Powering Down

This post first appeared on Minyanville.

With each passing day, it becomes clearer this is no ordinary economic downturn.

Data show Americans aren’t just cutting back in traditional ways: Paring non-essential purchases and getting by with fewer luxuries. Rather, there are fundamental shifts going on in the way we live.

These emerging trends evidence a shift not just in purchasing habits, but in lifestyle.

According to the Wall Street Journal, businesses and households alike are using less energy. Specifically, large utility companies like Minneapolis-based Xcel Energy (XEL), Charlotte’s Duke Energy (DUK) and American Electric Power (AEP) in Ohio are seeing steeper drops in electricity consumption than in previous downturns.

To be sure, energy demand weakens as the economy slows. Consumers buy fewer electronic gadgets, drive less and generally use less stuff that needs to be turned on.

This time, however, executives are worried fundamental behaviors are changing. Jim Rogers, CEO of Duke Energy, told the Journal consumption is falling even in places where prices are stagnant. “Something fundamental is going on.”

Xcel CEO Dick Kelly said for “the first time in 40 years [he’s] seen a decline in sales” to homes.

If the pattern persists, it could cause utilities to drastically change their business model. Typically, purveyors of power count on small, but consistent growth in energy demand. They build this assumption into their business models, which plays an integral role in expansion plans and breaking ground on new plants. Coupled with the rising cost of capital resulting from the credit crisis, this means Americans are likely to see higher energy prices in the future.

And while the data is far from conclusive, it could be an early sign that we are (begrudgingly) embracing the concept that less is, actually, more.

Minyanville’s Kevin Depew and others have been cataloguing this shift in consumer behavior, as broad deflation grips society. More than just lower prices, deflation is taking hold in all aspects of our lives. It’s a slow process, to be sure, but one that is undeniably gaining momentum as social mood darkens and the public rejects consumerism.

Despite lower gas prices, Americans are still driving less. Ever hungry for bigger offerings from McDonald's (MCD) and Burger King (BKC), restaurants are increasingly being forced to inform their customers just how bad an idea it is to eat a Triple Whopper with cheese. Someday, the lesson may actually stick.

Confucius once said a journal of a 1000 miles begins with a single step. Turning off the lights when you leave a room may be that first step. Watching less television may be the second. Maybe, just maybe, spending less time on Facebook could be that third step that sets the whole thing running down hill.

Hey, a guy can dream right?

Electric Cars: Be Careful What You Wish For

This post first appeared on Minyanville.

The rhetoric is eerily familiar: A green, viable alternative to gasoline. What's not to love?

Any purported "cure" for America’s gasoline addiction should, however, be regarded with the utmost skepticism - just think of the ethanol debacle. Ethanol helped spur rampant food-price inflation -- resulting in riots throughout the developing world -- while doing little to curb oil imports from unfriendly nations.

The promise of electric cars could similarly be remembered as a massive swindle - one that cost taxpayers billions and still failed to find a green solution to our dependence on foreign oil.

Nevertheless, California -- ever at the heart of the green revolution -- is getting an early Christmas present this year: A planned $1 billion charging network for electric cars. The Wall Street Journal reports that Better Place, a startup founded by former SAP AG executive Shai Agassi, will begin construction on a series of charging stations throughout the San Francisco Bay Area in 2010.

Most electric cars, including General Motors’ (GM) Chevy Volt, go a mere 40 miles on a single charge. Agassi hopes this new fad will take hold; to that end, his company is offering charging services and an exchange service by which fresh batteries can be swapped for drained ones.

Following the cultish success of the Toyota (TM) Prius hybrid

, Chevy’s Volt and Ford’s (F) Hybrid Escape aim to capitalize on environmentally friendly commuters.

But widespread acceptance of electric cars could create more problems than it solves: Without adequate sources of green electricity, fossil fuel emissions could actually increase if plug-in Hummers catch on.


Critics argue that, as long as American power companies continue burning coal to produce the vast majority of our power, any benefit to “clean” electric cars would be wiped out by busier furnaces and dirtier smokestacks.

According to the Energy Information Association, utility companies still produce more than half their total power from coal. And although clean alternatives like wind, solar and hydroelectric are seeing sizable gains in market share, they still represent a tiny fraction of our total energy output.

Meanwhile, natural gas and nuclear power, which collectively come close to totaling coal production, are controversial clean-power alternatives.

Natural gas is notoriously tricky to store and transport, although methods for getting this clean-burning alternative to market are improving. Nuclear energy, despite its capacity for creating massive amounts of power with few environmental side effects, suffers from public-health concerns. The stuff is certainly toxic and tricky to handle, but there hasn’t been a serious nuclear accident in the US since Three Mile Island in 1979.

