowledge because it meets none of the criteria above. Consider water and sewer, which, like electricity, are necessary for modern life. It is less expensive (and hassle) to hook up to a central municipal system that uses vast economy of scale to provide these critical services at a virtually negligible “startup” cost, and very low operating cost. It also provides environmental benefits of lower risk by poking fewer holes into the water table and better containment of nutrient-rich sewage. I’ve seen lakes go from green algae bombs to nice clear water in just a few years with the installation of municipal sewage systems for homes that lined the lake shore.
Regulated monopolies that exist with large centralized providers of “the necessities of life” will continue to be the best option for consumers – for as far as the eye can see. Policies to minimize cost with reasonable environmental regulation are necessary, while consumer choice is preferred.
This is why, in my opinion, our industry needs to lay off mandates for “unequal” alternatives. Unequal alternatives include standard and halogen incandescent light bulbs, CFLs and LEDs. Each has one or more substantial differences in cost and output, including color rendering and full startup time. Conversely, standards for some consumer appliances have demonstrated in numerous cases to be huge successes. One example is the lowly refrigerator. Energy consumption for refrigerators has fallen by almost three quarters since the early 1970s while inflation adjusted cost has barely budged at all. More importantly, cold is cold. The beer, ice cream, and lettuce don’t know the difference.
Other success, of course, includes cost effective lead-by-carrot programs that incentivize cost effective, efficient alternatives – and no, I am not repeating myself. The programs AND the products and/or services shall be cost effective for consumers. Energy efficiency shall be the lower cost resource alternative to more power plants, fuel, poles and wires. This is something the tea partiers should get behind with some well-presented market information.
GHG and NG
E Source reported last week that green house gas (GHG) emissions are falling fast in this country, as shown in the chart nearby. Emissions tanked with the economy in 2009, and as I recall, the summer of 2009 was also cool, resulting in lower electricity sales. Even so, when adjusted for economic output, GHGs are falling fast.
The reason for this is rather obvious if one follows the electricity market. It is much easier to get a natural gas power plant approved for construction as compared to a coal-fired plant. I have not done the analysis myself, but it is reported that natural gas has results in half the GHG emissions compared to coal. This is first because natural gas is primarily methane combustion, which produces one molecule of CO2 and two molecules of water. Coal has a higher ratio of carbon to hydrogen, and I’m just going to leave the stoichiometry at that. The second reason natural gas produces less GHG emissions is because base-load plants are combined cycle (story for another day) with nearly double the thermal efficiency of a coal plant’s Rankine cycle.
A local example of a coal-to-natural-gas switcheroo is at Marshalltown, Iowa, where Alliant Energy proposed a coal-fired plant several years ago. That was shot down and instead plans for a combined-cycle natural gas fired plant were recently announced. You can bet this has happened in dozens of other instances throughout the country.
Generation from natural gas pulled even with generation from coal this year for the first time. This second plot was provided with the same E Source piece. E Source asks, “Where is the hullabaloo? Where is the celebration?” From the utility perspective, I don’t know. Probably because no one utility can claim huge credit?? Maybe customers don’t care?? Again, everyone is for reduced emissions, until they have to pay for it. Natural gas plants aren’t free, and so that may be a reason for keeping quiet from the utility perspective.
What about the activist attack dog groups? They caught the car, now what? Pee on the tires, of course. Like politics for many people, it is no longer about the issues, it is us versus them and beating the tar out of the other side. Like sports for many people, it’s as much fun to see the bitter enemy lose as it is to see the home team win, but only if the bitter enemy is good. If the bitter enemy is lousy, who cares? Then they are not bitter enemies. People need bitter enemies, and this is why attack dog silence is deafening.
Another reason utilities may not be crowing is because they know they are doing what they have to do in the short term – which is add more capacity or replace old generation that has reached the end of its useful life. Natural gas is the easy way to go and no one objects, much.
