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April 28, 2006

CUB's Brainstorm Blog on Gasoline

"Exxon Mobil Corp... posted its biggest first-quarter profit ever on Thursday... The Texas behemoth reported a profit of $8.4 billion, on the heels of record earnings of $10.7 billion in the previous quarter. The news is expected to fuel growing consumer resentment in the United States over Big Oil's long-running profit bonanza." Reuters on Yahoo 04/27/06

It sure hurts to fill up the car these days, and with summer coming and travel increasing, gasoline prices are expected to stay high. Gasoline (made from crude oil) is a totally different product than the natural gas which is sold by NW Natural, Cascade and Avista here in Oregon, and which is regulated by the Oregon Public Utility Commission. There is no such state or federal price regulation of the gasoline market, and it shows. As Public Citizen testified before Congress, "So it would seem there is a direct correlation between record prices paid by consumers and record profits enjoyed by oil companies. As Americans shell out more dollars at the pump, the profit margin by U.S. oil refiners has shot up 79% from 1999 (the year Exxon and Mobil merged) to 2004."

CUB has no direct stake in the trajectory of the gasoline market, and, since our board has not discussed it, no official position. However, we are consumer advocates dealing with energy issues across a broad spectrum of the social, economic, and environmental background of Oregon. We are people with opinions (no surprise to those who know us!) and with concerns regarding the overall energy stability of the society we live in. Also, one gubernatorial candidate recently suggested that perhaps gasoline should be regulated by the PUC. And, most importantly, CUB members have asked us about what, if anything, can be done about the rising prices at the pump. For all these reasons, we offer this brainstorm blog on gas, a collection of voices about an issue looming larger and larger on the horizon.

We feel that the conversation about gasoline prices has reached an interesting point, and that the proposed windfall profit tax, or some other mechanism for limiting customer vulnerability in the market, deserves more exploration. (Note below under Royalties, Senator Wyden's attempt to shift some of the cost back to oil companies when prices skyrocket.)

Another suggestion, some form of regulation of the gasoline market, also deserves discussion. We have definitely seen a difference between those states which retain a regulated natural gas market and those whose market is deregulated; while customers in regulated states such as Oregon are subject to the same volatile prices of the wholesale market as deregulated states, the regulated states have not seen huge jumps in profit margins, CEOs' salaries, etc, which can and do drastically affect the bottom line on customers' bills. (See CUB article on Rates in Deregulated States.)

A great failing of the American energy portfolio to date has been its shortsightedness. We have dwindling oil production capability -- dwindling massively at home and dwindling gradually abroad (click here for a primer on estimated remaining oil reserves). And yet America has yet to open a serious discussion on turning this Titanic economy away from near-total dependence on oil. Some serious foresight with regard to the future of gasoline (not just stock futures of gasoline) seems to be in order, and regulation could help put a structure for such foresight in place.

Another perspective suggests that it would be foolish to try to manage oil costs without at the same time addressing natural gas, since their production and usage are linked. This perspective would suggest the formation of a group that directs the purchase and sale of both oil and gas, to stabilize changes in price, just as the Federal Reserve Board does for U.S. currency. This would help with the current speculation bubble in the price of oil, which is estimated to be anywhere from $10-$25 out of a barrel cost of $75.

Supply and demand remains a primary problem. For many years the U.S. was the main buyer for worldwide oil production, but now China and India are becoming major competitors for the worldwide supply. A short-term solution would be better gas mileage standards for all new vehicles, and a long-term solution means shifting usage to other energy sources altogether. This is the same message CUB offers for managing electricity and natural gas usage: conserve what you can, and start shifting the energy you must use to renewable sources.

Finally, security issues, questions of cost and ethics surrounding American military intervention in places where oil is produced, have come to the forefront. As stated by James Howard Kunstler in an article on Alternet, "The problem is that the oil supply will soon steadily diminish at a rate of at least 3 percent a year, and that necking down of supply is likely to be expressed in greater geopolitical friction and turmoil between the great nations who crave oil." These issues are beyond the scope of this brainstorm, but no discussion of energy stability would be complete without mentioning them.

Again, CUB does not deal in regulation of gasoline. Energy in all its forms, however, is not only interrelated, but of great importance in the ongoing discussion of how we protect consumers, cultivate a healthy economy, and maintain a livable planet. We appreciate your willingness to engage in this discussion with us.

