Fisker’s folly costs Delaware more than tax dollars

Brian Selander responded to harsh criticism from DelawareGOP chairman John Sigler about the Fisker layoffs.  He cited Congressman Castle and President Bush as Republicans who joined the Democrats in their scheme to pick winners and losers with taxpayer dollars.  Perhaps Mr. Selander wasn’t paying attention last year but Delaware replaced Congressman Castle BECAUSE of support for plans like this, Cap and Trade and universal healthcare (which Castle voted against after spending more than a year campaigning in FAVOR of it).  Perhaps Mr. Selander has been too busy holding on to Governor Markell’s coat tails to see that a majority of Delaware Republicans have rejected the big government/massive spending by the Bush Administration.    The bottom line is that there are always going to be the Olympia Snowe’s and the Mike Castle’s of the world who will side with bad ideas.  Picking a handful of people who don’t see the forest through the trees is laughably short cited and unfortunate to come from someone in the Governor’s office.

The reality is that Fisker, like Blue Water Wind before it and Bloom Energy in the future is another in a string of government green energy busts that will in the end cost taxpayers hundreds of billions of dollars.  Fisker was touted to be one of the biggest and best opportunities that will revive our state’s economy.  It was supposed to be a success story in the American Green Energy plan but it’s been plagued with a series of failures.  Now, 26 employees in Delaware (40 more in California) and a number of subcontractors are being let go.  This after Fisker fell behind its production schedule and poor sales results, after experiencing exploding battery problems similar to that of the Volt, after being “unable to find a suitable contract manufacturer in America” and moving operations to Finland “temporarily” and all this AFTER receiving a promise of $529 million from the Department of Elections ($193 million paid out thus far).  Even industry experts and alternative energy supporters are pointing to Fisker as an example of what NOT to sink money into.  WDELnews reports that Chelsea Sexton, an alternative fuel advocate, has beencritical of the Fisker “investment”:

"We have yet to see enough substance from Fisker at any point to justify the investments that have been made. So as frustrating as it is to see people lose their jobs, I also can't condone the DOE revising their loan, when they haven't met what they're supposed to do,"

The Blaze news service sums it up quite well:

So, let’s see if we got this straight:

1. Fisker Automotive is given $193 million of a $529 million DOE loan to produce two lines of plug-in hybrid cars and, presumably, create jobs
2. The company is unable to find a contract manufacturer in the United States, so it outsources manufacturing jobs to Finland (the company vehemently denies charges that it has used any part of the federal loan to fund manufacturing operations in Finland)
3. The automaker falls behind its production schedule and experiences“delays” in its sales (i.e. poor sales), depleting its capital
4. But to qualify for the rest of the $529 million loan guarantee, the company has to maintain a certain amount of capital
5. Therefore, in order to meet this DOE benchmark, Fisker Automotive decides it will save money by laying off an “undisclosed number” of employees

Considering that this is yet another government-sponsored clean energy investment that has experienced layoffs, and contrary to what Energy Secretary Steven Chu’s says, Fisker Automotive hardly seems like “proof positive” that the White House’s efforts to create new jobs are working.

In the end, who is hurt by this?  The Delaware (and American) taxpayers for one as hundreds of millions of dollars are once again squandered on yet another massive government failure.  Also beaten about the head and neck are the Delaware UAW members whose jobs were snatched from them by the failures of Chrysler and GM.  They were promised new opportunities with Fisker and that has been snatched from them.  Delawareans who are already facing a crisis of confidence have also been hurt.  Who are they to trust?  Our government has failed them time and again by simply overstretching their role and reaching into the private market.  It’s time we stopped that and focused government on what it should be focused on, which is creating a climate that promotes business expansion in the private market, encourages competition and ensure that the market customers have unfettered access to the products they want need and desire. 

Governor Markell and DEDO head Alan Levin have shown that good intentions alone will not fix our economic problems.  I have no doubt that they want to see jobs back in Delaware but there can be no doubt that they’ve failed to deliver them.  Why?  Because instead of allowing the customers and the citizens to decide what businesses come to Delaware and thrive and what businesses leave, they’ve taken to picking the winners and losers themselves.  The results?…Blue Water Wind and Fisker.  It’s about time we sent a message that what we need is a new direction.

Fisker is the Second Shoe to Drop

A story on Delaware Online today (sorry, I refuse to subscribe to the death of another tree in order to boost News Journal sales so I am not sure if it was actually printed in the paper version) displays the folly of American green energy policy.  Just a month after Blue Water Wind failed and cost us untold millions of dollars and just over a month after Fisker announced that their car faced similar battery problems as the Chevy Volt, the embattled car company, who has pushed back their production dates more than 2 years, has laid off 25 workers and cut contracts with a number of subcontractors.  Fisker has been touted as the next big thing to prove that the government's green energy strategy works.  Yet from it's inception it has needed massive government subsidies and government assistance in the form of sweetheart land deals to stay afloat.  After promising Delaware's largely union autoworkers big payouts if they could just hold on through the retooling of the former GM plant, the company has all but dashed those hopes.  Thousands of Delaware autoworkers who have been home after being laid off by GM and Chrysler and waiting for Fisker to start up now have little hope for a return to automobile manufacturing in Delaware.

On this blog back in September, we talked about Delaware's Solyndra lesson.  We pointed out the problems with Fisker's numbers and we referenced a number of other articles that had similar concerns.  The bottom line, many of us saw this coming but the government ignored us at best and made fun of us at worst.  They called us crazy and yet here you can see the results of government attempting to pick winners and losers.  In the end the taxpayers lose when their money is taken and wasted, the employees lose when they end up out of work and the communities lose when businesses close their doors and the ancillary jobs leave town. 