The other obvious factor feeding this is hydraulic fracturing and the resultant glut of natural gas coming onto the market. At one time, petroleum and natural gas were alternatives to one another, and at times, fuel oil was even less expensive than natural gas for certain end uses like those for manufacturing, water, and space heating. This is no longer the case. The ratio of petroleum prices to natural gas prices has blown off the chart. You can see in the nearby chart that on a Btu basis, natural gas and petroleum prices, as well as liquefied natural gas and European natural gas prices, tracked one another very closely as recently as the middle of last decade.
A six-fold differential in the cost of natural gas and petroleum is not going to stand. At somewhere in the $1.50 per gallon equivalent, natural gas will not be ignored as a serious transportation fuel. Truckers are paying something in the neighborhood of 70 cents per mile for diesel fuel. How would their margins look if they chopped this to about a quarter dollar per mile? Huge, but of course those margins won’t hold up. Competition among companies will bring those margins back down at the expense of much higher natural gas costs.
According to a Wall Street Journal interview with Tom Fanning, Southern Company’s CEO, coal plants accounted for 6% of the new generating capacity since 1990, while natural gas has taken 77% of new capacity over the same period. Southern Company’s coal fired generation plummeted from 70% to 35% in just the past five years. Meanwhile, coal exports to energy-starved China and India have doubled.
The valleys (market demand) will be filled and the gaps (prices) will be shrunk. That’s what markets do. That’s all I’m saying here.
Natural gas is a fantastic fuel. Extract it, compress it, pipe it somewhere and burn it in everything from a stove in your kitchen to a steel plant. It doesn’t need refining. It doesn’t need train tracks. Using it as a fuel for power generation seems great now, but it is a very highly valuable fuel because it is so flexible. The price is depressed at this moment because the supply is huge while demand hasn’t caught up – but it will.
A few years down the line people will be asking, “Whose in the hell idea was it to convert all of our generation to natural gas?” The dogs will have their cars to chase and everything will be normal again. It would also follow that the Minnesota Vikings will be a threat to the Green Bay Packers at about the same time. Write it down. You saw it here first.
Independence, Finally
Here is some good news in my view. Despite nearly 40 years of political claptrap to reduce our dependence on foreign oil, technology from the private sector, not cockamamie pie in the sky, physics-defying dumb ideas will deliver it. That is, unless of course Washington snatches defeat from the jaws of victory, which it is 100% capable of doing.
I went looking for data on our dependence on foreign oil since the first oil shocks of the 1970s. There is one significant dip in the import percentage chart nearby and that is due to (1) a deep recession in the early 1980s, and (2) cars shrunk in size and weight in a period of a couple years by at least 30%. They have since ballooned back to monster tanker size. Have you stood next to a 6000 pound Dodge Charger[1] lately?
The second chart shows consumption, production, and imports of crude, as reported by the DOE’s Energy Information Administration. Production has only recently increased after a nearly unabated 40 year decline.
As an example of Federal Government lunacy, see the transcript from GWB’s State of the Union show excerpt from 2006. According to that, by now, 2012, we were to have plentiful, clean, safe, nukes (none), cellulosic ethanol (none), better batteries (like ones that don’t start on fire?), and this dandy: hydrogen for emissions free transportation (you’re killing me).
The 2006 goal was to reduce petrol imports by 75% by 2025 – another “pull a number out of the air” for a round of applause. I would boo, or possibly I’d be more civil and just laugh aloud like Dr. Evil and No. 2.
The Wall Street Journal recently reported that the explosion in domestic natural gas and oil production due to hydraulic fracturing could chop oil imports from the hostile Middle East in half by the end of the decade and end it altogether by 2035. Whoa! Think of living in that kind of world!
Time out for this note: We have only been worried about running out of natural gas and crude oil for about 35 years, but as the years pass, the reserves keep growing driven by the private sector’s salacious quest for profit. It’s just pure evil.
Aside from geological and extraction technology delivered by the private sector, another critical element of this unstoppable energy boom is that the shale formations being targeted for drilling are in the control of private land owners, free of the Washington straightjacket.
Not only will oil production increase in North America, kicking our dictatorial adversaries where it hurts most, natural gas is likely to become a significant transportation fuel. And, like it or not, a huge benefit of coal and natural gas is that they are virtually ready for consumption as extracted from the earth. Crude oil obviously is not.
