Local politician threatens to file price gouging claims against gasoline retailers opposing tax

Michael Giberson

From the Fredericksburg, VA, Free Lance-Star, “GAS-TAX PINCH OR GOUGING?“:

Spotsylvania County Supervisor Hap Connors threatened yesterday to file price-gouging complaints because of a lobbying association’s campaign that blames a Virginia Railway Express tax for increased gas prices.

The county became a member of the commuter rail service Monday and enacted a 2.1 percent tax on wholesale gasoline required for VRE membership. The tax is expected to generate more than $3 million annually.

… The Virginia Petroleum, Convenience and Grocery Association represents 650 retail members operating more than 4,500 convenience and grocery stores with gas pumps across Virginia.

Association spokesman Michael O’Connor said the group made laminated signs for Spotsylvania members that warn county residents they will pay 5 cents more a gallon because of the tax.

“Either the gasoline retailer will have to eat that 5 cents or it is going to be passed on to the consumer,” O’Connor said.

Supervisor Connors sent O’Connor an e-mail yesterday warning that he would file price-gouging complaints if O’Connor did not remove the signs.

Many views on the Haynesville shale resource

Michael Giberson

The documentary film Haynesville offers a view of the shale gas boom from the point of view of several landowners in northeastern Louisiana. One of the landowners is a sort of good-ol’-boy type who hung onto family land and added to it even as family members moved away. His 300 or so acres of backwoods land made him a multi-millionaire when the gas developers came to town. Another part of the story shows the impact of the gas money on a growing church congregation; the preacher wants to build a new Christian school with the money. The film also follows the activities of a mother who gathers small landowners into a large block to negotiate with the gas companies for both higher payments and contractual protection for water quality and other environmental values.

Haynesville movie thumbnail imageIntertwined in these stories are some talking-head interviews with energy, environmental, and policy experts. I found these parts of the film mildly intrusive – but that’s probably because I already spend too much of my life reading about energy resource policy issues; likely most viewers will find the contextual information helpful. The film should be required viewing for landowners sitting over shale gas resources, especially in areas not used to oil and gas development.

The documentary is making the rounds. A showing is coming up in Houston on March 4, and the film will be part of the SXSW festival in Austin in a few weeks. If you’re interested in more information on the film, check out the website or become a fan of Haynesville on Facebook.

One of the natural gas companies doing a lot of the development of the Haynesville shale resource is Chesapeake. See, for example, their “February 2010 Investor
Presentation
,” which details their interests and optimism about their work in Haynesville and elsewhere. This three-page document explains Chesapeake’s hydraulic fracturing process, including a description of the (very small amount of) chemical additives that get injected along with a lot of water and sand as part of the fracing. The summary is produced by Chesapeake, so maybe it minimized the possible risks, but the environmental risks do appear to be small. Some information on the topic is included in the Wikipedia article on hydraulic fracturing.

Meanwhile, the new conventional view that shale gas will ensure plenty of domestic natural gas for the United States for the next 100 years remains under criticism from skeptics who believe the resources are significantly over-estimated. Allen Brooks, at Musings from the Oil Patch, provides a review of some recent analysis from skeptics. As I’ve said before, it seems obvious to me that the people in the best position to know – the folks doing the drilling and producing from shale formations – have clearly signaled what they think is true by spending huge amounts of money to secure leases and develop additional properties. Nonetheless, production of vast quantities of gas from shale remains a relatively new commercial activity, so a certain amount of unavoidable uncertainty remains.

Simon v. Ehrlich, again

Michael Giberson

Paul Kedrosky gave a short talk at TED 2010 on the Simon/Ehrlich bet on commodities prices, and posts a summary of the content as “Re-litigating the Simon/Ehrlich Bet.” If the Simon-Ehrlich bet is to be re-litigated, and Kedrosky comment is taken as offering a brief in favor of Ehrlich’s position, what can be said in defense of the Simon position?  Alex Tabarrok responds that Kedrosky’s argument misses the whole point.

Here is Kedrosky in excerpt:

By way of refresher, the situation was this: After a decade of soaring commodity prices, plus related worries about resource scarcity, in 1980, Paul Ehrlich, a dour population ecologist, took up Julian Simon, a cornucopian economist, on a bet. Ehrlich (on paper) put equal mounts of money into five commodities (he selected chromium, copper, nickel, tin and tungsten) whose prices would, he thought, be higher a decade later. Higher prices meant Ehrlich won; lower prices meant Simon won. The loser paid the winner the difference.

Ehrlich lost. A decade later, in 1990, all five commodities’ prices were lower than they were in 1980.

