New Years Collage

28 12 2010

I’ve corralled a mishmash of rather preposterous short stories for the year end rant.  This will be historic so be sure to pass it on to your enemies.

Case 1 comes from Engineered Systems Magazine or ES Magazine.  I was catching up on my stack of trade magazines over Christmas weekend (is this sick or what? – but it can be about as entertaining as National Lampoon’s Christmas Vacation).  September’s “Case in Point”  features an energy-saving project for Bangor Maine’s Discovery Museum, delivered by Honeywell.  An audit was followed by implementation of cost-effective measures.  The audit was completed in 2008 using the “Field Automation Service Technology” tool (FAST – I love acronyms – this is for real, theirs).  Findings included the not-so-unusual deferred maintenance like plugged air filters and heating/cooling coils among some more capital-intensive measures apparently.

One of the measures was to install a dual fuel boiler burner to take advantage of cheap natural gas as opposed to $3 fuel oil.  The results “dramatically impacted the museum’s bottom line”.  The museum paid $2,732 for fuel oil in March 2007 and only $39 in March 2008.  Well gaaaauuuullly!  (1) fuel oil is stored in tanks on site so you can spend money on fuel when and how you want and (2) they switched from using fuel oil to natural gas.  To ensure the savings persist, Honeywell was generous enough to throw in three years of service contract to maintain fresh filters.  So what were the real savings??

Case 2 begins with the opinion guys from The Wall Street Journal noting that the EPA is regulating the bejesus out of heavy industry, and in particular the utility industry.  This is to start in earnest after the first of the year, with EPA chief Lisa Jackson leading the way.

Starting in the midst of several salvos, the WSJ says utilities are being “forced to choose between continuing to operate and facing major capital expenditures to meet the increasingly strict burden[s], or else shutting down and building replacements [power plants] that use more expensive sources like natural gas. Either way, the costs will be passed through to business and consumers as higher rates, which is the same as a tax increase.”   My major problem with this is the usual case of government making things more expensive for the private sector, and guess who takes the beating?  It won’t be the government.

But even more bizarre and fishy smelling is a bunch of utility CEOs cheering on the EPA in a letter published in response to the Journal’s rant – like this will be good for their business.   They say that “Contrary to the claims that the EPA’s agenda will have negative economic consequences, our companies’ experience complying with air quality regulations demonstrates that regulations can yield important economic benefits, including job creation, while maintaining reliability.”  And throwing rocks through windows stimulates the economy and makes for carpenter and window factory jobs too.  This doesn’t pass the laugh test.

In the latest shot, the Journal points out the agenda driving the do-gooders – higher prices driven by other utilities as noted above, but the higher expenses don’t apply to certain utilities that are heavy in nukes.  This makes perfect sense.

A strong word of advice for these CEOs: play with the devil (U.S. Government) and you WILL get burned by command and control coming from Washington.  It’s only a matter of time before you will be looking down the long barrel yourselves.

Case 3, just in time for the warmer weather, airport snow removal by heated pavement!  OMG!  Of all the insane ideas, including air conditioning in 19 soccer stadiums in Qatar, manmade islands in Abu Dhabi and indoor ski slopes and ice rinks in the Marina Mall, this one tops them all.  Calculating the heat loss would melt a mortal Hewlet Packard RPN calculator.  Larger airports in cold climates, like MSP and ORD would require a small star (like our sun) to keep the concrete above freezing in worst-case weather.  And per my crude calculations, ORD has roughly 14 miles of runway that would take roughly a half million cubic yards of concrete alone (this is from me, a civil engineering / aviation zero).  This doesn’t include tarmacs or the infrastructure like underground rivers of antifreeze required for heating.  And just think of the disruption.

This is a really bad joke for an idea.  Intervention by someone with a brain may be required.  This comes from people who throw the number “trillion” around like it equals 10 million.  I forget where/who I was listening to but they didn’t use the word “trillion”.  They used “thousand billion” in it’s place – much more effective.

written by Jeffrey L. Ihnen, P.E., LEED AP

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Upside Down Consequence of EE?