Even with this abundance of conventional fuel sources, the pursuit of alternatives will continue. Actually, the abundance and accompanying low cost is likely to draw the sinister profit seekers to hotly pursue alternative fuels. I project, with high certainty, that breakthroughs in alternate fuels will come from some of the most hated sectors in business: big oil and big chemical. This isn’t like starting a software company or social media site. It requires massive investment in R&D, high priced technical experts, equipment, and facilities, and freedom from the ignorance of dumb ideas and red tape.
This will be a bittersweet sister smooch.
[1] Wild guess. The point is, they are enormous hulksters.
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.
Evil V Clueless
This week I have an I-can’t-take-it-anymore topic: gasoline prices. It is not the gasoline prices that chap me, but the pouting, mud throwing, food fights, whining and probably worst of all the stupid solutions to the so-called problems.
Gasoline is like any other product or service that is a must-have in society and therefore, like electricity and natural gas, consumers feel entitled to all they want at a negligible price. And by the way, why all the hype right now? It’s around $3.50 per gallon. Being an election year obviously feeds the flames and I guess there just isn’t enough other bad news in the world for the 24/7 cable news and internet news world to hype up for ratings.
Products and services for which consumers feel entitled are sold and manipulated by blood thirsty, evil, corrupt, large corporations. A little sarcasm? Not so ironically, the evil and most hated industries are the most heavily regulated: utilities, oil companies, insurance companies, and pharmaceuticals. If oil companies were able to drill willy nilly wherever they want, prices would come down. But Americans don’t want that. If health insurance would be decoupled from employment and people were able to shop for it anywhere in the country and if the tax subsidy were removed, prices would come down. But it has become a right that employers provide it. You’re probably thinking I’m crazy on this because individuals pay way more than large groups. That’s because large groups exist. If insurers had to fight for individuals one by one and there were no large groups the “gouging” of individuals would go away.
We are not hostage to oil companies. We can drive less and people can buy more efficient vehicles. If your vehicle today doesn’t get at least 30 mpg, your rights for complaining about gasoline prices are rescinded. If you have to haul a hockey team, soccer team, or squad of ballerinas I’m quite certain there are minivans that can do the job at 30 mpg. Suck it up.
Politicians, as usual, are more concerned about making political hay from the issue than doing anything about it. The left piles on the populist evil big oil and a few evil individuals like the Koch brothers. The right beats on the President even though domestic production is up. When Bush was in office, high oil prices were the result of his connections to big oil. With Obama in office, the narrative is he wants high oil and gasoline prices.
Then there are completely ignorant talking heads like Bill O’Reilly. As I mentioned in Electric Bills and Waldo a couple months ago, the United States had become a net exporter of refined petroleum products and I said that was a good thing. Oh no! O’Reilly just found this out a couple weeks ago and he is completely incensed. Oil refineries selling their product in markets that have the greatest demand and selling to the highest bidder is a crime, apparently. Exports should be taxed to the gills! Are you kidding me? Nothing makes smoke pour out of my ears more than the political class talking as though the only reason companies exist is to fund the government. They want to set the rules so the private sector company doesn’t make what the politicians think is too much profit, doesn’t move manufacturing overseas, builds factories in the right state, pays the right wages, provides the right benefits and so on, and of course pays enough taxes to the emperor. Ditto O’Reilly.
Next is the narrative of the evil “speculator”. “Speculators” view the market, world events, current prices and futures prices. Most speculators are companies that buy a lot of petroleum products – like airlines. It’s called a hedge against risk. They may believe locking in $3 jet fuel for the next year is a good thing to do in case all hell breaks loose in the Middle East. By the way, this is one of the major reasons prices are high now – because AquaVelvejiad threatens Israel on a daily basis and is thumping his chest over the straight of Hormuz.
Sure there are gamblers in the futures market but they too serve a purpose. They provide liquidity and capital to help the markets work. However, they DO NOT make a lot of money just because oil prices are high as O’Reilly believes. They buy and sell futures and futures options. They can bet the price will rise by buying long or buying call options or bet the price will fall selling short or buying put options. For every winner there is a loser. In whole, it all stabilizes the market although once in a while a house of cards develops and the market collapses and many of those evil speculators get torched badly.
