Tuesday, January 19, 2010

Win, Lose or Draw in Massachusetts Senate Race, Washington Needs to Focus on America and Start Solving the Housing and Energy Policy Issues Now

January 19, 2010



Karl W. Miller, a senior energy executive and institutional investor today issued the following statement through his advisors regarding the State of the U.S. Economy, in particular focus on the lack of a credible energy plan.



On the eve of what many are referring to as the most important Senate race in recent history to replace the seat vacated by the passing of Democrat Ted Kennedy, reflection on what is actually at stake seems appropriate.



The media is predicting that if the Democrats lose a 60 seat super-majority in the Senate, the capital markets, stocks and commodities in particular would rise as a Republican victory would give them 41 seats in the Senate, enough to filibuster any proposed Democratic reform bills, including health care, cap and trade, and renewable energy, among others.



Yet the simple fact is that health care reform is already dead as the majority of the U.S. population opposes putting their final years of life in government run hands, anymore than they already are through Medicaid and Medicare, an already stretched program and one wrought with fraud.



As Mr. Miller has opined on multiple occasions, Cap and Trade is equally as dead, and frankly never got off the ground, given the fact that it would have completely decimated the U.S. Economy, and the fledgling recovery underway on the backside of a massive recession. Mr. Miller and other energy industry executives made sure this toxic initiative never gained any traction.



Finally, the proposed renewable energy initiative, which simply put, the Federal Government and the States can’t afford to subsidize, was ill conceived, not rationale, and has died on its own by market forces at work, despite continued wasted billions slated to be thrown at it. Mr. Miller likens it to throwing reserve military units into a lost military battle; all that will result is more casualties, or in this case a major increase to the U.S. national debt.



One need only look at the State of California as a poster child of what not to do. California has massive energy consumption, the largest in the U.S., is highly dependent upon natural gas to generate its electricity, yet has set ludicrous renewable energy mandates, forced utilities and municipalities to “fudge” the true status of their renewable portfolios, and most importantly, the State of California government is essentially “bankrupt”. All which will force the State to propose a massive tax increase and try to raise energy rates significantly, both initiatives will fail, just like Florida Power and Light (FPL) found out when it asked for $10 billion in utility rate increases earlier this month.



The Florida Public Utilities outright rejection of FPL’s substantial rate increase request is a clear sign that three (3) factors are at play across the U.S. and will be repeated across the U.S. Public Utilities Commissions across the U.S.; i) The consumer is not willing to accept outrageous rate increases in their electricity costs, especially on the backside of a recession; ii) that the renewable energy industry is going to suffer a tremendous setback as without rate increases, they can’t subsidize loss making wind, solar and geothermal investments; iii) and most importantly, natural gas will benefit from this as the U.S already has the required natural gas plants built in most consuming areas, has the gas supply and will only require annual fuel rate adjustment requests to the regulators in each state.



Better to retreat, regroup, and reform for a later date in the future. Additionally, it seems the Democrats did not bother to even look into the Department of Energy’s own internal energy forecast, that 78-80 percent of the U.S. Energy will be supplied by fossil fuels by the year 2035.



Yes, the U.S. does need a credible and sensible energy policy and emissions plan. We have "abundant natural gas and coal resources" to support our energy needs for many years into the future. Despite the feel good factor all Americans desire by declaring themselves green and renewable friendly, Mr. Miller and other industry executives have consistently counseled the current Democratic administration, Republican leadership and other industry officials that the proposed terms of the cap-and-trade bill would lead to disastrous consequences for the U.S. Energy industry and economy. Nor would it have any meaningful effect for the re-powering and re-fueling of the U.S. power generation industry, nor will it deliver sustainable efficient energy production.



The one ray of light and true functioning market structure that the U.S. still has in place is the commodities market. Whether it is precious metals, agriculture, energy, or financials, they are a place where capital congregates, evaluates and analyzes market conditions and determines the winners and the losers. In particular, the energy markets quickly concluded that the cap and trade and renewable energy proposals would not work, and have positioned themselves to the reality that natural gas, oil, and coal are the core cost drivers of the U.S. Economy, the major component of every major economic indicator, and that renewable energy, while important for the future, is a boutique industry best left for venture capitalist and boutique investors.



The equity markets have yet to figure out the renewable energy economics, and that the majority of these boutique companies should not be public, as they do not have the capacity to deliver promised results. The resulting carnage in public renewable energy companies won’t be pretty, but that is the result of free capital markets, just as we found out in the ethanol and bio-diesel boom and bust.



For reference see Mr. Miller’s analysis published June 29, 2009: U.S. Renewable Energy: A Self Inflicted Crisis in the Making go to:

http://www.investorideas.com/News/062909c.asp



Then we have the continued housing crisis, which by all industry forecasts, 2010 will be a record year for foreclosures across the U.S., given the fact that no material, credible and tangible housing recovery program has been put in place. The U.S. economy runs on three key factors; i) a stable housing market and; ii) affordable and dependable energy supply and; iii) stable employment environment. Without these three critical factors functioning properly and cohesively, there will be no meaningful economic recovery in the U.S. economy.

Win, Lose or Draw in Massachusetts Senate Race, Washington Needs to Focus on America and Start Solving the Housing and Energy Policy Issues Now.
Stocks: CHK, DVN, EOG, APC, XTO, XOM, CVX, MRO, OXY

Disclosure: Long Energy Companies

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