Mark this date.  In December of 2011, I gave a talk at a meeting of concerned citizens where we covered a range of topics including green energy, fracking and the cost of our government's green waste.  You can see the presentation from that meeting here.  The next green energy disaster to rock Delaware will be Bloom Energy who is relying on Delmarva Power to subsidize its Bloom Boxes by tacking on a $2-$4 charge to each bill.  Government cannot and should not pick winners and losers.  This is yet another reason why we simply MUST put people who understand our markets and the design of our government in the places currently occupied by corrupt officials more interested in cronyism than their constituents. 

Fisker's Aptly Named Car Shows the Folly of Government

For the last 6 years, Delawareans have been barraged with promises from so-called "Green companies", most of which promised lofty job numbers and economic booms.  Blue Water Wind came to town with a plan to provide wind energy that would be clean and green and could even eliminate the need for dirty coal fired plants.  Their scheme turned out to be one that would produce far less energy than expected, one that required the government to enforce a mandate on Delmarva Power which forced them to pay more, one that required the federal government to give the company a non-compete contract for the off-shore wind farm location and one that ultimately failed just days ago when the project did not receive MORE government assistance in the form of more direct subsides.  Despite receiving awards of more than $800 million (although we can't be sure how much of it was spent on the project, how much went into the pockets of government cronies or how much the government still has, if Solyndra is any example, that money is long gone) of which we know that enough was used to pay at least 6 executives making 6 figures plus their assistants for 6 years (likely around $4 million) plus the cost of lobbyists, legislators (this is not a typo), architects, lawyers and surveyors for the ramp up to production (which likely cost Delmarva ratepayers millions more), Blue Water Wind needed MORE government funding just to begin production on a surveying tower to see if their idea would ever generate a single kilowatt of power!  After Solyndra, the government realized that green energy problems (like those that plagued Spain, the nation whose green jobs plan bankrupted their nation and after whom Obama's green jobs plan is modeled) would cause more scrutiny and so they decided to cut funding to this off shore wind disaster.  Subsequently, Blue Water Wind folded because they were unable to secure private backing (despite the assurances of company leaders who promised that it would be able to function without government support) for their venture.  Their contract with Delmarva ended 2 days ago at the stroke of midnight and along with it, any chance that we'd see a dime from the investment returned.

More recently, the buzz has been about the Obama crony run car company, Fisker.  You might remember Fisker (or more likely not) as the start-up company who out muscled Tesla as the Obama Administrations favorite in the Plug-in electric car market.  It bought (on the cheap) the Boxwood Road site formerly owned by GM and has been rehabbing it in preparation to begin production on the "cheaper" of its two offerings, the Nina (the more expensive Karma is made in Finland because Fisker says that no one in America can do the job...) in 2013.  The Karma is offered for sale at Union Park's family of dealerships in Wilmington.  A friend of mine recently tried to secure a test drive of one of the Fisker Karma's at Union Park only to find each time that he came by, that the vehicle was "in the shop" for some kind of software upgrade or maintenance issue (odd for a showroom car that is never driven).  Now, this friend may or may not have the means to purchase the vehicle, I don't get into that kind of thing but if I had to guess, I would say his credit record and history would warrant at least a test drive of almost any vehicle ever built.  The Karma retails for more than $102,000 and less than 300 have yet been sold.  Now remember, the Fisker business model actually called for them to own a significant portion of the hybrid/electric car market in just the first couple of years of production.  They would have to beat to market shares of GM, Toyota (who owns the largest share with the Prius), Nissan and Honda to name a few.  Delaware's Caesar Rodney Institute highlighted the bold plan years ago:

Competition in the hybrid market is fierce. All the major automobile producers are moving into the hybrid market. By 2015 GM plans for 26 out of 33 models to be some form of hybrid. Chrysler plans to have 8 hybrid or electric vehicles by that year. The current U.S. hybrid market averages across the business cycle 25,000 cars per month (300,000 per year). Three quarters of the sales are Toyota's Prius or Lexus, with Prius accounting for 55% of the total hybrid market. Ford and Mercury (Fusion, Milan) currently have a 9% market share, with Honda at 8% and GM at 5%. Sales have dipped during the recession and are directly influenced by the price of gas.

 

Will the market support Fisker's 2014 sales projection? U.S. car sales should top 8 million by 2014. If the hybrids share of cars rises from its current 1% and climbs to 5%, hybrid sales in 2014 will be around 400,000. This means that Fisker, with a limited retail and service network and no established reputation, will capture 19% to 25% of the U.S. hybrid market. Should 50% of Fisker's cars be sold as exports, the highest proportion of exports for any current American company, Fisker is assuming a U.S. hybrid market share of 9% to 13%, greater than the current shares of Honda and GM.

 

The likelihood of such a plan working was also a subject of the Institute and it found that the plan left far more questions on the table than it answered.  Fisker has had to hike the prices of the Karma to keep the company afloat, pushed back production and start-up plans, has sought more taxpayer funding and still has only delivered a relative handful of vehicles.  It's certainly not competitive in the market with companies like Toyota, Honda and Nissan.  Which bring us now to the news of today which is also a blow to sales of the start-up car makers most expensive model.  It turns out that the battery packs inside the Fisker Karma's can catch fire (much like the Chevy Volt which was recalled earlier this year) and cause explosions.  Battery fires have plagued the electric car industry largely due to government's force behind the implementation of the unproven and untested technology to save face in its quest for green energy goals.  The bottom line is, do we want to pin our hopes to another Pinto or Yugo?  Fisker is already north of $600 million in government subsidies, some have said it's closing in on $1 billion and now with these setbacks, business will suffer.  There can be no doubt that the $50,000 Nina, which is planned to be built in Delaware will suffer from these setbacks if it comes online in 2013 as promised and many good folks, like the people at Union Park and the many contractors who embraced this green energy plan will be affected by these pains.  The fact is that electric cars aren't ready for prime time and no amount of government force will make it so.  In fact, I say, when the private market venture capitalists start investing THAT is when you will see the rise of the electric car.  