Then there is this dopey accusation: gasoline companies are price fixing. This has been disproven a thousand times. And it is simple common sense – if they are conspiring to fix prices, why not price gasoline at $8? Why does the price go down? Why does it fluctuate at all Mr. Conspiracy?
Causes of rising prices include the aforementioned tensions in the Middle East, and demand from the developing world. But also, many folks don’t realize that the weakness of the US dollar plays a significant role. A year and a half ago in Playing with Fire, I railed against the Federal Reserve’s “Quantitative Easing” (money printing) because it floods the world with dollars and with rising supply there is falling demand and value. This occurred last spring and the dollar scraped along at interim lows as gasoline prices peaked in May and fell into the summer. Gas prices otherwise never fall in the summer, except when somebody is messing with the value of the dollar in a big way. The dollar peaked in December 2011 as gasoline prices hit the lowest prices in a couple years. The dollar has since fallen off and gasoline prices are up. Get it?
The US isn’t going to go bankrupt and it won’t default on its debt. The government will either get the deficit and debt under control or we will inflate our way out of debt. We can effectively lop a couple zeros off our 16 trillion debt and voila, our debt is suddenly only 160 billion old dollars. The downside: a loaf of bread and gallon milk cost $700. A gallon of gasoline: $350. I feel the start of a credit card commercial coming on but I won’t go there.
The fact is, there are many factors that push prices up or down. Like any complex model, it is extremely difficult if not naïve to isolate the effect of one actor. Cleary though, rising world demand, limiting supply, tension in the Middle East, and a weak dollar and a dozen other factors put upward pressure on prices.
Dodging the Absurd
In Stalin Lives, I mentioned our plan for securing an ENERGY STAR® clothes washer and dryer for our house. What I did not mention was that the local appliance stores do not even stock gas-heated dryers.
Think about how stupid it is to generate electricity with maybe 35% thermal efficiency, lose 10% of it to line losses, as discussed last week, in it’s transport to the home and then use this high-value energy as a toaster coil to dry clothes. We, as well as I am sure millions of households, use “gas”, natural gas in our case and propane in others, for space heating while at the same time we have a electricity guzzling clothes dryer. Why? Because as I said, we bought the thing for an apartment that had only an electric energy supply for the dryer. In other cases per the local appliance retailers, they don’t even stock gas dryers.
This is a huge opportunity for energy efficiency programs struggling to find cost effective savings in residential sectors because of appliance efficiency standards and the phasing out of the Edison incandescent light bulb. There is one major problem, however – it doesn’t fit the current regulatory model because of fuel switching. Measures that include fuel switching are not eligible for programs and incentives in just about every jurisdiction I know of. This is one of the buggy whip holdovers that regulatory agencies are going to have to get over – among a bunch of other ones I’ll discuss in future posts.
The fuel switching argument goes something like this: electric consumers should not be cross-subsidizing gas consumers. And, electric utilities should not be giving money away to shed load, reduce their revenue and turn it over to the gas company, which may or may not be the same utility. Many if not most times, gas is provided by a different utility than the electric provider.
This is akin to the argument that utilities should not make money from energy efficiency programs, which can be done if regulators would allow it. This also makes no sense. Electric utilities are throwing money at customers to use less of their product all the time but typically it just results in less electricity consumption and not more of some other fuel consumption.
According to the Energy Information Administration, 61 million American households have electric dryers and they consume 1,080 kWh per year apiece. That’s probably a little more than a load per day. I’ll buy it.
I could spend the entire weekend digging for numbers and put this all together but instead, I’ll make some educated guesses. Using 11 cents per kWh, the electric bill for an electric dryer runs about $120 per year. A gas-fired clothes dryer would require a measly 38 therms to do the same drying. Using a conservatively high natural gas cost of 80 cents, this is $30 per year. Consumer savings is about $90 per year. This is probably an 8-9 year payback. Throw in $100 incentive and this brings it down to maybe 6-7 year payback. I am not a program benefit/cost or total resource cost expert but, this has to be a passing score for a cost effective program.
