America’s Dilapidated Electricity Grid Needs A Bailout Yesterday

I hope President-elect Obama is enjoying his honeymoon.

Do you remember how on the campaign trail he fretted about the threat posed by America’s dependence on foreign oil, and what he was going to do about it?

While…what’s his name, wanted to drill for domestic oil anywhere, anytime and at any price, I think Mr. Obama wanted to make us power our vehicles and light our homes with “environmentally-friendly” vegetable oil and pigeon doodoo.

Look.

Today, the biggest energy threat America faces is not dependence on foreign oil, but dependence on a failing grid!

The country’s network of dilapidated power lines needs a bailout as a blood bank needs blood.

If you don’t agree with me, consider this.

In September, Hurricane Ike ran roughshod through Houston, the fourth largest city in the U.S. For over a week most of the city was in total darkness. Some areas were without power for over a month.

Ironically, Houston is the “energy capital” of the U.S.

Ike did more than just cripple power lines. Electrical pumps that power water supply failed in many parts of the city, so water went out for several days. In the apartment complex where I live, residents resorted to taking water from the swimming pool to flush toilets...and do God knows what else.

Mosquitoes feasted on my sinewy body each night I stepped out of the apartment to eat my canned dinner in the moonlight.

How is it that the energy capital of the country can be without power for over a month?

While you ponder that question, just last week in the Northeast, ice storms crippled power lines and knocked out power reportedly to 1.4 million homes and businesses in seven states. Who knows how long many people there will be without power.

A couple of years ago New York City was plunged into darkness by the failure of a part of the power grid. I believe history repeated itself there in 2007.

Californians will never forget the infamous “rolling blackouts” of the summers of 2000 and 2001, which resulted from the inability of the grid to move power from Northern California to the Southland (Southern California).

Do you catch my drift?

As an energy analyst back in the days, I used to cover the North America region. I don’t want to bore you with the minutiae of how government regulation dating back to the post WWI era in many ways contributed to the sorry state of today’s grid, but I’m telling you right now...the U.S. power transmission infrastructure network is a hot mess.

The grid is not really a “network”, not at the national level anyway. It fragments primarily along regional lines and sub-regional oversight – northeast, southeast, northwest, southwest, etc.

While this regional fragmentation limits the transfer of power failures from one region to another, it also stifles transmission of surplus power between regions when necessary by creating “bottlenecks” – this is what happened in California.

Anyway, that’s not even the major problem with the grid.

The main issue is that the whole grid is an anachronism. It is mostly old and dilapidated. These power lines are more appropriate for the 1950s and 1960s.

Just think about how many electronic gadgets a typical home now has. Then consider all the business and industrial energy guzzling high-tech equipment/machinery.

Many of these power lines are done. They were not designed to handle today’s power demands or withstand the elements – hurricanes, snow, tornadoes, etc.

Here’s how Martin Murray, a spokesperson for Public Service Company of New Hampshire, the state hardest-hit by the aforementioned ice storm, put it: “What is facing us is the apparent need to rebuild the entire infrastructure of some sections of the electrical delivery system.”

New Hampshire is not the only state whose power infrastructure needs a complete upgrade. The entire national grid needs it yesterday.

Each time I walk under or near a power line, I say a little prayer that the thing doesn’t snap from surging power demand and fall on my head.

It’s not enough to turn these lines into an “intelligent grid”, as advocated in the video below, by placing sensors and “smart” meters here and there along them.



Here’s Southern California Edison’s Solution To America’s Failing Grid.

It’s nice to be able to automatically detect power outages but this is like “putting lipstick on a pig”, since most of these power lines don’t actually have the required nameplate capability to transmit electricity on a scale to satisfy today’s demand.

A smart grid will help but what the country needs is a complete physical replacement of many of these power lines.

Yes. This will be an expensive undertaking.

However, the Chinese and Japanese will lend Uncle Sam the money - to spend wisely for a change.

The incoming Obama administration has promised to blow our minds with huge spending on infrastructure across the country to stimulate the real economy and create untold number of jobs.

When he says “infrastructure”, I hope he’s not talking about bridges to nowhere and airport tarmacs.

I don’t know if a bailout will really help Detroit or just stay its execution. You can study what happened to the UK’s indigenous auto industry for a precedent.

However, if Detroit gets a bailout and the country’s grid doesn’t, what happens to all those new cars if people aren’t able to drive them because they can’t get gas, which the gas station can’t pump because of a power outage caused by a failed dilapidated power transmission or distribution line?

eBay Fees Were Killing Me So I Bought the Stock

The Chief Financial Officer (CFO) position at eBay should auction to the highest bidder, hopefully a linear programmer, because the company just cannot make up its mind how much to charge sellers for listing items. The latest ‘renovation’ of prices – the second of the year - happened about two weeks ago and takes effect on September 16. This time the firm cut the fees it charges sellers for fixed price listings.