Fall 2005 Record Profits

"By most familiar comparisons, the $9.92 billion profit earned by Exxon Mobil Corp. in just three months is almost unimaginable. It would cover all Social Security benefit payments for three months... It would fund the military operations in Iraq and Afghanistan for more than two months. Yet oil industry representatives and Exxon Mobil yesterday made a game effort to cast the record profit, earned during a quarter in which the Gulf Coast was shattered by hurricanes and gas prices rose well above $3 a gallon, as middling at best." The Washington Post 10/27/05:

Congress Reacts

"Sen. Byron Dorgan has introduced a three-year tax of 50 percent for any profit oil companies make for oil sold above $40 a barrel. But even the North Dakota Democrat admits it's an uphill battle for the bill. "This is not a very hospitable political environment to challenge the oil industry," Dorgan told CNN/Money. "We have a president and vice president who come from the oil industry and they're not interested in doing anything that runs counter to the interests of major integrated oil companies." But Dorgan said he's sensing some growing support for a tax across the aisle." CNN Money 10/28/05:

Where We Are Now - $3.00 and Rising

"Bolstered by high oil prices, Exxon Mobil said profits rose 7 percent in the first quarter, even as Congress threatens to punish oil companies for excessive profits at a time of soaring gasoline prices. The surge in energy costs has jumped to the top of the political agenda as the average price of gasoline recently reached $3 a gallon in many parts of the country. Last week, crude oil prices jumped above $75 a barrel, the highest in over a quarter century. Facing growing political pressure ahead of this year's mid-term elections, Congress is considering ways to trim $2 billion in tax breaks it awarded oil companies as part of last year's energy bill. Some would also like to see a windfall profit tax imposed on oil companies. Net income at Exxon, the world's largest publicly traded oil company, rose to $8.4 billion in the first quarter, compared with $7.86 billion in the year-earlier period. Sales climbed 9 percent to $89 billion." New York Times 04/27/06

Red Herrings

"No doubt it makes everyone feel better when the president states his concern for Americans, who are now paying more than $3 a gallon for gasoline. Unfortunately, the measures President Bush chose to announce this week to combat high prices are either meaningless or possibly dangerous in the long run, even if they do offer a bit of temporary relief. For example, just talking publicly about "price gouging" can spook gasoline providers into slightly lowering prices. And maybe it's useful to inspire state officials to start looking harder for crooks, given that price gouging is defined at the state level, not by the federal government. But in the long term, such talk encourages the public to believe that evil price gougers are responsible for higher pump prices, when the real culprits are global economic growth, increased demand and Americans' own large cars." Washington Post Editorial 04/27/06

Genuine Issues:

Executive Pay

"Last year, Exxon made the biggest profit of any company ever, $36 billion, and its retiring chairman appears to be reaping the benefits. Exxon is giving Lee Raymond one of the most generous retirement packages in history, nearly $400 million, including pension, stock options and other perks... Last November, when he was still chairman of Exxon, Raymond told Congress that gas prices were high because of global supply and demand... Raymond, however, was confronted with caustic complaints about his compensation... That was before new corporate documents filed with the Securities and Exchange Commission that revealed Raymond's retirement deal and his $51.1 million paycheck in 2005. That's equivalent to $141,000 a day, nearly $6,000 an hour... "I think it will spark a lot of outrage," said Sarah Anderson, a fellow in the global economy program at the Institute for Policy Studies, an independent think tank. "Clearly much of his high-level pay is due to the high price of gas."" ABC News 04/14/06

Royalties

"At a time when energy prices and industry profits are soaring, the federal government collected little more money last year than it did five years ago from the companies that extracted more than $60 billion in oil and gas from publicly owned lands and coastal waters. If royalty payments in fiscal 2005 for natural gas had risen in step with market prices, the government would have received about $700 million more than it actually did..." New York Times 01/23/06.

P.S. Kudos to Oregon Senator Ron Wyden who filibustered yesterday (04/27/06) in an attempt to force a vote on his amendment which would curtail royalty waivers for oil companies when oil is selling at above $55/barrel.

Finite Resource

"Are Americans willing to live with $100-a-barrel oil prices, which could translate into $6-a-gallon gasoline and heating oil? They may have no choice. It could happen as soon as five years from now, according to some energy experts. The price for a barrel of crude has nearly tripled in three years, from $25 in April 2003, to over $72 today. But the more crucial question is this: Are Americans and their political representatives willing to make the individual and collective sacrifices needed to come up with viable mass-market energy alternatives to heat our homes, drive our cars and run our industries? They would have to accept the unpalatable prospect that a concerted national push for alternatives to oil will be neither cheap nor easy, and it won't generate significant results for quite some time, even when such alternatives are made to work." Newsday Editorial 04/23/06

Conflict

"No one who is honestly assessing the decline of American leverage around the world due to our energy dependence can fail to see that energy is the albatross of US national security," Sen. Richard Lugar (R) of Indiana said last month... Now, with an election looming and higher gas prices, the US is in a perfect storm of playing politics with energy. It's time to end blame games and decide whether oil is a social good needing evermore protection." Christian Science Monitor Commentary 04/26/05