New residences should also get incentives for natural gas hookups and even supply if the residence is in a town with natural gas running through its neighborhoods. Before we moved into our house, ur apartment for instance was all electric but surrounded by natural gas distribution – stupid!!! What gawdawful waste of resources.
What sort of impacts then are we talking about? Sixty-six billion kWh, which would require about fifteen 500 MW power plants running 8,760 – that is if everyone took their turn such that there would be exactly 1.5 million dryers running at any one time – about 7,500 MW from the 15 power plants. I would guess that at least half of these dryers could be replaced, meaning homes with these dryers have gaseous fuel to the residence already.
The above guesstimates are reasonable considering there are 40 million households with electric water heaters (everyone has a water heater and there are 40 million electric units and not everyone has a dryer and there are 60 million electric units – get it?). Generally speaking, if people have natural gas or propane for their home they have a gas water heater, but not always; again, apartment buildings being the stupid cheapskates. Electric water heaters in this country require about twenty-five 500 MW power plants running 24/7/365. Surely a quarter of these could be lopped off, cost effectively as well.
There is an old saying I scoff at every time I hear it: “Work smarter, not harder.” Whoever says that probably has never done either. Necessity is the mother of invention. The more work that gets piled on a person, the more they innovate so they can go home at a decent time and not have to work all weekend. Although in some sectors, piling on more work means hiring more people out of “necessity” or just not getting certain things done out of “necessity” because the day starts at 8:00 and ends at 5:00 with an hour for lunch, period.
For energy efficiency, we’ve been working on the “harder” part. We promote efficient equipment and systems but I think we need to wise up and consider promoting avoidance of the absurd.
You have probably seen the ad for the all-electric Nissan Leaf. The opposite for some things like dryers, water heaters, and residential ovens/ranges, it isn’t quite as amusing, however.
Tidbits
At the Midwest Energy Solutions Conference I mentioned last week, three utility executives from major utilities including ComEd, Ameren, and AEP discussed the need for changing the utility business model because it doesn’t work with a non-growing and in some cases shrinking sales environment. This will probably be the subject of a future post but it just occurs to me, speaking of the Leaf, that they obviously are not counting on electric transportation taking off because this would create huge demand and increase in sales. When will the automakers come to the same conclusion?
Meanwhile another $115 million “winner” of favored Washington businesses, Ener1, a maker of lithium-ion batteries for automobiles quietly filed for chapter 11 bankruptcy last week. Speaking of absurd, the death of the electric car is coming faster than I imagined. The article mentions that not only are customers put off by limited range and luxury car prices, they fear lack of service and parts because only a few thousand exist and all the parts suppliers will be out of business. On top of everything else, there is a vicious circle of doubt in buyers’ minds.
The article goes on to say, “The company said it reached an agreement with its main investors and lenders on a restructuring plan it says will ‘significantly reduce its debt and provide up to $81 million to recapitalize the Company to support its long-term business objectives and strategic plan.’” Uh, sorry. The only investor stupid enough to recapitalize a company with virtually zero demand for its products is the US government on behalf of the US taxpayer, but the political tables have turned. Although the failure had little press, government recapitalizing failure will rightfully be lambasted.
Speaking of absurd, this winter has been absurdly warm from the plains to the east coast. My recent electric bill said it was 10 degrees warmer than the same period a year ago when it was about average. Alaska generally has the opposite extreme we have here in the upper Midwest. Yesterday (Saturday) the low was minus 52 and the high? (get a load of this): minus 37. WoW! Normal things don’t like to work when it gets cold, say minus 20. I can’t imagine the things that don’t work when it’s minus 52. A condensing furnace for example may not work as the condensate may freeze or the exhaust may ice up blocking the flow of combustion air/gases. Amazing. What do they use for antifreeze in their vehicles? Everclear?
Stalin Lives
Various areas of the country have various weird oddities. When we moved to the La Crosse area last decade, or the one before that, we found that apartments come with laundry hookups but no washer and dryer. What the? How about a friggin wash machine and dryer to fill that hole and plug into those pipes and wall socket? So we went to a now defunct appliance joint and picked up an Amana washer and dryer – electric of course because a rental joint isn’t going to provide natural gas.
