Transcript Taming the Giant Corporation www.tamethecorporation.org Tyson Slocum Public Citizen’s Energy Program [email protected] www.citizen.org June 10, 2007 The Problem: Corporate Control Over Our Energy & Government Public Citizen’s Solution: Invest.

Taming the Giant
Corporation
www.tamethecorporation.org
Tyson Slocum
Public Citizen’s Energy Program
[email protected]
www.citizen.org
June 10, 2007
The Problem: Corporate Control Over Our
Energy & Government
Public Citizen’s Solution: Invest in
Energy Technologies Controlled By
Families, Not Corporations
Challenges to address:
1. Transportation/Oil
2. Electric power
3. Climate Change
• The coal companies complain to Congress that
they can’t afford to build expensive new power
plants on their own – they ask for and receive
government handouts.
• The nuclear power companies argue that they
can’t afford to build new plants without financial
assistance from the gov’t.
• But how many families would love to install
solar panels on their roof but can’t afford it?
How many Americans would like to renovate
their home to make it more green but can’t
afford to?
Top World Oil Producers, 2006
1. Saudi Arabia
2. Russia
3. U.S.A.
4. Iran
5. China
6. Mexico
7. Canada
15. Iraq
10.7 million barrels/day
9.7 bbl/d
8.4 bbl/d
4.1 bbl/d
3.8 bbl/d
3.7 bbl/d
3.3 bbl/d
2.0 bbl/d
Share of 2006 World Oil Consumption (85
million barrels/day)
U.S.A.
24%
Rest of
World
51%
China
9%
W. Europe
(17
countries)
16%
When Dick Cheney said, “Conservation may be a
sign of personal virtue but it is not a sufficient basis
for a sound, comprehensive energy policy”
What he really meant to say: “Energy companies
make more money the more energy they sell.
Conservation and efficiency aren’t profitable! And
an energy policy that doesn’t hand windfall profits
to our biggest campaign contributors is not a
sound, comprehensive energy policy!”
• Fossil fuel & nuclear producers dominate
the energy debate
– 75% of government spending programs (NOT
including tax breaks, royalty relief, etc)
subsidize oil, coal and nuclear ($2.3 billion in
FY 07) – only 8% for wind, solar & geothermal
($0.238 billion) and 16% for energy efficiency
($0.492 billion)
– The oil industry alone receives ~ $8
billion/year in tax breaks, and royalty relief.
– Incentives for efficiency / renewables are
small and temporary, while oil/coal/nuke big
and permanent
The Best Energy Policy
Money Can Buy
• Oil, coal and nuclear companies, their
PACs and top executives have made $200
million in campaign contributions since
2000 – 75% to the GOP
• Over that same time period, they spent
over $1 Billion lobbying the fed gov’t.
• Goldman Sachs gave $17.8 mil to
politicians and spent $7.5 mil lobbying
Mergers have consolidated market &
political power
• Exxon and Mobil in ‘99
• Chevron and Texaco in ’01, then buys Unocal in ‘05
• Conoco and Phillips merge in ’02, then buys Burlington Resources
in ’05
• Valero buys Ultramar/Diamond Shamrock in ’01, then buys Orion
Refining in '03, then buys Premcor in ’05
• Anadarko Petroleum simultaneously acquired Kerr-McGee and
Western Gas Resources in ‘06
• Goldman Sachs acquired Kinder Morgan’s 43,000 miles of pipelines
in ’06, bought a Midwest oil refinery in ’05, bought 1,600 natural gas
wells in ’04, owns a stake in the Iroquois natural gas pipeline, owns
a piece of Cobalt International Energy, acquired TXU in ’07, bought
Cogentrix’s power plants in ‘03
Big Profits for Big Oil
• Largest six (ExxonMobil, ChevronTexaco,
ConocoPhillips, BP, Shell, Valero) have posted
$477 billion in profits since GW Bush has been
President.
• In 2001, Exxon’s global return on capital
investment was 17.4%; by 2006 it was 32.2%.
Pacing the company was US refinery operations,
with 65.8% ROCE.
• When was the last time an oil company went
bankrupt?
Europe vs. U.S. Gas Prices
$8.00
$7.00
$6.00
$5.00
Tax
Price+Tax
$4.00
$3.00
$2.00
$1.00
$0.00
France
Germany
England
U.S.A.
Total Vehicle Kilometers of Travel
per capita
•
•
•
•
•
•
Japan:
Germany:
England:
Sweden:
France:
U.S.A.