I do more selling than buying on eBay. Therefore, I have often wondered if the CFO, or whoever is in charge of pricing, has a clue. I have been trading on eBay since 2005 and I don’t remember a year when there was no tweaking of seller fees. It has become an increasingly irritating ritual.

I guess eBay is trying to attract more buyers by encouraging sellers to list items at fixed prices, rather than letting buyers go at it via auction. However, eBay will cease to exist if it kills auctioning. Auction sales are what make eBay fun and enticing for sellers. A fixed price sale cannot give a seller the adrenalin rush of watching buyers snipe one another as an auction reaches a crescendo.

A related issue to listing fees is the “Final Value Fee (FVF)”, which is eBay’s cut on an item’s sales price. Try selling pricey items like gaming devices or multimedia storage devices and watch these fees snowball.

In 2007, I’d finally had enough of the incessant tweaking and bleeding fees and decided there was only one way to fight back: buy the stock. Dividends should soothe the pain of high sales fees. Yes, I know eBay, like many growth tech stocks, has never paid a dividend but that’s another matter. If you intend to trade on eBay for a long time, buying the stock is a good way to hedge against the tweaking and bleeding. If you do not intend to trade for long, eBay still is not a bad stock, so long as they have PayPal.

The Central Bank is Killing Us!

Unemployment or Inflation: Which is the better of these two evils? Put another way, if you were the governor of a Central Bank what would concern you the most: average Joe losing his job today - unemployment - or average Joe paying much higher prices for bread and milk tomorrow - inflation? That’s a tough one, isn’t it? Well, that’s the choice Federal Reserve Chairman (or U.S. Central Bank governor) Ben Bernanke and his posse of regional governors – collectively known as the Fed - have now faced for a year.

You would probably say it’s better for average Joe to pay a higher price for bread tomorrow than to lose his job today. Well, guess what. The Fed agrees with you, which is why it’s been cutting interest rates since September 2007. Lately, the Fed has got very aggressive on rate cuts and this is making me nervous. Chairman Bernanke reportedly has reduced interest rates faster than any Fed Chairman since 1982.

However, when the subprime slime started around this time in 2007 the Fed saw things differently. Back then, the Fed was more concerned about inflation than job losses and was more reluctant to cut interest rates. So what changed the mind of the Fed? I don’t know. Perhaps it’s politics, since it’s an election year. Whatever it is the Fed has blown it. It’s now trying to prevent a recession at the risk of higher inflation tomorrow. Big mistake.

Interest rate cuts fuel inflation by weakening the dollar and thus making imports more expensive. Rising oil and food grain prices, which the Fed cannot control, also fuel inflation. So hasn’t it noticed that oil is now over $100 a barrel and that the price of wheat, which is a principal ingredient in many food products, reached a record high last week? Gold, which is a natural hedge against rising inflation, is fast approaching a record $1,000 an ounce and the price of Silver is up almost 34% year-to-date (YTD), a run-up not seen since 1980. By the way, if you don't already have some commodities in your portfolio now is not the right time to buy.

Laugh Now, Cry Later

Maybe the Fed knows something the market does not but it seems to me we already have enough inflation coming our way. In 2007, inflation jumped 4.1%, reportedly the fastest pace since 1990. No wonder the price of milk at my local organic store has crept up. Why aggressively cut interest rates to put the economy on a K-leg only for inflation to crush it two or three years from now?

I think the Fed’s fear of a recession is misplaced. A mild recession today is better than hyperinflation tomorrow because inflation can do much more damage to the economy than a recession. Inflation can cause a recession but a recession cannot cause inflation. The recession this year probably will be short-lived because of the “economic stimulus” tax rebates the government just approved.

Even if consumers don’t spend the bulk of their rebates businesses will reinvest their tax credits, which will boost the economy and stave off a brutal recession. So the chances of average Joe being unemployed for a long time if he lost his job today are slim. However, if we get hyperinflation in a few years…..well, just look at what is happening with food prices in Zimbabwe. Even Wall Street fears inflation more than a recession.

Yes, I know the housing sector is bleeding and the lending department at your local bank won’t give you the time of the day even with good credit. However, it was the aggressive rate cuts by former Fed Chairman Alan Greenspan that partially caused this mess we’re in today. The inflation signal is now flashing red. The Central Bank should stop leading us to the slaughterhouse again with aggressive rate cuts.