A Little White Lie-Bor

Turns out the world’s megabanks have engaged in a rate-fixing fraud for years.  The London InterBank Offered Rate (LIBOR) is an interest rate index that literally hundreds of trillions of dollars in financial instruments are pegged to.  And how is it set?  Well, someone phones up 18 duuudes around London every day and says “Yo, if you were gonna borrow money from some other bank right now, what rate would they charge you?”  And they can answer with whatever wild-ass-guess they want.  So they lied, in order to make themselves more money.  Shocking, I know.  Seems like the one thing you can trust banks to do is cheat when given the opportunity.

Discounting Fuels

It’s often been said that “time is money,” and it turns out to be more than an aphorism.

I’m going to try and tell you a story about discounting, which is one of the ways that we convert between time and money. The story has broad implications for the energy investments we choose. It’s not entirely straightforward, and if it’s going to make sense there are some background pieces you’re going to need. The background is important because the ending depends not only on understanding what is being done, but why. This story happens to be about Xcel Energy and Colorado, but the same thing happens in other places, with other companies, and in other contexts too.

To greens my argument may seem circumspect. I’m not going to challenge the doctrine of Everlasting Economic Growth. I’m not going to look at the large externalized costs of burning fossil fuels. I’m not going to argue against the monopoly electrical utility model. Those are important discussions to have — they’re just not the one I’m having here. What I’m trying to do is show that a minor change in the way we calculate the cost of future energy can drastically alter what kind of power we decide to invest in for the next century, even if we only look at the decision in selfish financial terms.

To the finance geeks among you, much of the background will be familiar, but the situation may seem strange unless you’re familiar with how regulated monopolies work. I haven’t been able to find anyone familiar with energy finance who thinks what we’re currently doing makes sense, but if you’ve got a thoughtful rebuttal, I’m genuinely interested to hear it.

Continue reading Discounting Fuels

Help put Boulder’s Climate Smart Loan Program back on track

In the summer of 2010, Boulder’s innovative Climate Smart Loan Program screeched to a halt, because the Federal Housing Finance Agency (FHFA) decided that the property assessed clean energy (PACE) financing mechanism amounted to a lien on any property enrolled in the program (read FHFA’s statements, and Boulder County’s response, both as PDFs). Because of this, they said they were unwilling to purchase and securitize PACE encumbered mortgages. In case you don’t remember, the FHFA oversees Fannie Mae and Freddie Mac, the government sponsored mortgage consolidation giants, through which nearly all consumer home loans pass at some point in their existence on the secondary market. And if they won’t buy your mortgage, then you’re not going to get a loan. This is unfortunate, since PACE financing programs had proven an effective way to get homeowners to make sensible long-term investments in energy efficiency and renewable generation, without having to take on the risk that future buyers would inappropriately undervalue the resulting savings.

However, the FHFA made this rule without engaging in any public process, and they were subsequently sued by the State of California and several cities and counties. The case has finally made it to the 9th Circuit Court of Appeals, and while they have yet to make a ruling, the Court has directed the FHFA to begin collecting public input on the proposed rules. The Natural Resources Defense Council (NRDC) has been involved in the suits and has had good ongoing coverage of the case:

The outcome of this case and the nature of the rules which are eventually adopted may have big effects on Boulder. Energy efficiency retrofits and local small scale renewable energy installation are high-quality local job producing industries. They allow our community to develop expertise that we can only hope will be in great demand in the near future. They’re absolutely vital to meeting our climate action plan goals. We have the financing mechanism in place to do this work; all we need is the go-ahead from the FHFA to get it underway. We should comment on these rules loud and clear.

The notice of the proposed rulemaking has been posted in the Federal Register, in all its gory detail. Details on how to submit comments can be found here. The easiest way is to e-mail Alfred M. Pollard, General Counsel: RegComments@fhfa.gov. You must include “RIN 2590-AA53” in the subject line of the message. All comments must be received by March 26th, 2012.

Another resource to keep an eye on is PACE Now, a bi-partisan group advocating for PACE programs in congress. They’re developing talking points, and have been working to get legislation passed which would protect PACE programs introduced in congress (like H.R. 2599, the PACE Assessment Protection Act of 2011… which unfortunately didn’t get very far).