4,003
6,359
6,359
6,410
6,726
9,293
In 2006, ExxonMobil spent:
$37.2 billion on stock buybacks and
dividends to shareholders
$824 million on capital investment on
U.S.
oil refineries
ZERO on alternative clean energy
In all, top 5 oil companies have spent $172 billion
buying back stock and paying dividends since
2005. In addition, they have $56 billion in cash.
They have $1 trillion in combined assets – they will
squeeze profits out of that sunk investment for
as long as possible, and lobby against
government policies that threaten this monopoly.
Mergers, Weak Laws Create
Uncompetitive Markets
• The FTC investigated high prices, and found:
“An executive of [one] company made clear that
he would rather sell less gasoline and earn a
higher margin on each gallon sold than sell more
gasoline and earn a lower margin. Another
employee of this firm raised concerns about
oversupplying the market and thereby reducing
the high market prices. A decision to limit supply
does not violate the antitrust laws.”
Supreme Court Eviscerates
Antitrust Protections
• SC ruled in 2005 in Texaco v. Dagher
that a joint venture between Texaco
and Shell that all parties agreed
resulted in big price hikes didn’t
violate antitrust law as the court relied
on a rule of reason analysis rather
than per se.
Refining is Where the Action Is
• BP's California refinery operations earned them
$14.84 for every barrel they refined in 2006 while they earned only $3.92/barrel in England
and $4.22/barrel in Singapore.
• In 1999, U.S. oil refiners enjoyed a 18.9 cent
margin for every gallon refined from crude oil. By
2005, they posted a 48.8 cent margin for every
gallon of gas refined, a 158% jump.
In Face of Prices Tripling Over 5
Years, Consumer Demand Hasn’t
Moderated
• Prices must get punitively high
– See 1973 Arab oil embargo and other price
shocks. Demand goes down, but
unemployment, inflation goes up.
– Families must get access to alternatives
before relying on markets (prices) can drive
demand down.
Investment Banks Buying Oil
Infrastructure
My comments as an expert witness opposing Goldman Sachs’
acquisition of Kinder Morgan’s 43,000 mi. of pipelines:
“Energy traders like Goldman Sachs are investing and acquiring
[energy infrastructure] assets not just for passive investment, but
because controlling infrastructure affords their energy trading
affiliates an “insider’s peek” into the physical movements of energy
products unavailable to other energy traders. Armed with this nonpublic data, a company like Goldman can open lines of
communication between the affiliates operating pipelines and the
affiliates making large bets on energy futures markets. The sheer
size of Kinder Morgan’s pipeline network would allow Goldman’s
energy traders access to reams of key data unavailable to any other
energy traders, potentially providing the company with an ability to
manipulate crude oil and refined products markets.”
Deregulation of energy trading markets
has given energy companies and
financial firms control over setting
prices
• Enron led the deregulation fight,
pushing the CFTC and Congress in
Dec. 2000 to deregulate energy
trading.
• Federal regulators have no idea who
is trading what in futures markets
From the April 10, 2007 Wall Street Journal:
“Oil markets were rocked by a massive, instant surge in after-hours
electronic trading one day last month, when prices for futures
contracts jumped 8%. This spike stands out because it was unclear
at the time what drove it. Two weeks later, it is still unclear. What is
clear is that a rapid shift in the bulk of crude trading from the
raucous trading floor of the New York Mercantile Exchange to
anonymous computer screens is making it harder to nail down the
cause of price moves. The initial jump “triggered more orders
already set into the system, and with prices rising, people thought
somebody must know something,” Tom Bentz, an analyst and
broker at BNP Paribas Futures in New York who was watching the
screen at the time, said the day after the spike. “The more prices
rose, the more it seemed somebody knew something.”
Ethanol’s No Panacea
• Transferring cropland to fuel production is
unsustainable and will increase food prices and
misallocate water resources.
• Transportation of ethanol from production to
consumption is inefficient.
• Ethanol has only 2/3 of the energy of gasoline
• Improving fuel-economy, mass transit, plug-in
hybrids and hydrogen more feasible.
U.S. Auto Companies Far Behind
• Focused on building SUVs, intoxicated by the
$4,000 per vehicle profit margin. But $3/gallon
gas is killing sales.
• Facing growing pressure to curtail greenhousegas emissions, U.S. auto makers are worried
that the critical battery technology they'll need to
compete is getting locked up by Japanese rivals
who moved more quickly to develop gas-electric
hybrid vehicles.
Solutions
• Repeal all tax breaks, close royalty loopholes
allowing oil and/or implement a windfall profits
tax, dedicating the new revenues to financing
clean energy, energy efficiency and mass transit.
• Strengthen antitrust laws by empowering the
FTC to crack down on unilateral withholding and
other anti-competitive actions by oil companies.
Re-evaluate recently approved mergers.
• Re-regulate energy trading exchanges.