Government picks for winners and losers, Solyndra, Blue Water Wind and Fisker are proving what conservatives have been saying for a long time, that private markets should be dictating the products in the market place.  Government wastes untold billions of dollars every year that could be used to pay down or deficit on misguided attempts to solve every problem when the reality is that it just can't do it.  Government solutions rely on mandates, cash subsidies and risky gambles with other people's money that more often than not lead to disaster.  Look at the latest deal with Bloom energy.  Delmarva Power ratepayers are now venture capitalists (don't get excited, you get no return on this investment) in a company that markets unproven emergency backups to major corporations.  Better still, not only did the government have to force Delmarva Ratepayers to subsidize Bloom but it also forced subsequent governments to have to stick with the plan.  That's right, future General Assemblies MUST remain in the agreement with Bloom for 21 years.  TWENTY ONE YEARS!  No matter how much it costs, how effective it is or how many jobs it produces.  Further, they had to compromise their own leftist principles to do it!  In 2011, the General Assembly passed a bill that redefined the term "Renewable Energy" to include Natural Gas (a fossil fuel considered dirty by the left) because the Bloom boxes need natural gas to operate and because anything not classified as renewable under Delaware's Renewable Energy Portfolio costs Delmarva more money to use.  UNREAL!  We've got to stop this madness.  We need someone with an ounce of common sense to make some changes.

Fracking the Delaware River Basin

Listeners to Delaware's most popular local talk radio show, the Rick Jensen Show on WDEL (weekdays 1pm-4pm) recently heard Democratic Representative John Kowalko (Newark) go on a rant about fracking in the Delaware River Basin in which he insinuated some things that are, to be frank, simply untrue.  Before we get to Rep. Kowalko's comments, let me give you a little history on what we're talking about.  After the successful and uneventful fracking of the Marcellus Shale in Pennsylvania, energy companies have turned their attention to the rest of the 500 Trillion cubic ft of natural gas that is stewing among the rest of the shale.  Some of that oil lies in the northern end of the Delaware River Basin in Northeastern Pennsylvania and Southeastern New York.  Those plans could potentially affect not only N.Y. and PA but also NJ and Delaware.  So the issue of fracking was brought before the Delaware River Basin Commission which is a panel of the Governors from each of the Delaware River Basin states and the lead engineer of the U.S. Army Corps of Engineers that meets to determine the potential impact vs. the potential benefits of any policy that affects the Delaware River Basin.  Once these companies began to look into the DRB and the DRBC began meeting about it, the environmentalists began their assault on fracking.

What is fracking?

Fracking refers to a method used to extract oil or natural gas from a well in which a substance called "fracking fluid" is pumped into the pipe and ultimately into the shale rock to stimulate oil and natural gas wells inside the shale.  During the practice, piping is encased in cement and drilled 6,000 feet into the ground.  The cement casing is in place to protect groundwater and to contain the fracking fluid.  The fracking fluid is composed of the following materials:
90%  Water
9.5% Sand
.5% Chemicals as follows - Sodium Chloride (used in table salt), Ethelyne Glycol (used in Windex), Borate salts (used in lipstick), Sodium Carbonate (used in detergents), Guar Gum (used to make Ice Cream) and Isopropanol (used in deodorant)

Environmentalist scare tactics often point out that more than a half dozen deadly chemicals are used in fracking and pumped directly into the groundwater.  In fact, this is the first of the outright untruths that Kowalko mentioned.  The reality is that unless salt, ice cream and water are deadly, the number is 3 chemicals (+ sand) and the fluid is pumped into the shale thousands of feet below the water table.  In fact, despite the propaganda in the film "Gasland", in all the fracking operations in Pennsylvania, there has been no proven affect to groundwater. 

Another favorite of the environmentalist scare mongers is that fracking causes earthquakes.  This is another absurdity that Kowalko was peddling on the Jensen show.  Earthquakes are caused by the sliding of tectonic plates.  Now, there is some debate over what causes the plates to move but the majority of scientists believe that the movement is related to the earths gravity, and the rotation of the Earth.  What's clear, is that explosions on the surface of the earth, or even thousands of feet below the surface do NOT cause earthquakes.  In fact, the USGS among other agencies around the world have experimented with detonating nuclear weapons below the surface of the Earth and they have found that even a 5 megaton nuke (5 times the size of the largest active weapon in the U.S. arsenal), detonated 5,000 ft below the surface couldn't cause an earthquake.

My Take

As a candidate for the Delaware State Senate, I believe that I should make my opinions known on the issue.  Given the factual evidence of the benefits and risks involved in fracking the ground in the Delaware River Basin, if asked, I would strongly consider the idea.  Should hard factual evidence of groundwater contamination or real danger to the water table be brought to my attention, I could consider a different position but given the current reality, I don't see any reason why we shouldn't look at safe ways to increase our domestic supply of many different sources of energy.