5 10 2010

Many posts ago, I wrote “The More You Spend, The More You Save” explaining how poor system control wastes energy but results in even greater energy savings for efficient equipment.  For example, consider an air handling system that wastes heating energy provided by an efficient boiler.  The boiler saves x% versus a conventional model, so x% multiplied by greater use (wasted energy) results in “more” savings.

Recently I picked up on buzz that argues greater efficiency results in greater energy consumption.  At one point I recall reading in the Wall Street Journal an editorial that argued more efficient vehicles just result in people driving more.  They live further from work.  They go on joy rides.  They visit the in-laws more.  I scoffed at this argument, at least at current gasoline costs and anything near them.  If I buy a hybrid that gets 50 mpg versus a “sports car” like an Infiniti G35 coupe that goes half as far on a gallon of gasoline, I will drive more.  No.  Way.

I will drive more (barely) if (1) I have a car that is fun to drive and (2) I am in an area where it is fun to drive.  While I haven’t driven a hybrid, I don’t think it would meet my criteria for #1.  As for #2, western Wisconsin is a driver’s and biker’s paradise because (1) it is scenic (2) there are lots of smooth, paved, and curvy roads on which to drive and (3) there is minimal traffic.  Quite frankly, I’m much more concerned about striking a deer, coon or coyote than another vehicle.  I used to live in the DC metro area.  Forget it.  You might as well drive a tin can because you are going nowhere fast.  I grew up in Southwest Minnesota.  Forget it.  You can drive for miles without moving the steering wheel.  But even so, living here in driver’s paradise, I have limited time so I never, ever think, “ooh boy, a 45 minute drive is only going to cost me $2.79 in gasoline – let’s drive!”

That’s one argument that doesn’t hold water in my opinion.  On the other hand, some people do run efficient stuff like lighting for longer hours because it’s efficient.

The other argument made in these articles is that the money freed up by spending less on energy results in redirection of that extra money toward other goods and services – and those goods and services result in more energy consumption to extract, process, manufacture, transport and operate.  I do buy into the merits of this argument whether the end-user is a homeowner, service provider, or manufacturer.  I never really bought into the notion that energy efficiency programs result in lower revenues for utilities.  Maybe they understand this and hence the rah-rah from utilities for energy efficiency programs.  I don’t blame them.  By far the main driver of EE is saving money and increasing profits.  See “This is Not Tee-Ball“.

Just think how this turns the energy efficiency business and policies on their heads.  In “Paying to Lose,” I discussed how utilities have to make their savings goals or they may get hammered by regulators.  This, in turn, improves the bottom lines of their customers allowing them to expand.  What a racket.  Rather than utilities spending money for their customers to use less of their product, they are actually using their CUSTOMERS’ money to sell MORE of their product.  And how about “Decoupling Stupid,” that allows utilities to recover revenue “lost” to energy efficiency?  They spend their customers’ money to increase sales and meanwhile essentially get reimbursed for the “savings”.  Cool!

We have also discussed the underperformance of LEED facilities.  In “LEED and the NOT Happenin’ Savings,” I described how LEED buildings weren’t meeting energy performance targets because of lousy commissioning.  Well hail to the lousy commissioning agents!  They are actually reducing global energy demand and greenhouse gas emissions.  Now that end user won’t be able to afford a new vehicle manufactured in Ontario with steel from soot belching plants in China shipped across the Pacific, through the Panama Canal to the Gulf of Mexico and transported by rail to Toronto or someplace – and tires from tariff protected Ohio that are shipped to Canada and back to the California border once installed on the automobile.  They also won’t be driving their phantom car.  (California won’t allow the car cross state lines because of the embedded energy, so Los Angeleans have to drive to Reno to pick up their car – I just made that up but it is probably true or at least accurate or emblematic, but certainly driving a new car across state lines into the golden state causes cancer and birth defects like everything else in CA does)

And I consider Michaels Energy.  Our facility uses practically no energy but in recent years our air travel has gone from virtually zero to hundreds of thousands of passenger miles per year.  And from the destination airport, we drive all over the place.  Soon for example, we will have about five people zigzagging all over California verifying energy efficiency measures that probably save less than the gasoline burned to prove it.  Somebody has to do it!

