Gov't Picking Winners & Losers on Energy? - Deja Vu All Over Again

Posted by Ed Burke on Apr 16, 2013 9:12:00 AM

Even in the wake of the collapse of several government "fast tracked" (ie subsidized) projected winners in the energy industry (think Solyndra, Evergreen Solar, et al) and the imminent declaration of bankruptcy by taxpayer supported Fisker Automotive on the horizon, several Northeastern States are proposing "fast tracks" to expand natual gas pipelines courtesy of the taxpayer.

Many of those in the heating oil and/or propane industries are upset by the proposals as they perceieve them to be benefiting one segment of the industry on the backs of another. Additionally, since heating oil has been progressively moving towards cleaner, lower sulfur fuels and even embracing BioHeat - the enviornmental impact of heating oil versus natural gas in terms of emissions is not the same equation it may have been 10-15 years ago. That's important because when you factor in the continual reduction of the environmental impact of heating oil, the high cost of these sponsored Nat Gas infrastructure projects, and the potential impact on employment facing heating oil dealers (mostly small to mid size businesses) - the economics on subsidized Natural Gas pipeline expansion make less and less sense.

 For example, Maine is "fast tracking" natural gas pipeline expansion into rural areas. The issue seen here is two fold - arguably, the reason the government is subsidizing the expansion into rural Maine is there isnt sufficient ROI incentive for the utility to do it itself. Rule number one of public funding - if there were sufficient business and profit to be gained, the private sector would have made the investment itself. Additionally, propane and heating oil dealers have been servicing these areas sans government funding without issue. These companies, many of whom are small businesses, employ thousands of Maine residents gainfully, on private capital and could now be forced to face laying off employees with the necessitated drop in revenue from a smaller customer base. It doesnt seem like a winner in terms of big picture economics/employment for the state.

Vermont has proposed a variety of "Heat Taxes" to encourage lower use of heating oil. The proposals suggest that customers pay either a Carbon Tax of .10/gal on Heating oil and.05/gal on propane, or a BTU based tax of .012/gal Heating Oil and .08/gal on Propane, or worst yet, a Heating Oil Sales Tax that would amount to about 20 cents per gallon. Given the state of the economy, and the price of heating your home these days, it's hard to imagine asking the average person in Vermont to pony up an extra 20 cents per gallon.

Connecticut is proposing converting hundreds of thousands of homes in the state to Natural Gas at the projected price tag of almost 7 billions dollars. With zero explanation of where said billions will come from, its fair to assume it will either come from the taxpayer, or be passed down to the consumer. Converting hundreds of thousands of homes to Natural Gas will impact Connecticut small to mid size petroluem businesses the same way the proposed expansion in Maine could affect businesses there - namely, negatively.

Natural Gas is definitely going to be a huge part of the picture in terms of where American Energy is headed in the future, especially given the obvious success of domestic fracking, and the huge positive impact fracking has had on city and state economies. I for one am all for the expansion of affordable energy - especially when its domestically produced and provides huge employment opportunities for Americans at all skill and education levels from laborers to engineers.

The issue at hand is not Natural Gas, but short sighted governmental policies that attempt to aid one sector of an industry at the cost of another. It seemed during the 2012 Presidential Debates, we are all pretty much in agreement that what America needs is an "all of the above" energy policy. The best way for that to happen in the most efficient and sustainable way, is for market demands to drive advancements in supply logistics and innovation. Case in point, fracking did not arise from governmental "fast tracking" and it's changing the way we look at energy production in the United States in a major way. Back to the thesis: if it makes sense, and it's profitable, it will progress on its own without government funding.     

Anyway, I wrote an article on fuel dealers and the proposed Energy topic for a recent issue of Oil & Energy Magazine, if you would like more info you can read the full article online here: Oil & Energy Magazine , or as a PDF Here

Topics: Oil & Energy Magazine, natural gas, Fracking, Heat Tax

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