The simple truth is that the best, cheapest and most effective way to not only reduce our reliance on foreign oil but to boost our economy is to develop a sound energy strategy.  For all the talk about the outrageous "subsidies" for oil and natural gas, renewable sources take far more for far less output.  Renewable energy accounts for just 8% of all sources of energy in the United States and even the most optimistic outlooks only expect it to account for a maximum of 12% of U.S. demand in coming years.  Invest more money to grow them?  According to the U.S Energy Information Agency, in Fiscal Year 2010, Wind got $5 Billion in direct subsidies while oil and natural gas received $654 Million in tax write-offs.  Solar, received 33% MORE than wind energy did.  Let me just address the issue of subsidy type here, we're talking about direct subsidies vs. tax incentives.  Direct subsidies are cash payments to producers to make their product cheaper than it would normally be.  This can be done through loans or grants (the more common form) and is a way that government selects the companies and industries it wants to make profitable regardless of their market value.  Tax incentives are generally available to most businesses/individuals and in the case of the oil and gas companies they come in the form of write-offs for land depreciation.  It's simple, the land is worth a certain amount with a certain amount of oil on it. As you remove that oil, from the ground, the land devalues.  it's only practical to then allow that land owner to write-off the excess taxes on land no longer worth the original value.  The argument that oil and natural gas have had their own time of direct subsidies is also not valid.  There is no history of any direct subsidies to oil and gas companies, even when the industry was just getting started in the late 1800's.  In fact, even the tax write-offs didn't start until 50 years AFTER the industry was born.  Meanwhile, renewable sources have needed direct subsidies just to remain afloat and as we've seen with Solyndra and Fisker, even that is hit or miss.

So in the end, we need to be smart as a nation and Delaware can ill afford even higher energy costs.  The Marcellus Shale and other shale formations give America a distinct advantage and a real opportunity at not only energy independence but also to reduce the cost of energy.  Lowering costs to businesses and consumers would create jobs, lower the burden on families and increase our safety and security.  The danger of soap, water and sand thousands of feet below the surface is minimal given the positive economic impact that would result from the fracking.

I'll give the final word to the EPA:

Solyndra should wake up Delaware

Delaware must learn a lesson from Solyndra that even Spain couldn’t teach us.  A study of Spain’s focus on “green jobs” found that for every “green job” created, it cost Spain more than 2.5 jobs.  The study also found that the “green jobs” plan in Spain added so much to the debt that it actually delayed their exit from the economic crisis.  Spain’s model of green job creation is the model that President Obama used to create his plan for a new green economy.  This is the model that Jack Markell has embraced here in Delaware.

Delaware is seeing the effects of this policy although the blame is being laid on the economy.  The truth is that “green jobs” and alternative energy are nothing more than limited alternatives to be added to the arsenal of energy alternatives for a nation.  Solyndra is a perfect example of a “green jobs” company that could not compete within the market place.  The Obama touted company brought in $1 Billion (including $535 million in taxpayer funds) from investors and employed 1100 workers (that’s just over $909,000 per job) yet the solar power manufacturer failed and filed Chapter 11 bankruptcy this week.  The results of the Spanish policy show why this occurs in the alternative energy market.

The climate change and alternative energy supporters often clamor for more subsidies for their products and they complain about the massive payouts to fossil fuel companies.  The truth is that solar and wind each receives more than 50x the amount of subsidies as the coal industry does yet coal provides more than 43% of America’s power while alternatives muster just over 5% of our needs.  So we see that alternatives are far better funded than admitted and for far less output.  Where is the money going?  Well the answer is that not all of it is graft or misuse but some of it is.  Alternative energy, despite its lifespan to date, is still lacking some technological breakthroughs that would make it more viable.  These include finding a way to create a long term power storage plan and finding more effective ways to transport the energy to the places that need the power.  Offshore and onshore wind farms can generate massive amounts of energy but that energy is short term kinetic power that must be used right away or lost.  They are also built far away from the place where the power is needed and much of the energy is lost in the transmission of the energy.  So these logistical problems contribute to the trouble that alternative energy has with becoming a competing source of power.  Massive wind and solar farms must be constructed to provide even the most basic power needs in order to compensate for the unreliable and ineffective power generation.  Remember this, the wind is not always blowing nor the sun always shining and so even in places like Delaware, where we have a Renewable Portfolio Standard that mandates usage of a certain percentage of renewable energy, we also have 100% of that alternative power backed up by conventional sources (nuclear, coal, natural gas).  Sort of defeats the purpose and it greatly increases the cost.

It’s also worth pointing out that the Spanish study found subsidies “multiplied by five” in Spain between 2004 and 2010 while the companies charge 12x what it costs conventional energy to make the same power.  Government subsidies in the alternative energy field are direct payouts, not “tax breaks” as they are in conventional energy sectors.  You see, oil, gas and coal companies are allowed to write off the depreciation of equipment and land as the real value of those assets decreases (this is a standard deduction for any business from the local bakery to Exxon/Mobil) while Solyndra and Fisker receive checks from the government to subsidize the cost of their products.    These direct subsidies actually COST the American taxpayer while tax breaks simply allow the company to keep more of what they earned based on a loss of value in another area. 