So go ahead and turn that thermostat up, open the window for some fresh air and click on that 70 inch plasma TV, have a beer and save the planet, Homer.

written by Jeffrey L. Ihnen, P.E., LEED AP





Decoupling, Stupid

16 06 2010

One way the utility business works like the rest of the economy is that it sells its products/commodities at a price that is higher than the cost of production, on average.  The more utilities sell, the greater their gross profit.  This is at odds with utilities’ incentive to save energy with energy efficiency programs.  As a result, some utility executives are opposed to energy efficiency programs.  That is a short-sighted view but that’s a story for a different day.

As a result of this dichotomy, a pricing mechanism known as decoupling has been developed.  This NREL paper gives a pretty good overview.   It says simply that “Decoupling is a rate adjustment mechanism that breaks the link between the amount of energy a utility sells and the revenue it collects to recover the fixed costs of providing service to customers.”  There are a number of specific ways to do this, some of which are described in the NREL paper, but the bottom line is utilities are less reliant on sales for their well being.

This may seem like an ingenious idea, but I see a lot of significant, if not major hang-ups.  One of the benefits is reported to be price and revenue stability.  But here’s the problem as I see it: revenue stability equals profit volatility.  Take the lousy economy we’ve had the last couple years.  Utility sales are way down but the utility keeps collecting bills that are closer to the long term averages, which means prices increase (if I know math, and I think I do).  They are selling less but there is this decoupled “fixed” cost pasted to customers’ bills.  Good for them.  What about the customers?  They are cutting back on everything due to wage pressures, layoffs, production cutbacks, and lower profits.  So what do they get in return?  A higher energy costs per unit purchased, just what they don’t need.

The opposite is also true.  Say we get a really hot summer.  Now the utility has to sell, and generate or purchase a lot more energy.  In this case, a lot might be 10% more, but that has a huge effect on price.

I just watched a demand response webinar.  Demand response incentivizes customers to cut back during peak periods when energy costs are very high because everything but homeowner’s Honda generators are putting power on the grid.  One way to deliver demand response is to pass the cost of putting the last kilowatt of power on the grid.  I don’t know where the last kW comes from for sure, but it’s way expensive and for good reason.  As full capacity is reached, power generators (companies) either charge the arm of your first born or we get brown outs.  So when the utility passes this cost to the customer the cost is huge, like 5-10 times normal cost.  Peak power is very expensive.

Back to the hot weather.  Now the utility has to sell all this really expensive electricity with less ability to recover (1) the extra high price of electricity and (2) the larger volume of energy delivered.  I suppose if you have real-time pricing described above, this will be mitigated.  But many states including MN and WI have decoupling pricing mechanisms in place, but practically no demand response or real time pricing.  The decoupling in MN and WI is news to me, but if NREL says so, it must be true.

So it seems to me that decoupling presents at least as many and as big of problems as it solves.  Did Washington come up with this?

When I interview with job candidates I usually explain the utility market and why energy efficiency programs are implemented –to keep costs down by delaying or avoiding the construction of power plants, poles and wires.  Again, it seems to me decoupling is at odds with this because the intent is to protect revenue, not prices.  If you protect revenue the “societal” benefits would seem to be lower to me.