Posted by Oregon CUB at 02:50 PM | Comments (1)

April 21, 2006

Harbinger Brings Attention Back to PGE Once Again

harbinger n. 1. formerly, an advance party of an army or royal party, who arranged for lodging, entertainment, etc. 2. a person or thing that comes before to announce or give an indication of what follows; herald. (Webster's New World Dictionary)

An investment group called Harbinger Capital Partners Masters Fund has, wittingly or unwittingly, become the first to buy up a significant amount of the newly released stock of Portland General Electric. The investment company owns 7.3% (or 4.5 million shares) of those independent stocks as they were released in early April from Enron bankruptcy holdings. The company has denied seeking to influence the operations of PGE, and it is unknown whether Harbinger purchased the PGE stocks as part of a more general gathering up of Enron creditor claims (the company is known to focus on distressed stock acquisition), or whether they were aiming to buy PGE stocks in particular.

Although 7.3% does not sound like a large amount, owning that much of a company often allows an investor to influence board of director appointments and other critical decisions. For that reason, Oregon has a law that requires a company to file for PUC approval if they own more than 5% of an Oregon investor-owned utility. This is the same law that required Texas Pacific Group to undergo scrutiny of its financial structure and plans for PGE in 2004, in an historic outcome in which the PUC rejected the Texas investment corporation's attempt to purchase PGE as a whole entity.

The Harbinger we currently face is still unknown to a great extent, except in that it heralds the beginning of another round of ownership proceedings at the Public Utility Commission. It is possible that Harbinger bought the Enron creditor claims as just another distressed company acquisition, and does not wish either to influence the utility or to trigger the Oregon 5% ownership clause, in which case their best option might be to sell 2.4% of the PGE stock they own. Even this sale, however, would be a sizable dump of the newly released stocks and might have to be done gradually so as not to negatively affect the share price.

On the other hand, Harbinger could plan to keep the PGE stock and even purchase more as more becomes available from the Enron bankruptcy court claims (currently, 43% of Enron claims have been released to creditors and the public). This raises issues of what approval is necessary and whether multiple proceedings would be needed, should the investment corporation's percentage of PGE stock rise from 7% to 10% or 15%.

Whatever the company's intentions are, the Oregon Attorney General's office has let Harbinger know that they need to start filing their ownership application with the PUC. And however their long-term plans may play out, CUB will become involved in this case as we have in so many other utility ownership cases in recent years. As long as Harbinger owns 5% or more of PGE stock, we are going to want to see their books, examine their practices, and make some sense of their plans for Oregon's largest electric utility. And we will ask the PUC to reject the application to own significant amounts of PGE stock if their ownership fails to provide benefits to customers, as was the case with Texas Pacific.

We aren't yet expecting the worst out of this turn of events. It certainly is a harbinger of continued rounds of activity with regard to PGE, though. The fun just never ends.

Posted by Oregon CUB at 03:54 PM | Comments (0)

April 14, 2006

Natural Gas Efficiency Programs Coming to Central & Eastern Oregon

CUB, Cascade Natural Gas, and the Oregon Public Utility Commission Staff have reached an agreement regarding the participation of Cascade Natural Gas in the energy efficiency programs offered through the Energy Trust of Oregon. Cascade offers natural gas for home and water heating (and cooking!) to customers in Baker City, Bend, Hermiston, Ontario, and Pendleton. The PUC Commissioners themselves still need to approve the agreement; we're confident they'll do it.

In a press release last October, the Energy Trust announced that, "Residents and businesses using natural gas for space and water heating have saved about 2 million therms of natural gas by taking advantage of energy efficiency provided since 2003 by Energy Trust of Oregon." The director of the Energy Trust, Margie Harris, went on to say that, "Two million therms of natural gas is equivalent to the amount used by 2,800 typical households in a year." Last year, Oregon residents eligible for Energy Trust programs saved more energy, and more money, than had ever before been saved using any previous energy efficiency programs. Those programs have benefited customers of NW Natural Gas for 3 years, but soon customers of Cascade Natural Gas will be reaping the benefits, too.

CUB has long been a proponent of consolidating energy efficiency programs within the Energy Trust, an independent non-profit with lots of expertise, a successful track record, and no inherent conflict of interest (such as a utility would have when urging people to use less of their own product). Under the new Agreement, Cascade will put almost $1 million per year into the Energy Trust, and the Trust will use those funds to manage the various rebates, maintenance and construction grants, free energy audits, and public education about ways to cut natural gas consumption.