A perfect example is Fisker.  When GM closed their Boxwood Road plant in Wilmington, Delaware leaders scrambled around for a replacement.  While companies like Hyundai, Nissan and Toyota expressed interest in the plant, Delaware’s alliance with the autoworker’s unions and the added costs scared them off but not Fisker.  Fisker is a 4 yr old auto company that only recently built and delivered the first of its all electric plug in vehicles.  The first thing that Fisker did is to design plans for a the plug in vehicle and the second was to begin begging the government for subsidies and look for places where they could get free room and board.  They found Delaware and our government was all too willing to accommodate them.  All told, Fisker has gotten more than $1 Billion in state, local and federal subsidies to build their cars.  Their first car, rumored a year ago to be set around $80,000 is priced from $96,850-$109,850 which makes it about as affordable as a home in the Greenville hills.  These will of course, be snapped up by environmentally conscious uber rich folks who can afford to have the charger installed at home and at their office but that won’t work for the average Joe which makes Fiskers plans to build an “affordable” version (rumors had it retailing around $40,000 last year but it’s more likely to be near $60,000) that Fisker plans to take over the car market with.  The problem, as noted by the folks at the Caesar Rodney Institute is that the numbers don’t quite add up for Fisker, especially in this economy.  Fisker is relying on their vehicle getting “98 miles to the gallon” to justify the cost of the car and the charging system (which we hope will be installed everywhere we park otherwise we might not make it home) and also hoping that you don’t notice the $1 Billion that you the taxpayer have already given them to build this car that they will now charge you a year’s salary to own.  The problem with that is that there are now DOZENS of high quality hybrids like the Hyundai Sonata Hybrid, the Prius and the Leaf at nearly half the cost who get similar mileage out of gas/electric engines.  That makes it unlikely that Fisker will own as much of the market as they expect to.  Hybrid sales average around 300,000 cars per year and Fisker plans to sell 100,000 of their electric cars in a year.  That means commanding 1/3 of the American hybrid market with a vehicle that is more than twice the cost of the hybrid sales leader, the Toyota Prius.

Any business owner can tell you, as a new company, expecting to compete with a well-known and well respected existing company right away is a fools folly.  This is especially true when your product is more expensive and less proven than the competitor.  Yet this is the “investment” that Obama/Markell’s “green energy” plan makes.  A company with no evidence that their product is viable in the long term or in the long run is given $1 Billion to produce it.  Meanwhile, conventional vehicles are being forced into higher costs to allow this new “investment” to compete.  The truth of the American car market is that fuel efficiency is important but American families are large and we enjoy comfort which means we like our vehicles larger than Europeans for instance.  The most recent list of top selling Ford vehicles did include the Fiesta but it also included the Explorer and the F-150.  Instead of driving these vehicles out of existence, we should be looking at ways to make them more efficient.

Delaware had a unique opportunity to lead in the auto market when Chrysler and GM closed their doors.  Both plants were setup to manufacture cars and SUV’s that Americans want to drive and both would have taken minimal effort to adjust for companies like Hyundai and Toyota to begin producing those vehicles with hybrid engines right here in Delaware.  It’s time for new leadership in Dover that will use common sense when confronted with these kinds of problems and that will look for ways to create jobs for Delawareans regardless of the effect on unions.  Delaware has turned away more jobs because we refuse to be a right to work state than we’ve lost due to the economic crisis.  This has to stop.  We need LEADERS in Dover who understand what the people want and need, not puppets who are beholden to special interest groups.  When I get to Dover, I’ll make sure that we get government out of the way so that businesses can thrive and create jobs.  Delaware deserves no less than that.

Reference:
http://pajamasmedia.com/blog/leaked-spanish-report-obamas-model-green-economy-a-disaster-pjm-exclusive/ - Spanish government documents show that study of Spanish green jobs initiative was generous, damage to Spanish economy worse than previously thought.

http://www.eia.gov/cneaf/electricity/epm/epm_sum.html - energy sources

http://www.cato-at-liberty.org/stifling-innovation-with-subsidies/ - Fisker shenanigans

http://www.caesarrodney.org/pdfs/Fisker_revisited.pdf - Fiskers numbers don’t add up

A Good Day for Conservatives in Delaware

I awoke this morning, as I do every morning, casting an eye toward my email notifications and The Blaze and flipping on the TV to Fox News (let's face it, Fox is the most credible although now and again I do enjoy checking out Robin Meade over on HLN) to see the latest headlines.  I confess, I have long since stopped paying daily attention to the local "newspaper" The News Journal (unflattering nicknames omitted) and rely on those who can still stomach its almost constant barrage of liberalism to inform me of its contents.  I had errands to run this morning and so I was out of the house for a more extended period than normal.  My buddy Lee calls me just about every morning to discuss issues of the day or events from the previous day/evening and so his call this morning as I was shuttling the kids around to daycare, school and Doctors appointments was not unusual.  Lee is often excitable so I was not surprised to hear the tone in his voice but the words were surprising: "Did you see the Journal today!?"  I confessed, as I often do, that I had NOT seen it but I was curious about what was in it.  He informed me that NRG Bluewater Wind had suspended a plan to take the next step in creating an offshore wind farm off the Delaware coast and that Delaware Insurance Commissioner Karen Weldin Stewart had submitted a waiver to exempt Delaware from the Obamacare plan.  Once I returned home from my errands I did a little digging and even more good news came in, New Jersey Governor Chris Christie decided to pull New Jersey from the 10 state RGGI Cap and Trade plan which States from Delaware to Maine have found themselves mired in.  Of course, Founders Values had met last night on the RGGI topic and specifically on its repeal from Delaware law, so it was especially exciting to see that New Jersey had taken that step.  My research into what actually took place left me, well, even more excited and enthused because each of these stories affirmed conservative positions that the left has consistently tried to portray as radical and crazy.  I'll break down my findings on each story below.