In general, not just talking about utilities, decoupling supply and demand is a horrible idea.  Despite all the political bomb throwing regarding healthcare, the number one cause of soaring healthcare costs, which continues to go unaddressed, is the decoupling of premiums and services rendered.  For decades the system worked like this: pay a flat rate and consume all you want.  It doesn’t take a genius to predict what will happen.  In California, they kinda sorta deregulated the electricity market last decade.  They decoupled generation from delivery, deregulated wholesale prices for the utilities but capped consumer prices.  Result: utility bankruptcies and the Governator in a recall election.

I am not saying decoupling is going to result in any sort of disaster like these examples, but messing with Econ 101 supply and demand is almost never a good idea.  If we want to protect revenue, why not just build it into the rate case.  Societal benefits may take the same hit, but at least customers pay for what they consume, “real time”.

If we want to control consumption and keep prices in check, we need all the market effects of supply, demand, and pricing that we can get.  A complete free for all would go too far for a bunch of reasons I’ll save for another day, but we need more pricing response, like demand response described above, not less.

written by Jeffrey L. Ihnen, P.E., LEED AP





Horse and Buggy EE Programs

8 06 2010

In many states, energy efficiency programs are meeting annual savings goals and their incentive cash is depleted in a fraction of the year.  States where energy efficiency programs are a new offering are especially quick to meet goals.  These states include Ohio, Michigan and Illinois.  These states rely heavily on lighting, which accounts for somewhere in the range of 90% of the total savings.  Even mature states like Wisconsin and California still get well over half their savings from lighting and other prescriptive measures (rebates).  Wisconsin surpassed goals and ran out of incentives last program year.

There are many ways to solve the “excess savings problem” from reducing or eliminating incentives on some things or eliminating program offerings.  In Wisconsin, they are sort of cutting incentives across the board and getting rid of comprehensive energy retrofit in existing commercial and industrial (C&I) facilities, where everyone knows the greatest potential exists.  Comprehensive energy retrofit in WI is dead because they killed feasibility studies.

Wisconsin must know something Minnesota, Iowa, Illinois, Michigan, New York, California, Johnson Controls, Honeywell, Siemens, and dozens of energy service companies (ESCOs) around the country are oblivious to.  These states’ programs rely substantially on comprehensive energy retrofit and it’s actually the holy grail of energy efficiency.  But not in Wisconsin.

Wisconsin instead relies on the discount model.  See Incentive or Discount, January 12, 2010.  The powers that are believe this is the most cost effective (only) way to deliver savings and that feasibility studies once paid for by the program just rot on the customer’s shelf.  But there are numerous ways to avoid this.  You just have to develop an integrated program that holds customers accountable for implementing measures.

When Wisconsin (Focus on Energy, Focus for short) took over the energy efficiency programs from the investor-owned utilities about 10 years ago, one of the goals was market transformation.  Market transformation simply means making energy efficient products and services the normal way of doing business such that ratepayer-funded programs are no longer needed, or their need is greatly reduced.  Market transformation has long since been cast aside.

Instead, Focus has been transformed into something that seems to be directly at odds with its market transformation charter.  Service providers in the market, ones with expertise and no bias (don’t sell stuff) are locked out by an apparatus that cannot work for them.  Eliminating feasibility studies was the equivalent of adding a mote full of alligators around the fiefdom with razor wire atop the castle wall to keep the serfs out.

The idea that feasibility studies are a waste of money is just plainly incorrect.  Nearly all of our feasibility studies are acted on.  Last year we kicked off a retrocommissioning program with three pilot studies – no commitment from the owners whatsoever.  We just wanted to demonstrate potential.  Two of three have already been implemented.  One has almost a year’s savings accumulated with 25-30% electric and gas savings, on their bills.  The third project is close to implementation, which will probably be completed by year’s end.

In another study, we projected 30% savings for a high school. Actual results were 40% savings, indicated by energy bills.  One college campus: 20% gas and electric savings projected, 20% savings realized.  Another campus 15% and 22% electric and gas savings projected, respectively.  Actual savings from bills: 25% and 20%.  A medical clinic with about 25% savings projected:  actual savings in the first 3 months of post-implementation operation total a full half year of projected savings.  Every one of these projects needed measure identification, cost and savings estimates, and return on investment analysis.  We started with a blank slate.