It’s not crazy to think that the FHFA or some other federal agency might have a useful role to play in the regulation of PACE programs. It’s important that the financing be set up to incentivize the most cost effective improvements first so as not to unduly burden future property owners, and to save as much energy as possible with a finite pool of funding (e.g. attic insulation and air sealing before solar panels…), but the outright ban is clearly far too broad.

Below is what I sent. Post what you send in the comments if you feel so inclined!

Property Assessed Clean Energy financing programs, as have been initiated by many states and local governments, are a potentially transformative financing mechanism, enabling property owners to make good long term investments in energy efficiency and behind-the-meter renewable energy production. They address a market failure, in that buyers often do not appropriately integrate a property’s energy costs into their price assessment. So long as the state and local PACE programs are performance based, and incentivise both efficiency and renewables, preferring those investments which have the greatest (positive) net present value, given the financing rate which is available to the government entity sponsoring the program, they do not pose a significant risk to mortgage holders, and should be allowed in FHFA held mortgages. Additionally, local energy efficiency and solar power installation provide high quality, skilled jobs which cannot be exported, stimulating the economies of the localities implementing the programs. These types of energy efficiency and local renewables programs can go a significant way toward reducing the energy intensivity of our existing building stock, and help insulate the US economy from fluctuations in fossil fueled energy prices.

FHFA’s previous ruling has directly affected my community, stalling out energy efficiency programs here in Boulder, CO. Rather than effectively banning these programs, I encourage the FHFA to work with the building retrofit industry and the state and local governments which have instituted these programs to develop guidelines which ensure the most cost effective use of PACE financing, including the use of before and after energy audits, and other energy efficiency retrofit best practices.

Cross-posted at The Boulder Blue Line.

PACE Lives!

The Federal Housing Finance Administration is taking public comments on Property Assessed Clean Energy financing programs, at the insistence of California’s 9th Circuit court of appeals.  Here’s what I told them:

Property Assessed Clean Energy financing programs, as have been initiated by many states and local governments, are a potentially transformative financing mechanism, enabling property owners to make good long term investments in energy efficiency and behind-the-meter renewable energy production.  They address a market failure, in that buyers often do not appropriately integrate a property’s energy costs into their price assessment.  So long as the state and local PACE programs are performance based, and incentivize both efficiency and renewables, preferring those investments which have the greatest (positive) net present value, given the financing rate which is available to the government entity sponsoring the program, they do not pose a significant risk to mortgage holders, and should be allowed in FHFA held mortgages.  Additionally, local energy efficiency and solar power installation provide high quality, skilled jobs which cannot be exported, stimulating the economies of the localities implementing the programs.  These types of energy efficiency and local renewables programs can go a significant way toward reducing the energy intensivity of our existing building stock, and help insulate the US economy from fluctuations in fossil fueled energy prices.

FHFA’s previous ruling has directly affected my community, stalling out energy efficiency programs here in Boulder, CO.  Rather than effectively banning these programs, I encourage the FHFA to work with the building retrofit industry and the state and local governments which have instituted these programs to develop guidelines which ensure the most cost effective use of PACE financing, including the use of before and after energy audits, and other energy efficiency retrofit best practices.

Coal Finance for Climate Activists

I’ve been in New York since Monday for a short workshop on the finances of the coal industry and coal burning utilities.  It was put together under the auspices of the NYU Law School’s Institute for Policy Integrity.  The audience was mostly grassroots campaigners from all over the country — people working to shut down coal mining and coal based power plants for environmental reasons, both climate related and more traditional pollution.  The two day program included panels of utility specialists from rating agencies Moody’s and Fitch, Bruce Nilles from the Sierra Club’s Bloomberg funded Beyond Coal campaign, as well as financial analysts from UBS, Bloomberg New Energy and Jeffries.  Tom Sanzillo, the former comptroller of the state of New York, gave us a run down on how to read a utility company’s 10-K.  Several community leaders in successful fights to keep new coal plants from getting built told their stories too.  All in all, it made for some strange bedfellows.  It was great overall, and I think pretty much everyone learned something.  Here’s what I remember learning.