 

Delaware Insurance Commissioner Requests Obamacare Waiver
My initial reaction was that this had to be wrong.  Delaware, my state and the home of Vice President Joe Biden, whose son Beau, in his capacity as AG has refused to participate in the multi-state lawsuit against Obamacare (that's not the only thing he has refused either) was going to request a waiver to opt-out of Obamacare!?  WELL....not exactly.  What Insurance Commissioner Karen Weldin Stewart wants is a waiver to suspend a new rule (read: regulation...see: Cass Sunstein) that mandates that insurance companies use at least 80% of premium payments for health care payouts and not for administrative costs (salaries, advertising, profit) otherwise they must refund that money to the customers.  At first blush, as someone who pays for health care through insurance premiums, this sounds like a fair idea.  That is until I look at it from the perspective a business owner.  Why is the government now coming into MY business and telling me that my business model isn't working?  Who are they to do that?  Assuming that I am not actually defrauding my customers, that is that the plan they pay for, the agreement we have on how much coverage and on what is covered is adhered to, who is the government to come in and say "No, you can't do that, you have to spend MORE on payouts."?  I discussed this with my wife and she took my initial position, that there needs to be SOME regulation to ensure that a company doesn't, for instance, fall into a position where they cannot afford to pay your claim and you are left to cover it yourself.  "But hold it", I said, "there are already laws that prevent these companies from doing these things.  The contract itself holds the insurance company liable for whatever level of coverage the parties agree upon."  So this argument holds no water....but I wondered, why would the government do this?  Is it purely for control over the private health care providers?  The answer is no, well, kinda.

The government DOES want control of the private health insurance market but that is only because the market won't go quietly.  Think about what this regulation would do to health care providers:

1. It would force smaller, less expensive insurance companies out of business because they would no longer be able to afford to advertise and compete with larger insurance companies with bigger customer bases.
2. It would contract company staffing levels to a point where it would actually become completely unmanageable and inefficient.  There is something to be said for a lean staff, but forcing these kinds of reductions in administrative costs, while INCREASING regulatory responsibilities thanks to even MORE government regulations being tacked on thanks to the Obamacare bill, would result in a bottleneck and major delays, resulting in Dr.'s not being paid, patients being denied and a shutdown of many companies and potentially the industry as a whole.
3. It would result in premiums skyrocketing to cover the costs of advertising, increased regulations AND increased payouts to Dr.'s or returns to customers.  It would also make the business of health insurance an unprofitable industry and discourage new companies.

So, what does all this mean?  Why is government getting involved?  Well, remember that the left did not see Obamacare as an end result, it was just a stepping stone to a single payer system.  See John Conyers in his own words (COURTESY BREITBART.TV...he gets cranky when you don't put up a neon sign that material belongs to him...):

So, if you take people at their own words, you have to wonder, is this what their regulations are intended to do?  Drive companies out of business, drive premiums up and create outrage amongst the people, drive the industry into the doldrums?  If so, this is the way to do it, and if not, why would they do something so oppressive to the industry?  Likewise, while Karen Weldin Stewart is at least asking for relief for Delaware insurance companies, it begs the question, isn't it about time Delaware opened up and allowed more competition in the market and stopped playing games with just a handful of companies?  More competition would only decrease prices and increase coverage.  So what say you Karen?  How about a little more competition and a little less begging for table scraps?

 

Chris Christie Pulls Out of RGGI

Gov. Christie, who has captured much of the conservative spirit by taking on Big Education (read: New Jersey Education Association) and who has caught the ire of conservatives for his support of climate change and Cap and Trade, has recaptured some of that conservative spirit by not only changing his mind on climate change, but for acting on it and pulling New Jersey out of the Regional Greenhouse Gas Initiative (RGGI).  RGGI is a regional cap and trade scheme developed to allegedly reduce CO2 emissions and combat climate change by charging CO2 emitters for their output.  Delaware is also engaged in the plan, despite best efforts by Republican legislators and individuals from across the political spectrum to end Delaware's involvement in the program.  Mr. John Nichols, a regular citizen who got involved in the RGGI repeal debate after he investigated what it would entail for him to install solar panels on his own roof.  What he found on his journey was that, simply put, without direct subsidies from the government, solar energy (and wind) is not sustainable.  In fact, he found the more he looked, that solar energy is nothing more than affluent people, who can afford a $30,000 plus solar system, taking direct subsidies from the poor and middle class to install it.  He found it to be morally wrong as does anyone who truly understands the process.  To force the poor and middle class to pay for the luxuries of the upper class is reprehensible.  Nichols sought out climatologists and government leaders for answers to his questions and has built a detailed history of the "green energy" movement and the effects on Delaware and "climate change".  Using their own words, Nichols shows the convoluted and confusing structure that is in place and squeezing the life out of the American energy market.  Now, Gov. Christie has caught on to what Nichols has been saying, that RGGI is doing nothing to affect climate change and is wasting hundreds of millions (if not billions) of dollars.  Gov. Christie said "This program is not effective in reducing greenhouse gases and is unlikely to be in the future.  The whole system is not working as it was intended to work. It’s a failure."

 

NRG Bluewater Wind Delays Wind Farm

This one made me chuckle a bit.  NRG Bluewater's wind farm off the Delaware coast has been a problem since the day it was proposed.  Bluewater has taken every government dollar it could since it started negotiating with Delmarva and the state.  Their practice of crony capitalism to influence the state and gain favor among the legislators has earned them millions of dollars in subsidies and concessions from the state and Delmarva.  Legislators pressured Delmarva Power to purchase more and more power from Bluewater and even when Bluewaters parent company went belly up in the economic crisis and the project was purchased by NRG, legislators demanded more and more.  Even still, NRG Bluewater relied on portions of the $26 BILLION (Big Oil gets $21 Billion) in direct payment subsidies to complete their project or even to see through the next phase.  I feel the need to explain the way subsidies work here because I know there has been a lot of distortions out there.