We have a study underway for a huge food processor and are projecting 3.5 million kWh savings, from only a portion of their air handling systems (68 units).  We are looking forward to moving on to the ammonia refrigeration and compressed air systems. This customer has been very progressive with energy projects over the past 7-8 years and is willing to get everything that meets their financial criteria.  In fact, when we delivered the proposal they agreed to move forward with the study on the air handlers but said, “but I don’t think you’ll find anything”.

The bottom line is, a comprehensive program that includes front-end screening, study, Implementation design, implementation, functional performance testing of measures, and customer training will be acted on by customers.  Of the 10 or so projects, including dozens of campus buildings, where we have used this process, savings have been 20% or more in every case, up to 40%, and actual savings from pre and post implementation bill comparisons have always come in above study projections.  Projects include everything from retrocommissioning to major equipment/system retrofits to new controls systems.

Ironically, we completed a “no risk” study with Focus last year including controls, refrigeration and HVAC.  The customer went forward with all recommended measures.  Again, all we started with was a customer that wanted to cost-effectively save energy, a blank sheet of paper.  No “pre-packaged” projects.  I.e., no free rider.

From a program perspective, this is very cost effective because savings are huge and concentrated and studies do not get stranded.  The problem with some (as in, not all) program administrators whether they be third parties or utilities is they are steadfastly wedded to the status quo with a divorce rate Vatican City would cheer.  The typical disjointed process with reams of paperwork and delays at the outset, no assistance between study and implementation, no hook or commitment from customers to do anything with the study, and no functional testing at the conclusion of implementation is doomed to fail.

The solutions to the “waste of money” issue are simple and they work very well, but some administrators and in some cases regulators need to open their minds and ditch their horse and buggy program paradigms.

And by the way, the attribution rate, which is the savings that occur as a result of an integrated program including feasibility studies, is near 100%.  See the food processor guy’s quote above.  He didn’t think we would find anything.  Tell me.  Would these 3.5 million kWh savings have occurred in the absence of a thorough investigation?  How does a customer who buys an efficient boiler have any idea what the incremental cost and energy savings of his new equipment are?  Does that constitute decision making based on energy efficiency?  Perhaps some programs could improve their attribution rates on C&I programs if they would actually lead customers to implement energy efficiency measures rather than chasing contractors, like lawyers chasing ambulances, to capture savings that are going to happen in the marketplace anyway.

written by Jeffrey L. Ihnen, P.E., LEED AP





EE Lemmings

25 05 2010

Automobiles have really changed over the past 30 years, and in some ways for the worse.  Back in the 1970s before hardly anyone purchased imports, imports were small and domestic vehicles were hulking behemoths.  Then it was the second, or was it the third or fourth – doesn’t matter – energy crisis hit in the late 1970s and domestic cars shrunk in a big way.  The Ford Mustang went from a muscle car to feeble runt.  A 1982 Mustang was the first car I owned.  It was also by far the crappiest car I ever owned.

This was the first giant step for domestic auto makers toward import fuel efficiency and of course it was disastrous.  Millions of buyers experienced the same thing I did and did the same thing I did; started buying imports and never went back.

Getting on with the topic at hand – just look at how automakers of all stripes and origins have morphed into the same styles.  Let’s look at how the Ford Taurus (formerly the LTD), Honda Accord, Volvo, and BMW 535 have changed from 1978 through today.

1978

2010

Back in the day, you could look at a silhouette of a car – or better yet, I could draw it on paper and you could tell what brand it was, and I draw as well as I play violin (I don’t think I’ve ever had my hands on one).  In 2010, all you have to do is change the front grille and unless you study cars like an anal-retentive buyer with every issue of Consumer Reports and Buyers Guides for the past five years, you would never be able to tell what brand they are.  They only have a tiny vestige of auto heritage left in about one square foot of the front of the vehicle.