To be sure, breaking our addiction to foreign oil won’t happen on its own. We do not, however, have a great track record at finding permanent solutions that meet both economic and social requirements.

Gas prices are tumbling back to earth, and driving is once again becoming affordable. Americans would do well to remember the scary summer of 2008, when we were finally forced to be green - whether we liked it or not.

Oil Companies, Bureaucrats Caught With Pants Down

This post first appeared on Minyanville.

Our nation’s energy policy -- or lack thereof -- will be central to this year’s presidential slugfest. While Obama cautions against tapping into our natural gas resources (citing potentially dire environmental consequences), McCain and Palin advocate aggressive drilling to break our dependence on foreign oil.

Meanwhile, we lowly citizens must painfully empty our wallets to fill our gas tanks and heat our homes, and hope that government representatives are looking out for our best interests.

And as long as those best interests include public officials doing blow and sleeping with energy company employees, we’re in good hands.

The Interior Department, the agency responsible for keeping tabs on the Minerals Management Service, or MMS, released a report alleging that energy industry representatives and the government workers charged with regulating their behavior have cultivated a “culture of substance abuse and promiscuity.”

The MMS, according to the Wall Street Journal, “oversees the nation's natural-gas, oil and other mineral resources on the outer continental shelf, and [draws] up leases for drilling in offshore waters,” and in some years is Washington’s biggest revenue generator, second only to the Internal Revenue Service. Its royalty-in-kind, or RIK, program allows oil companies to pay for drilling rights with oil instead of cash.

Crude’s fantastic run over the past few years means the RIK program has generated tens of millions more in revenue than they would have had the royalties been paid in cash. Needless to say, “cozy” relationships between oil companies and government officials could unduly influence the allocation of these valuable contracts.

In addition to the sex and drugs, employees from Chevron (CVX), Hess (HES), Gary-Williams Energy and a US unit of Royal Dutch Shell admitted to giving gifts and picking up restaurant and bar tabs for government employees. They denied, however, that such actions were rewarded with preferential treatment.

Needless to say, such denials are suspect. If there's a planet where free booze, sex and drug don't come with strings attached, I’d like a one-way ticket, please.

Both parties have seized on the report to point the finger at the other. As the election nears and the mudslinging heats up, we’ll no doubt hear more than a few cheap shots hurled at these promiscuous petroleum players.

Exxon Latest in Gas Station Exodus

This post first appeared on Minyanville.

Despite record fuel prices, the painfully large sums we're spending at the pump aren't affording gas station operators an early retirement.

Most operators barely turn a profit on the gas they sell, raking in a whopping 11 cents per gallon, according to The Wall Street Journal. Stations buy the gas from refiners, who purchase crude on the open market or drill for it themselves. Oil prices have been rising faster than refined gasoline prices, so margins have been shrinking for the retail operators.

Exxon Mobil (XOM) announced yesterday it's had it with the measly returns on selling gas to consumers. Following the industry trend away from the retail gas station business, the oil giant plans to unload the 2,200 stations it still owns.

The move may come as a surprise to gas guzzlers familiar with Exxon's brand, but the industry has been gradually shifting away from the retail market for years. Most stations are actually run by distributors, who simply get the gas and logos from Exxon and other big oil companies. BP (BP) expects to be rid of its company-owned stations in the U.S. by the end of next year and Conoco Phillips (COP) is nearly out of the business all together.

Further pressuring pump profits are retail stores looking to use their clout and existing customer base to take business away from traditional station operators. The Journal reports cheap gas sold by Wal-Mart (WMT), Costco (COST) and Home Depot (HD) has further depressed stations' margins.

Gas stations ultimately make most of their income from convenience stores. Their precious pennies of profit on actual gas sales are eaten away by credit card fees, so they depend on customers wandering into their mini-marts. Professor Depew notes, however, consumers are shifting away from some of these discretionary purchases. Coca Cola (KO) and Pepsico (PEP) are getting rid of their 20-ounce soda bottles, as consumers do less consuming. Tighter credit conditions and the economic slowdown are reducing purchases like candy and soda, so gas station operators may be further squeezed.

Gas prices have reached such heights that demand at the pump has finally started to wane. This means stations have less pricing power, as more customers are choosing to take public transportation or ride their bikes to work. In what may be the ultimate irony of the U.S.' current bout with oil prices, we may see gas stations going out of business en masse - just as the dollars dumped into their coffers bring the consumer to its knees.