Everyone RAILS against BIG OIL for their massive taxpayer funded subsidies right?  Big Oil's "subsidies" aren't subsidies at all, they are tax credits and deductions that are offered too ALL businesses, not just "Big Oil".  For instance, "Big Oil" receives a deduction for the depreciation of assets, the more oil they suck out of the ground, the less oil there is, the less value is left in the ground.  "Big Oil" is allowed to deduct that depreciation of value in the land which is considered an asset.  It's no different than the equipment depreciation allowance for any other business from the local pizzeria to a construction company and so on.  Big Oil doesn't get any direct subsidies (payouts) from the government.  Despite all the noise and screaming from the left, they simply are allowed to write off the same depreciation, losses and assets as other small, medium and large businesses.  The "lost revenues" from "Big Oil" are simply less money squeezed out of companies by a bloated government.

Big Wind however, receives DIRECT SUBSIDIES, meaning that the government takes dollars from the Treasury and gives them to the wind power company.  Big Wind gets $26 Billion (that's $5 Billion more than Big Oil's tax breaks) in direct payment subsidies from the federal government.  And this is for an industry that Steven Chu, White House Energy Secretary has described as "mature".  The facts bear that out as well, wind energy has been around for more than 30 years and it's nearly reached it peak zenith.  In fact, with all the money poured into "alternative energy", America gets around 10% of its power from "renewables".  For $26 Billion, we get around 2%-3% of our power needs and while Oil provides very little POWER (if you take out vehicle power)...natural gas, often found along with oil, provides more than 20% of our power. 

 

So given all of these facts, I was actually delighted to see that NRG cited the reduction of government subsidies as the reason that it had to delay progress on the Bluewater offshore wind project because it shows that wind power, for all it's sustainability in terms of ecology, has exactly ZERO sustainability economically.  It REQUIRES massive investment from the taxpayers to provide energy that is 2 and 3 times as expensive as energy from domestic sources such as coal and natural gas.  Add to this the fact that even Chris Christie, once a believer in Cap and Trade, has abandoned support for the RGGI debacle and has admitted that it simply does NOTHING to affect climate change and you see the proof that Cap and Trade is nothing more than a great big scam.
 

Oil Prices and what is causing them to rise

I was included on an email thread by a friend about the reason oil prices are going up.  I know my good Friend Rick Jensen (1-4PM on 1150WDEL www.wdel.com) has a bug up his butt about "speculators" and that he's had numerous "money people" from Peter Schiff to Stephen Schork on his show in an effort to prove his theory right and they have all pretty much said the same thing: Speculators ARE driving up the price...but that's their job.  They are not the CAUSE and regulating them more won't do anything to reduce the price, in fact it might increase it.  Anyway, back to the original thread, the email contained a piece by Brian Wesbury (click here to read the piece) in which he calls the theory of speculators to task.

Brian makes excellent points and points that I have been making for a long time.  Stop looking at the difficult answers...the easy ones are where the "beef" is.  Here is my response to the email thread:

Amen! I’ve been talking about this for a LONG time now. There are three main causes of the spike in oil prices: The Fed, lack of domestic drilling and the Middle East

The Fed – I think all of us on this thread understand that more money printed, drives down the value of the money in circulation just like more widgets drives down the price of all widgets (unless you add in union labor…but that’s another story ;]) which is nothing more than SIMPLE Econ 101 (most of our problems would be solved if we just went BACK to Econ 101) and the law of Supply and Demand. In the currency markets (again as you know) this is called inflation. The more you print, the less it’s worth. The reason is because our dollar isn’t BACKED by anything…really since the Fed was created, the dollar, that is to say the federal paper note, has been unpegged from hard assets like Gold. It’s no different than a personal loan, if you have collateral, for instance, you ask the bank for a loan for $100,000 to make a large purchase… if you give them the deed to your home in case you don’t pay it back, you are far more likely to get the loan than if you showed up with nothing. Why? You’re less likely to walk away from your home than you are from a promise alone. Our currency was once issued based on the amount of gold we had. The denomination of the currency was changed based on the finite resources of gold. Since paper notes relied on the issuing bank (remember, we had no central bank for large chunks of our history…currency was issued by local banks and based on their gold supply) maintaining gold reserves, bank runs and travellers redeemed their notes in physical gold (more often coins and bullion than gold nuggets). Now, our dollars are backed by what? The word of Congress. The word of politicians who lie to their wives, who lie to their GODS and who lie to US. Heck, the word of politicians who don’t even UNDERSTAND these basic truths. If there’s nothing behind the paper, what stops them from printing as much as they want? Nothing, and that is EXACTLY what they are doing now. They’ve gotten to the point where we now have more printed dollars in circulation than we create in revenue each year. That means we are actually backing up our money supply not with gold, or with revenue, but with IOU’s from the government. This is what they call “monetizing the debt”. This causes commodities that are PEGGED to the dollar, like oil, gas, food, etc. to rise in price as it takes more of the dollars to buy the commodity but what will happen is that intrinsically valuable items (gold, silver, etc.) will eventually replace the dollar as the peg for commodities and the market will reset. Speculators will shift to the gold market.

Lack of Domestic Drilling – Simply put, if we CREATED more supply at home, where WE had a stable source, and for that matter if our energy policy relied on proven sources of energy instead of Wind/Solar/Battery tech that doesn’t even yet exist, speculators would have no gloom to doom about. Or at least less. American energy RESOURCES are actually keeping speculators from driving the price up FURTHER because we do HAVE the coal, oil and natural gas that we can use for power if we need it (and we need it bad!) in an emergency and in the longer term with an administration with a better energy policy. Next time you drive by an oil derrick, coal mine or gas well, thank a gas company for keeping America running (even if the engine DOES need some work).