Here’s an entrepreneurial thought: the “import” makers should sell optional “domestic” front ends and leave their stores open around the clock.  This way the few remaining people who wouldn’t be caught dead in an import could sneak in the back door with a big hooded rapper sweatshirt on at 3:00 AM Monday morning and drive out with a car they really want and nobody would ever know it’s an import.  Their parents would let them in the house.

This paragraph is a bit of a guess because I’m not THAT old to know for sure.  Over the same period of 30 years, energy efficiency programs have “evolved”, more like devolved, in the same way.  Back then there were few efficient technologies (products) and energy efficiency required brain power.  A portfolio of programs probably got the most savings from custom measures like upgrading systems and controls, replacing controls, adding heat recovery, changing incandescent lighting to fluorescent and boring building envelope improvements.  Compact fluorescent and T8 lighting, if they existed back then, probably cost as much as the modern laptop   Check out that baby!

In 2010, program portfolios are like modern cars.  Just take the utility logo off one and slap on the next logo and voila, ready to launch.  They typically consist of prescriptive incentives for residential lighting, heating and cooling, appliances, appliance recycling, and maybe ENERGY STAR® new construction; and commercial and industrial prescriptive incentives for like categories plus maybe commercial new construction and retrocommissioning.  Prescriptive measures, those that receive incentive for achieving some equipment efficiency threshold, probably account for 80-90% of savings – more for newer programs, maybe less for mature programs.

Program implementation has become a marketing campaign for technologies; efficient versions of everything available in the marketplace.  There is nothing wrong with this, but codes and standards can drive these.  Take the home furnace.  Is there any need for an 80% efficient non-condensing furnace anymore?  Any contractors who install 80% efficient furnaces should be fined, speaking facetiously.  It’s just stupid.  Compact fluorescent lighting is pretty much in the same category.  This gravy train of easy savings is about to end as incandescent lighting is phased out.  Moreover, I would say the market has already transformed to CFLs and possibly not even for energy efficiency.  Many consumers choose them because they don’t burn out.  Less maintenance and pain in the kiester to keep up with failing light bulbs.  In commercial and agricultural facilities, these maintenance savings swamp energy savings.  People are expensive.  Good light bulbs are not.

Some states are sharply increasing goals and what are program administrators doing in response?  More of the same.  Some are just increasing incentives, even doubling them in some cases.  This is like trying to significantly cut federal spending and taking entitlements and defense off the table.  There isn’t much left to work with.  Cost premium of efficient stuff is only one barrier to energy efficiency.  At some point, you could literally give away efficient stuff and still not meet goals.

Program administrators and utilities need to put everything on the table and go back to the early days of custom efficiency, and comprehensive energy retrofit, retrocommissioning and demand response for commercial and industrial facilities.  Industrial programs are woeful all over the country, including in California.  Measures like “pump off controllers” for oil wells and numerous oil refining measures are complete free riders – measures that would happen regardless of any efficiency programs.

Administrators also need to think outside the box with “incentives” as well.  There are many ways to do this but I’ll have to save that for another day because I’m out of time.  But for now, let’s just say to take it to the next level, administrators are going to need custom measures, which requires engineering expertise.  It looks good for us!

written by Jeffrey L. Ihnen, P.E., LEED AP





Wind Energy and the Utility Business Model

20 04 2010

The masses want power on demand without interruption or failure.  They want it at a practically negligible cost and more so every year, they want it without emissions or other unpleasant byproducts.

In the upper Midwest, energy without emissions means wind energy.  Wind energy sounds great.  It’s “free”.  No emissions.  But it comes with a load of drawbacks compared to conventional sources of coal, nuclear, and natural gas.