Continue reading Coal Finance for Climate Activists

PLoS ONE: The Network of Global Corporate Control

The Network of Global Corporate Control, as revealed by a research group at ETH Zurich (kind of the Swiss MIT).  Their core finding: a densely connected “super entity” of 147 corporations, about 75% of which are financial intermediaries, has an amount of control which is ~10 times as great as their economic scale would suggest.  They are all majority owned by by other members of the super entity, and so have co-incident interests, and are likely to act as a bloc to protect themselves and each other, and to be subject to simultaneous group failure when under duress.  Not like this is a huge surprise or anything, but it’s nice to see it described in a quantitative framework.

Wall Street Isn’t Winning, It’s Cheating

Matt Taibbi blows his stack at a fellow commentator who accuses the OWS protestors of simply being envious of the rich.  He gives a litany of examples of how, in fact, the Wall St. illuminati have gotten to where they are by cheating and gaming the system, or at the very best, by being lucky.  Not through hard work or supernatural skill.  Being pissed off about that isn’t being jealous of someone else’s success.  At what point do the “deviant” and “legitimate” financial sectors simply merge, with little to nothing in the way of externally imposed rules governing what’s acceptable, and what’s not?

Location Efficiency More Important than Home Energy Efficiency

How important is Location Efficiency?  Median US home price: $175k.  With a traditional 20% down 30 year mortgage, total loan payments amount to about $350k.  Utilities over the same timeframe are around $75k.  And the cost of commuting from suburbia?  Roughly $300k!  This is in general agreement with the energy (as opposed to financial) analysis recently published by the EPA.

Why Isn’t Wall Street in Jail?

Nobody from Wall St. but Bernie Madoff is going to jail.  No wonder the banksters continue their trillion dollar white collar crime spree.  They and their regulators are one in the same.  Favorite quote from a congressional staffer: “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street. That’s all it would take. Just once.”  Meanwhile we jail a mom in Ohio for trying to send her kid to a better school across town.

Energy Efficiency and Economics at Walnut Mews

Our condo HOA had a meeting last fall, and somebody brought up selling the flat plate collectors on the roof that are part of our defunct solar thermal hot water system.  The 750 gallon cylindrical storage tank rusted out in 2003 after 20 years of service.  The outbuilding that houses it was basically built over the tank, so swapping it out for a new one would have meant either chopping the thing up in place with a cutting torch and building a new one on site, or removing the roof, which nobody was keen on.  Some plumbing got re-routed and the tank sits there still, derelict.  It was also mentioned that the main boiler for our hydronic district heating might be nearing the end of its days.  I volunteered to look into whether it would make economic sense to repair the solar thermal system, and what the options were for the boiler.

Given that flat plate solar thermal collectors generate an average of about 1kBTU worth of heat per day per square foot (according to the US EIA), and given that we have about 250 square feet of collecting area (nine 28 square foot panels), the current system ought to collect something like 250kBTU/day.  Our current boiler consumes 520kBTU/hr worth of gas, meaning that the solar thermal system could at best displace a half hour’s worth of operation each day.  Gas costs about $8/million BTUs, so the boiler costs about $4/hr to run.  If we assume optimistically that system losses are negligible, and that the boiler runs at least half an hour a day 250 days a year (it was only hooked up to the baseboard heating, not the domestic hot water) then the solar thermal system is capable of displacing something like $500 worth of gas each year.  This is a best case scenario though, since the hydronic system needs water that’s hotter than the flat plate collectors can make it (so the boiler will have to do some work to boost the temperature) and because the system losses are almost certainly non-negligible.

Still, $500/year might be a significant savings.  To know whether it’s really worthwhile, we need to know how much it will cost up front to get this savings, and how long we ought to expect to be able to collect it (i.e. what’s the system’s expected lifetime).  I got wildly varying estimates of the cost to get the system up and running again.  At the low end it was $5000, to leave the rusty tank where it is and put a collapsible storage bladder in the crawlspace.  At the high end it was $20,000 to remove the old tank and build a new spray-foam insulated stainless steel one in its place.  I used this calculator to sanity check my energy numbers above (which don’t seem crazy), as well as the estimates.  It suggests that all in, the total system cost including installation would be something like $28,000.  I suspect that a plastic bladder in the crawlspace wouldn’t be as efficient or as durable as the new stainless tank.  For the sake of argument, let’s say the cheap option will only last 5 years, and the expensive one will last 30 years.  The original tank lasted about 20 years.  Here’s what it looks like today:

Derelict Solar Thermal Storage Tank

Continue reading Energy Efficiency and Economics at Walnut Mews