Middle East – If you don’t think the instability in the Middle East is contributing to speculator concerns, I’ve got some Oceanfront property in Arizona for you to check out ;) and it’s goin cheap! The Middle East is on fire, not just one or two countries either, I mean the ENTIRE thing. Iran, Iraq, Syria, Jordan, Yemen, Bahrain, Saudi Arabia, Egypt, Libya, Somalia (pirates) are all on fire and taking anti-American/anti-Europe/anti-Israel positions. It’s counter intuitive to think that people buying a product for the long term, wouldn’t look at what’s going on over there and say “Gee, oil might be hard to come by later, I think it’s going to be something I should take a chance on.” Any smart business person would plan for the future. So what goes on in the Middle East makes a difference, of course it doesn’t help that our American economy is also on fire and our credit limit is being downgraded.

It’s absolutely THIS simple. If we had a decent energy policy, drilled for our own oil, fixed our economy, got out of debt, cut spending and stopped printing money, the price would shrink.

America's Energy Policy

If it weren't such a serious subject, America's energy policy would be a lot like that old skit "Who's on First"?

 

 

The problem is that our situation is serious and it impacts every single American and beyond that, the vast majority of the world.  I'll explain.  IT's pretty obvious that our own energy policy affects all of us:

 

An increase in energy costs drives up the price of all of our goods and services as well.  It costs more to make the goods because energy prices for corporations are higher, it costs more to ship those goods because transportation requires fuel.  It costs more to keep the products on the shelf because the retailer is paying more for their energy usage. Therefore, when we get to the product, the price is increased.  Sound crazy?  Check the price of corn.  Since last year, the wholesale May delivery of corn has more than doubled from $3.67 to $7.23 per bushel and the crisis in Japan will push those numbers higher.  If the Middle East continues to rage and as Japan turns to rebuilding, we could see the price of a bushel at $10.  By the time we see that cost it's going to be up around $2 per lb (I saw them this weekend at Shoprite in Newport for $1 per lb). 

While the government doesn't include food and energy in their analysis of inflation, both of those commodities have been rising.  We've all seen a difference in our electric bills but we pay it withoutreally understanding why there is such a change.  There are many factors that go into it but I will try to make it simple.

1. The electric company must make a profit to stay in business.  This means it must pay employees, pay loans for the upkeep of their offices, buildings, vehicles, transmission lines, pay for land it owns and cover all of its expenses with a little extra left over.  This also includes paying the salaries of many workers who are unionized.
2. The state government puts regulations on energy companies and sometimes more than one state regulates an energy company.  For instance, a coal fired plant in Delaware is regulated by Delaware to comply with air quality standards, that same company (or another related company who passes the cost on to it) is regulated in West Virginia where the coal mines are located.  These regulations encompass anything from air quality to worker safety.  These regulations are not free and their cost is passed through the company.
3. The federal government puts regulations on energy companies for various reasons as well.  Again, these regulations encompass everything from bookeeping to air quality and worker safety.  Likewise, these regulations are passed through the company as well.
4. Electric companies are regulated by federal/state governments in terms of what KIND of power they are allowed to use as well.  That means they may be mandated (as we are in Delaware) to use wind/solar/nuclear/geothermal power in certain levels.  This can drive the cost of energy up depending on the unit cost of the energy. 
5. Delaware has joined the Regional Greenhouse Gas Initiative which is nothing more than regional Cap and Trade.  It mandates certain energy usage levels and other price controls that drive up the cost to power companies.

 From all of those calculations (and more) we come up with a final number.  That's why President Obama said that energy rates would necessarily skyrocket under his Cap and Trade plan.  Because he understood that all of the costs would increase once they created a new trading market for carbon credits (which are an abstract concept).  So, after all of this, what is our energy policy?
We can't drill off of the coasts because we might spill oil like we did in that MASSIVE BP oil spill off the coast of Louisiana (the cleanup they thought would take maybe 100 years) took less than 90 days before they couldn't even FIND any oil to clean and that was after it took WEEKS to get the cleanup started. 

• We can't use oil, coal or natural gas because they are fossil fuels that the government believes causes climate change (a natural cyclical event that has occured many times throughout the planets history).  But we can send hundreds of billions of dollars to the Middle East, Brazil and other countries who don't like us very much for THEIR fossil fuels. 
• Ethanol usage drives up the price of corn and diminishes our supply of food.
• We can't build more wind farms because bird migrations and bat movements are affected.
• Nuclear technology is clearly too dangerous (despite the fact that in 50+ years there have been (now) 3 major accidents.  3-Mile Island (where 0 people were killed)....Chernobyl, Russia (4,000 died in a plant where safety precautions were not taken and in fact a plant that was not built properly)...Japan (the plant withstood an earthquake more than 10 times as powerful as it was built for and the current reactor leak has yet to kill anyone and radiation levels, while higher than normal, are still WELL below (about 4,000 times lower) the "safe" limit.
• Solar is ok, as is geothermal but both combined provide about 6% of our needed power WITHOUT any growth.

Folks, something has got to give.  Our current "energy policy" is a recipe for disaster and if we don't change it, we face a huge energy crisis on top of everything else that is going on.  We need to have a common sense energy policy that responsibly turns over energy creation to the private sector while ensuring basic saftey and clean air/water safety.  With our safety standards, even a massive Gulf spill created a MINIMAL problem for fishing, coastlines and animal life.  We can also safely build nuclear plants, mine for coal and utilize alternative sources of energy to conserve and supplement our energy needs.  The only way that's going to happen is if we stop letting special interest groups and faulty science scare us into dismantling all of our sources of energy.