First, utilities can’t count on it for peak load generation.  I searched a while for this and found nothing but the bottom line is there is no guarantee there will be any generating capacity from wind on a peak summer day.  Therefore, wind generation offsets zero conventional generating capacity.  It is essentially like buying an electric car for lower emissions but you have to keep your conventional gasoline-powered car for longer trips.

Second, wind generation is expensive.  At a cost of about $2,000 per kW nameplate generating capacity it is very similar to a coal-fired plant.  However, a quick analysis with a reliable online calculator indicates that the capacity factor, which is the average percent output of the turbine, is only about 30%.  (the wind doesn’t always blow 48 miles per hour)  This puts the installed cost of wind generation near triple the cost of conventional coal generation.

Third, the cost of wind energy doesn’t end with the fifty by seven foot deep wad of concrete supporting each turbine.  Wind farms are far from Midwest population centers because that’s where the wind blows and this puts them out of site of the people who want it but don’t want to look at it (or pay for it).  This requires substantial transmission costs with substations to step up voltage and transmission lines that run a minimum of $1 million per mile of transport – and this is for building transmission lines on farmland where it’s physically easy to do and there are no lawsuits because people in these areas have better things to do than file lawsuits to stop transmission construction.

Fourth, on average the wind blows the least when it is needed the most, in July and August.  On average, turbines deliver roughly half the energy in July and August compared to the winter months.

When these unpleasant facts are factored in, wind generation benefits boil down to eliminating fuel costs, which are a tiny fraction of conventional generation, and no emissions or other waste products.

What brings this to mind is this article recently published by the Cedar Rapids Gazette.  Alliant Energy / Interstate Power and Light has a rate case pending for a 14% rate increase to pay for the added wind generation capacity and the installation of a $188 million nitrogen oxides and mercury scrubbing system for their old Lansing plant.

One guy comments, “but I just don’t understand why you expect us as customers to pay for all these upgrades — the wind farm, all your safety upgrades and so on.”  Well who else is going to pay for them?  It isn’t going to come out of shareholders’ hides.  Utilities don’t build this stuff to make more money!

Utilities are fully regulated monopolies in Iowa and many other states.  Their ability to grow revenue and earnings is very limited.  Essentially, it is limited to load growth within service territory by existing buildings and by attracting new business with new facilities to their service territory.  In exchange for having a captive customer base, regulators, in this case the Iowa Utilities Board must approve changes in rates, which essentially translates directly to regulating profit.

Wind power and pollution controls cost the company hundreds of millions of dollars but add virtually no revenue or profit.  These upgrades wouldn’t occur but for public pressure and policy coming out of Des Moines and other state and federal capitols.

These expenses can’t come out of earnings because utilities need to raise capital to pay for this stuff.  To raise capital, they have to offer a competitive rate of return commensurate with the risk involved; thus, the rate case for higher prices.

Like Tom Aller, President of Interstate Power and Light, I am not denigrating or advocating green power and moratoriums on building conventional generating facilities.  The public just needs to know this stuff adds a lot of operating cost and the business model of utilities requires rate increases to fund these things.  If customers don’t like it, they better get involved in the political process and not let the Sierra Club have a monopoly of political ears.

By the way, the reason environmental organizations like Sierra Club are a big turn off to me is they are often political first and environmentalists second.  They are opposed to this rate increase.  Why?  Their mission is “To explore, enjoy, and protect the wild places of the earth; To practice and promote the responsible use of the earth’s ecosystems and resources; To educate and enlist humanity to protect and restore the quality of the natural and human environment; and to use all lawful means to carry out these objectives.”  I don’t see anything in there about controlling income in the private sector.  Moreover, the guy’s statement flies in the face of their mission statement anyway.  Higher prices mean less energy consumption, so why is he opposed?  Could it be… politics?  Or is he a “do as I say, not as I do” greenie?