Kedrosky reexamines the data to see how frequently a 10-year bet on the selected commodities prices would have produced a win for either Simon or Ehrlich.  From 1980 to 1993, Simon would have won but for two years, then beginning in 1994, largely due to the run up in commodities prices that lasted from 2004 to 2009, Ehrlich would have won subsequent bets.  Kedrosky sums up:

So, what does all this mean? A few things. First, and most importantly, it means Simon was right but fairly lucky. There is nothing wrong with being lucky, of course, but compulsive Simon/Ehrlich-citers need to be reminded that it is no law of nature (let alone of rickety old economics) that commodity prices (inflation-adjusted or otherwise) trend inexorably downward, even over a decade.

Kedrosky then offers a discussion of short term price gyrations in oil markets and effects on the United States, suggesting  that “the market” will “break the largest and most elastic buyer’s back”, either “smoothly or through ugly societal and economic disruption.”  The metaphor got a little twisted there – is it possible to smoothly break someone’s back? Is it possible to break an elastic buyer’s back? – and so I get a little lost.

Essentially Kedrosky suggests that as oil becomes more scarce, prices will become higher and more volatile for a while, and then there will be a transition to lower priced oil (after substitutes emerge), and that transition will be either smooth or ugly.  This is hardly revolutionary analysis.  In fact, except for slight differences in tone, the message here is fairly consistent with the claims made in CERA’s “undulating plateau” analysis.  CERA seems to expect a smooth transition, a conclusion based on how markets usually respond to increasing resource scarcity.

Alex Tabarrok points out, however, the Kedrosky seems to be missing the key point of the Simon-Ehrlich dispute, which was fundamentally about scarcity, not prices:

The bet was never fundamentally about prices, the bet was about scarcity, living standards and whether we were running out of natural resources–remember that at the time Ehrlich was predicting hundreds of millions would die of starvation and even that England would not exist in the year 2000!  Prices were just a convenient but imperfect way to mark the bet to market.The reason prices have risen in the 1990s is not that things are getting worse but that things are getting better–especially in China and India where things have been getting much better.  As China and India have become richer demand has increased tremendously in these countries putting upward pressure on prices.  In other words, prices have risen because the value of resources has risen.  That’s quite different–indeed the opposite–of what Ehrlich was predicting. [Emphasis added.]

Wind power and electric power storage

Michael Giberson

Some of the most common questions about wind power revolve around the role of energy storage in integrating wind power with the electric grid.

So begins a position piece, “Wind Power and Energy Storage,” issued by the American Wind Energy Association. And just as there are common questions, there are common answers. Just about everyone who has thought about it has concluded that a little bit of energy storage would go a long way in improving the value of the variable electric power produced by the wind. At least as long ago as 1909 an engineer writing in The Times of London observed that the usefulness of wind energy was enhanced by power storage.

So you might think the AWEA’s article on “Wind Power and Energy Storage” reports that the technologies are best friends forever? Not so. The next few sentences:

The reality is that, while several small-scale energy storage demonstration projects have been conducted, the U.S. was able to add over 8,500 MW of wind power to the grid in 2008 without adding any commercial-scale energy storage. Similarly, European countries like Denmark, Spain, Ireland, and Germany have successfully integrated very large amounts of wind energy without having to install new energy storage resources. In the U.S., numerous peer-reviewed studies have concluded that wind energy can provide 20% or more of our electricity without any need for energy storage.

The article explains that the existing flexibility of resources connected to the electric grid provides sufficient capability to accommodate significant amounts of variable wind power output without requiring new energy storage systems.  The AWEA acknowledges that energy storage would be “helpful,” but also that “many types of energy storage are poorly suited to help accommodate … wind energy” and that it is “often not cost-effective.”  Elsewhere, AWEA refers to the “storage bogeyman” and says it is a myth that wind power needs energy storage.

So it may not be too surprising that energy storage supporters feel a certain animosity toward the AWEA, even if they see their energy storage and wind power technologies as natural complements.

EVs need to avoid charging during peak hours? Nonsense!

Michael Giberson

From time to time you see reports of electric utility executives or analysts worried about a forthcoming avalanche of electric vehicles (EVs) that will, just maybe, overwhelm utility distribution systems. What happens if everyone comes home from work and plugs in at the same time?  What happens if drivers want to recharge on-peak rather than off-peak?  I’m omitting links because I’m reacting to the general attitude and not a specific analysis, but a recent sample comment was the stern declaration: “EVs need to avoid charging during peak hours.”

Nonsense.