I think I’ve finally talked my wife into getting the front load, ENERGY STAR® machine and a natural gas dryer, which will cost a pittance to run compared to 11 cent electricity. Is this normal? Do guys need to talk women into new appliances?
The selection process includes visiting a couple local stores and picking up some Consumer Reports from the library. I’m not a research freak but buying a washer and dryer is almost like getting married. A mistake could be a pain in the keister for years and I don’t want to be ripped off. As it turns out, washers and dryers are like toasters. My theory with toasters is, the less sophisticated and cheaper, the better and more reliable.
We did not call Electrolux or Whirlpool to see what they recommended. Electrolux and Whirlpool make just about everything in a major-appliance store. It’s like bread or hotels – dominated by a couple major players with various brands under their wing. Anyway, what sort of dupe would ask a manufacturer of anything for advice on what brand to buy?
Just last week I was reading an article on commissioning (Cx) light. The name sounds innocuous, if not intriguing but once I got into the article, I was thinking the owner would have to be a dupe to pay for this. In case you don’t know, commissioning is a quality control / quality assurance process where an independent third party expert with superhuman powers, knowledge, experience and skills oversees the design, construction, and post construction testing. The total cost may be $1-2 per square foot, adding roughly one percent to the cost of a new building. Services include ensuring the owner’s design intent is incorporated into the construction documents, built per the documents, and controlled per the documents.
The players in the design and construction game include the architects and engineers (A&E), general (or prime) contractor, their sub-contractors, and the owner. I haven’t participated in the process and from the sound of it I don’t care to. Engineers complain about the architects, contractors complain about them both, and typically the A&E provides project management and OK’s payment from the owner to the general contractor for doing the job they are billing for. Everyone tries to look good to the owner while kicking each other under the table like kids at the dinner table. When Mom and Dad leave the room the hair pulling, name calling, punching, and food start flying.
Good teams of A&Es and contractors will work together in the best interest of the owner. While I imagine there are many decent, upstanding contractors, the evil ones will take advantage of any flaw in the design and issue change orders with sky-high costs – see, at this point, the owner is stuck with the prime, like an evil tenant like Michael Keaton’s character in Pacific Heights. And, the prime will blame it on all the other idiots.
The Cx light ring leader in the article is a representative from the prime contractor. Oh yeah, let’s give the concern with the biggest weapon the trigger. In this scenario, the commissioning agent is established as the owner’s and prime contractor’s agent, and maintains continuity between engineers and contractor subs. I have another name for the guy: Joseph Stalin. The subs, architect, and engineers are Czechoslovakia, Poland, and Romania.
Energy efficiency services are nebulous, squishy and illusionary enough, which is why we have resorted to pre and post billing data to demonstrate savings. All the hand waving and puppet shows in the world can’t clarify things better than that. Building commissioning ten times less defined – you know, like 10 times colder. What does that mean? It’s cold. Ok.
As an energy and occupant-comfort guy, I think the most important part of Cx is the functional testing of the building’s automation and safety systems. There are few people in the universe that understand systems and controls well. Is the Cx agent from the prime a controls guy? Is Lebron James an expert in Fourier differential equations? I don’t know but I’ll bet not.
Requests for proposals for Cx generally include a laundry list of cut and paste crap from a web page. What owners really need is Cx agent agent. The CxAA would determine what is in the best interest of the owner and write an RFP that precisely defines what the owner needs. For example, interpret the conceptual design of the HVAC systems and explain their pluses and minuses to the owner. What might be better comfort-wise, energy-wise, maintenance-wise? Review the plans at this and that percent complete for x, y, and z. Provide functional performance testing. A CxAA type person is used all the time in the energy efficiency world. The hiring agency, such as the utility or public service commission will hire someone to write RFPs and assist with the selection.
The bottom line: Cx “light” is fine but the Cx agent should be independent from the design and construction teams. Don’t ask the line foreman at General Motors what kind of a car to buy. Owners really need someone to write a decent, well defined scope of work to get honey crisp versus granny smith proposals. Don’t ask for a piece of fruit.
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