• Improve fuel economy standards to reduce
gasoline demand. In 2006, average fuel
economy was 21 mpg; in ’88 it was 22.1
Electric Power
• In just the last decade, deregulation has
radically redefined power markets,
establishing market-based prices where
we once had cost-based.
• As we see in IL, CT, CA, MT, MD etc.
states have no control over electric prices
– FERC does.
• Deregulation caused the 2003 blackout
Deregulation promotes coal, nukes
• 30 year old coal and nuke plants are
making as much as 260% rates of return
in deregulated power markets.
• This sends perverse market signals, giving
incentive to run and build dirty, dangerous
power sources.
• This is fueling a coal and nuclear revival –
with capital costs all heavily subsided of
course.
Power Plants Are Being “Flipped”
As Though They Were Beachfront
Property
In 2005, 4 private equity firms - Blackstone,
Hellman & Friedman, KKR and Texas Pacific
Group - sold Texas Genco after just one year for
a $4.9 billion profit.
• In all, $85 billion has been spent in the last few
years buying existing power plants – mainly
investment banks, hedge fund and private
equity. Money would be better spent building
new renewable energy and investing in energy
efficiency.
What is it, 1960?
• 150 proposals to build new coal power plants across the
country.
• At least 17 new nukes:
–
–
–
–
–
–
–
–
–
–
NRG proposes 2 in Texas
TXU (now Goldman Sachs) wants 2 new ones in Texas
NuStart in Alabama (11 utilities consortium)
Constellation in Maryland and California
Duke Energy 2 in SC and NC
Exelon in IL
Progress Energy in FL
Entergy in MS and LA
Dominion in VA
Southern Co in GA
No Lessons Learned From Enron
• FERC has one statutory obligation: enforcing
“just and reasonable” rates. But FERC believes
that deregulated markets are competitive, and
that competition automatically produces “just
and reasonable” rates.
• But markets are not competitive, so therefore
power companies are routinely price-gouging
households.
• FERC does not actually review rates charged in
deregulated markets.
• Warren Buffett, chairman and CEO of
Berkshire Hathaway, told a national
meeting of state regulators that “most of
deregulation was a mistake” because, in a
deregulated market, “generators have a
clear incentive to reduce power reserves.”
The last thing they want, he continued, is
excess capacity; they want “power
supplies to be tight.”
Deregulation leads to higher rates
•
•
•
•
average rate in 36 rate-regulated states
2002
7.7 cents kwh
2006
9.1 cents
Jan '07
8.6
• 14 deregulated (CA, CT, DE, IL, MA, MD, ME, MI, MT, NH, NJ, NY,
RI, TX and DC)
• 2002
10 cents
• 2006
12.9 cents
• Jan '07
13 cents
• 52% higher
• average annual growth in deregulated: 5.5%
• in 36 regulated: 2.3%
2005: Repeal of PUHCA
• The 70 year old investor and consumer
protection statute, which limited utility mergers
and restricted the ability of investment banks to
own utilities was repealed. Public Citizen
predicted a wave of mergers, and it has
happened.
–
–
–
–
Warren Buffett’s MidAmerican buys Pacificorp in ’05
Duke and Cinergy merge in ’05
Keystone and National Grid in ’06
Australian investment bank Macquarie buys
Duquesne Light in ’06.
We’ve had victories
• Teaming up with ACORN, labor, PIRG and
others, Public Citizen led coalitions to stop $30
billion worth of mergers:
– Proposed Exelon and PSEG merger
– Constellation and FPL
– Oregon, Arizona and Montana have all rejected utility
takeovers by private equity and investment banks in
last couple of years
In all cases, our grassroots efforts stopped the mergers
at the state level after FERC approved them in just
months with no hearing
Leadership at the state level
• 22 states have mandated Renewable
Electricity Standards, requiring utilities to
produce or procure a certain minimum
amount of renewable energy
• States lead the way in efficiency incentives
• New Jersey has the best incentives for
solar, allowing most families to recoup
their investment in just a couple of years,
rather than 10+
Solutions
• Fund billions of dollars for households for energy
efficiency and onsite renewable energy
• Re-regulate electricity by ending market-based
rates
• Restore PUHCA and get financial firms out of
the business of controlling utilities
• Establish a federal Renewable Electricity
Standard
• Enforce stronger appliance standards
• Promote municipally-owned power.
Climate Change
• Electric power accounts for 40% of ghg; oil accounts for
44%
• Some environmental groups focus on market-based, cap
and trade – this will fail, just as it is failing in Europe
• Big environmental groups are pushing for coal’s revival
with carbon sequestration with liability immunity –
sticking taxpayers with billions of dollars in costs
• Rather than continue to rely on our current polluting
infrastructure, government must pave the way to laying
the groundwork for a renewable energy infrastructure,
funded by taxes on energy companies.