When car batteries become sufficiently advanced that lots of people actually buy and drive an electric car, then electric-utility scale batteries will also be more advanced.  It is, or at least can be, the same technology.  Utility applications actually have more choices, the batteries don’t have to be lightweight, so improvements in battery technology are likely to become widespread within the power industry before they become widespread in vehicle applications.

The supply side of the industry will readily handle the changes in load presented by growth of the electric vehicle market.

How to fake sincerity in reporting quarterly results

Michael Giberson

The Wall Street Journal reports on research analyzing quarterly reports (nearly 1/2 a million of them from over a 27-year period) which discovered strong circumstantial evidence that companies tweak their results to improve reported earnings.  The evidence? The number 4 occurs less frequently than chance would dictate in the tenths of a cent digit for quarterly earnings.  Pushing an initially calculated 0.4 cent result just a little will get it to 0.5 cent, and 0.5 cent can be rounded up to the nearest whole cent, which can make the difference between making or just missing a quarterly target.

The study, conducted by folks at Stanford, also found that that companies that later restate quarterly earnings or become charged with accounting violations report far fewer 0.4 cent results on average, compared to other firms.

The article quotes one of the study’s author, Stanford law professor Joseph Grundfest, as suggesting the pattern may be “a leading indicator of a company that’s going to have an accounting issue.” Maybe so. But now that this study has been publicized, it suggests a way to fake a signal of quality: just fudge them up to a 0.4 cent end. Be suspicious of a company that hasn’t had a 0.4 earnings result for the last ten years if they start reporting 0.4 cent results all of the time.

Weekend cooking

Lynne Kiesling

We did a lot of cooking this weekend, including taking advantage of my Christmas holiday baking — I made double batches of pie dough and pizza dough and froze half of what I made for later. I had also frozen some Michigan tart cherries from the farmer’s market last June, so the mid-February treat was pizza and cherry pie, YUM! Here’s what a cooking weekend chez KP looks like:

The KP Spouse is a master pizza chef, and this was a delicious one — onions, garlic, olives, red peppers, coppa ham, fresh mozzarella. Life is good.

POET, ethanol, independence and the flag

Michael Giberson

Cellulosic ethanol is purportedly the future of biofuels, at least if you listen to ethanol’s supporters.  While the topic of cellulosic ethanol is a subject of some interesting research, digging around the internet for information mostly turns up flag-waving lobbyists seeking more help from the federal government.

In a recent news release, ethanol producer POET Energy announced that the director of it’s Project LIBERTY would be giving a project status update on the planned cellulosic ethanol plant at a pair of Iowa-based events. (Project LIBERTY has its own website which talks a lot about energy dependence and independence and includes a lot of stars and stripes, red-white-and-blue imagery.)

The news release included a link to “a documentary about POET’s pilot cellulosic ethanol plant“, which I thought might be interesting.  As it turns out it was interesting, though more for what it revealed about the reliability of its content than for what it said about ethanol.

About one-third of the way through the POET video, in the context of discussing criticism of ethanol policies and specifically when discussing the effect of grain ethanol on food prices, it said, “Many claimed the diversion of corn to make fuel drove up food costs, a myth later disproved by independent economists.”

As the narrator read the bolded phrase, the video flashed an image that looked like a newspaper column.  It went by so fast the first time I couldn’t read more than the first few words of the headline: “Big Food’s Smear Campaign….”

Curious who these independent economists were, I stopped the video and scrolled back to the image (at about the 3:41 minute mark).  The full headline said, “Big Food’s Smear Campaign Exposed by New Group of Ethanol Producers.”  The subhead said, “Growth Energy formed to promote clean, green, high-tech, homegrown biofuels.”  Turns out the column was just a Growth Energy news release.

Growth Energy also has a website, which sports more flag-waving imagery, and describes the group in more detail.  Is this group the source of the purported “independent economists”?  The Washington, D.C., based group was, as advertised, formed and funded by the subsidized ethanol industry.  I don’t think “independent” means what POET thinks it means.

For a little more insight into how ethanol is grown in Washington, D.C., and perhaps insight into the current administration’s commitment to science-based public policy, read Timothy Carney’s column in the Washington Examiner: “Obama EPA’s ‘science’ pleases powerful ethanol lobby.”

Growth Energy has a video, too.  It begins with a flag, fades to a baseball stadium, and soon enough the Statue of Liberty.  If I would have stuck with it a little longer I’m sure I would have got a picture of apple pie, Mom, and probably a boy scout or ten marching in a Fourth of July parade somewhere in America’s heartland.  But I had had enough.

Flag-waving by lobbyists in pursuit of government-granted privileges always turns my stomach.