Black Monday Stampede

10 03 2010

July 1992: Tickets for U2’s ZooTV show at RFK stadium in Washington, DC go on sale by Ticketmaster.  The tickets are snapped up in a few hours, as fast as the phone lines could handle the traffic.  This was before anyone knew what the internet was (no Al Gore jokes).  Fortunately, a second date was announced and the roommate waited for the crack of 12:00:00 AM for a shot at the second batch, successfully.

March 1, 2010:  Federally funded rebates become available for efficient appliances in Iowa and Minnesota.  Phone lines jammed with 10 times expected volume and internet traffic at 100 times expected traffic took down the website of the contractor running Iowa’s program in the first hour, within minutes of opening.  Ultimately, Iowa’s share of the funds was gone within 8 hours.  Minnesota’s program dragged on until the next morning.  It was a Wal-Mart-style black Friday digital stampede.  Thank goodness for (don’t use Al Gore jokes) technology – I didn’t see any reported injuries or fatalities.

Some of these federally funded appliance incentives run two to ten times utility incentives.  What were they thinking?  Combined with utility incentives the total can exceed 50% of the purchase price for crying out loud.  See “Policy to Curb Carbon” (government doesn’t know how to do energy efficiency) and “Incentive or Discount” (people trained to wait for handouts to buy).  This is pretty much a giant transfer of wealth from people paying taxes to people taking the rebate checks, and I don’t begrudge the people taking the money.

Apparently the people who designed these state programs, which are actually handouts at these rates, don’t understand the market and/or supply versus demand.  Obviously they gave away too much money and taxpayers got far less than they should have for their “investment” in terms of reduced energy consumption, emissions, and sales and in some cases manufacturing here in the states.

And to top off the environmental benefits of the appliance programs, participants are to send their old appliance to the scrap heap, with self-policing enforcement.  Who’s going to do that?  They will either end up with a second refrigerator or freezer in the basement or the old stuff will show up on Craig’s list.

Recall cash for clunkers last summer.  The intent there was to offer a total of $1 billion incentives, up to $4,500 per vehicle and it was planned to run from late July through November.  Within a week or two the billion dollars was gone and congress quickly shoveled in another $2 billion.  THAT was all gone by Labor Day.

While attending the International Energy Program Evaluation Conference in Portland, OR, last fall I was engaged in a small group discussion – was cash for clunkers a free rider?  A free rider is somebody who takes an incentive for something they were going to do anyway.  This is considered to be a waste of incentive money.  That’s arguable in this clunker case because it more than likely moved the purchase date forward for buyers, but I also think it’s the wrong question to ask.  The more appropriate question is, was it cost effective?

Answering the free rider question, Edmunds estimates that of the 690,000 cars purchased through the cash for clunkers program only 125,000 were incremental.  That is, only 125,000 transactions took place that otherwise would not have.  The rest just displaced a sale that was going to happen soon anyway.  Figuring in free ridership, the taxpayer cost per vehicle was $24,000.  And then consider this: the average trade-in value of the clunkers was about $1,500, which may be worth $1,800 for sale to the next guy.  All these cars were destroyed.  That comes to $1.2 billion in destroyed working assets.  So the feds spent $3 billion to increase profits by car dealers by perhaps $125 million and destroyed $1.2 billion in assets.  Annual energy savings for these 125,000 vehicles would be roughly $120 million.  And maybe the domestic automakers lost a little less money as a result of the program.  Woohoo!

To be fair, the cash for clunkers program may have resulted in the purchase of more efficient vehicles than would otherwise be purchased.  Hardly.  The average fuel economy of cars sold through the program was 25.4 mpg.  The corporate average fuel economy for cars is 27.5 mpg and with light trucks included, it is 23.5 mpg.  In other words, these “efficient” cars were essentially average.

And the doozer of them all: free golf carts thanks to tax credits and sundry other incentives for electric / high mileage vehicles. 

These aren’t incentives.  They are gifts from frugal people to people who probably don’t need this crap.  But good for them, I say.  You have to play the game that’s put in front of you.