Cascade customers in Central and Eastern Oregon will be receiving information soon about how they can best use the new opportunities for energy efficiency to their advantage. And because the Energy Trust already operates its electricity energy efficiency programs throughout much of Cascade's territory, many customers will have the convenience of "one-stop shopping," setting only one appointment to find out how to lower both gas and electricity usage.

If you live in PGE, Pacific Power, NW Natural, and soon also Cascade Natural Gas service territory, you are eligible to participate in the programs offered by the Energy Trust. To find out more about what you can do to cut your bills and reduce your energy consumption, go to www.energytrust.org.

Posted by Oregon CUB at 11:49 AM | Comments (0)

April 07, 2006

Oregon Leads the Way in Voluntary Support for Renewables

Are you supporting renewables when you pay your electric bill?

If not, why not? The people of Oregon are leading the nation in voluntary renewable energy usage. Out of every investor-owned utility in the United States of America, the utility ranked #1 in voluntary customer purchases of renewable energy is PGE, and #2 is Pacific Power. That's pretty amazing.

Why have so many more people in Oregon signed up? Well, first, because Oregonians understand and care about environmental stewardship. We talk about it, we think about it, and we make it a priority to elect those who feel the same way. Second, because the brochure explaining Oregon's Portfolio Options, the choices for renewable energy that you have seen in your PGE or Pacific Power electric bill, are the culmination of a well-constructed and well-presented system that is easy to use and effective in boosting usage of clean energy sources. Third, because Oregon's Portfolio Options combine the best of a competitive market (high quality product that is actively marketed) with the best of a regulatory system that keeps customers' interests protected.

When you sign up for green power for your home (power produced from wind, solar, waste, geothermal or nontoxic biomass) you pay between $.01-$.02 more per kilowatt hour than you do for Basic Service, or about $5-$10 per month, depending on usage. Someone asked us the other day, "How do I know that the money I give to the utility for renewables actually goes there?" That was a really good question.

The answer is twofold: There is continuous programmatic oversight of Oregon's Portfolio Options provided by the Portfolio Options Committee (POC). This Committee is made up of members of the public interest community, including CUB, Renewable Northwest Project, Oregon HEAT, and the Fair & Clean Energy Coalition, and members of local governments, the Oregon Dept of Energy, Oregon Public Utility Commission Staff, and representatives of the utilities involved, PGE and Pacific Power. The POC began meeting in 2000 to begin shaping the far-reaching plan for the shape and purpose of the Portfolio Options. The POC has advocated for transparency of the program, decided what qualifies as a renewable energy source, worked on making sure that no cronyism is allowed to dilute the cost-effectiveness of the program, and been precise about setting parameters for the relationships between the utilities and the green energy producers.

Since the Portfolio Options became available to the public in March 2002, the POC has gradually become more involved in problem-solving and offering ideas about the functioning of the program on a day-to-day level. For example, a CUB staff member on the POC found out after moving, within the same utility service district, that he had been dropped from the green energy program, a "you move, you lose" situation. If he hadn't been checking his bill very carefully, he would never have known that he was no longer enrolled in the green power program. Despite some opposition from the utilities, it was agreed by the POC that this problem needed addressing, and they recommended a fix to the Commission. Now, when you move, and keep your same electricity provider, they are required to give you "seamless move" service, maintaining your green power preferences.

The other kind of oversight in place over the Portfolio Options, in addition to the POC work, is the Annual Reconciliation carried out by the Oregon PUC. Each year, PGE and Pacific Power are required to file a report that includes copies of the actual contracts they have signed with green power producers, along with the numbers on transmission, and money collected under the Portfolio Options program. These numbers are then "reconciled" to make sure they match, providing Oregon customers with what we like to call content assurance oversight -- that you are getting what you're paying for.

One important aspect of the Portfolio Options program is that all the renewable energy sources included under its auspices must be "new" renewables, developed since July 1999. This ensures that utilities are actually going above and beyond what standards might already have been in place without this voluntary customer participation. Every kilowatt hour of green energy produced, and -- more importantly -- purchased, displaces a kilowatt hour of brown energy. The Portfolio Options program creates new demand for clean energy, and that demand sparks new production. All of which serves to keep Oregon moving in the right direction for a clean and sustainable energy future.

The Portfolio Options program was mandated by SB 1149, which CUB helped to write and to pass in the Oregon Legislature. We are proud of our work catalyzing and shaping this renewable energy program, and glad that 4.7% of eligible customers are participating in the program. Let's make that number even higher. If you are not already buying green power, go to Pacific Power or to the PGE website to sign up now.

And don't forget to pass this email along to your friends. They might be happy to know how easy and important it is to add their own household's momentum to the green energy evolution.

Posted by Oregon CUB at 10:03 AM | Comments (0)