Let’s Help Oil Companies Set Record Profits

July 14, 2008

Let’s Help Oil Companies Set Record Profits

 

Why are the oil companies making huge profits? Let’s look at Exxon since they have set the new records on corporate profit. Let’s keep in mind that a barrel of oil is now over $125 and a gallon of regular-grade gasoline is over $4.20 at the pump.

 

Could it be that a portion of Exxon’s 2007 $40 billion profit is made up of taxpayer subsidies of $17 billion? Could it be that with climbing oil prices, Exxon gets those inflated prices from their pumping wells? Could it be that the oil leases on public property and seabed are grossly underpriced? Could it be that although their product, oil, is a utility that we depend on to survive, and Congress allows that product to be treated as a commodity, subject to the greed and manipulation of the market?

 

Regardless of what reasons are chosen, they all lead to the same results: huge, bloated profits for the oil companies and a painful slowdown of our national economy. Businesses are forced into failure, prices for all delivered goods are forced upward, the dollar is forced downward in international trading and no one but oil executives and oil company stockholders are happy.

 

I don’t think that it is acceptable that every working American must pay more to get to work, whether by personal auto or mass transit. I don’t think we should accept that every company in America must pay an oil premium to stay in business, whether to have their salespersons on the road or for delivery of product. While I’m pleased that the Canadians are doing well, it is the first occasion in my lifetime that the Canadian dollar is on an equal footing with the US dollar. A 20% drop in the value of the US dollar against the Canadian dollar is nothing to trivialize. But oil executives and stockholders are smiling.

 

Oil executives respond to questions about their record-setting profits by pointing out that it costs a lot to search for oil. And there is the cyclical nature of their business. They might not make as much profit next year. Guess what? Those profits are after deducting the cost of oil exploration — Exxon made $40 billion in profits in 2007 and over $11 billion in profit for the first quarter of 2008, a new profit record for any company in any industry. Not bad, beating the robber-barons and monopolies of our historical lore. And yes, there are no guarantees on a company’s future earnings, not in any business. Why should oil companies be exempt from basic economic laws?

 

Those same executives tell us that the price of gasoline at the pump can’t be lowered due to conditions in the Mideast oil producing countries. Let’s see, if it costs the oil company X to produce their product and they sell it at Y, the difference is Z (profit of $40 billion). That $40 billion is given to the company shareholders, including our $17 billion in tax credits.

 

What if that $17 billion, plus another $13 billion were credited to the pump price instead of to the shareholders? Two things would happen. Gas prices would be lower, and Exxon shareholders would make only $10 billion. Add to those figures the profits of the other oil companies and our economy would be much more robust and many lives and companies would not be permanently damaged.

 

Who could help with a plan like this? Congress? Perhaps, but rather than placing pressure on oil companies to save our economy, they are advocating opening up additional off-shore oil leases. It wouldn’t lower gasoline prices but it would give low cost leases to the oil companies, enabling them to pump more oil at the new inflated prices — making more profit for shareholders.

 

So let’s tell Congress that maybe we should support their suggestion. It is only them and us who can help the oil companies set higher profit records. Maybe the Guinness Book of World Records would issue a certificate to each of us for helping in this historic work. We would want to nicely frame the certificates since we will have plenty of time at home to admire them — it will be too expensive to drive to work.

IndiscreetSage

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Does Anyone Remember Enron? Or their Plan?

June 22, 2008

Does Anyone Remember Enron?  Or their Plan?

It seems like ages ago.  The collapse of Enron.  The embarrassment of corporate executives.  It was just so corrupt and tacky.  But the Enron plan rolls on, much to the unknowing dismay of each of us who are attached to the electric grid.

The plan was simple in its concept and from an executive’s point of view, a fairly standard business plan.  The generic plan was one that all executives understand: find a niche where prices are low, find a way to control the price, and drive it up.  The Enron plan had a twist.  For it to work, electricity had to change from being a boring utility to a high flying commodity.

Historically as technologies began serving the nation’s population, the government decided if it was valuable enough to be encouraged.  Did the new technology benefit the populace?  If so, was the technology life-sustaining or of great benefit, as opposed to merely a luxury?

If the technology was of great benefit, such as regional gas and electricity distribution, national telephone service, or municipal water distribution, the government placed obligations and restrictions onto the firms that handled them.  A firm could not just run service to the easy, most profitable locations.  It had to build infrastructure to farms and remote locations; and it could not gouge the users on price, thus making the technology available to almost everyone.

To make a technology affordable, the percentage of profit that a ‘utility firm’ could generate was limited, after subtracting all costs.  Investors understood that they could invest their money into volatile companies that may or may not make a great return on investment, or they could invest in a utility and be guaranteed a low, safe return.

So Enron executives along with electricity executives from across the country decided that if they were to generate large profits, and therefore large salaries and bonuses, they needed to eliminate the profit restrictions from their industry.  Only when electricity traded as a commodity, bought and sold at a high prevailing rate, would their incomes be what they deserved.

Americans love entrepreneurs and an open, competitive marketplace — let the best firm win our business.  So the cry went out by way of lobbyists: deregulate, compete, fairness for all.  They targeted the states one at a time, sending all of their lobbyists in to spread the word, and the money.  “Deregulation will benefit the electricity users since competition will drive the price down.  How can a state legislature be so cruel that it would deny these lower prices?”  A donation was made here and there, a fact-finding trip funded, maybe other things, who knows?  Deregulation and a better life for all were to follow.

Of course the opposite happened.  Electric prices went up in deregulated states.  The first deregulated states were selected because they generated low-cost electricity.  Once deregulated, the power generators did two things: transferred the generation stations once of twice to ensure that the state could not affordably reverse its decision, and began selling its affordable power to other states that paid more for electricity.  If the generating state wanted electricity, it would have to match the other buyers’ price.  So up goes the price of electricity, in state after state.

Now the commodity brokers can get involved.  Buying futures and reselling them as the price rises.  Tying up available contracts until prices meet their targeted profit margin.  A transformation: electricity has gone from being a boring utility to a high flying commodity.  Even with Enron’s death, the plan moves ever forward, bringing benefits and profits to executives everywhere.  Sweet!

IndiscreetSage

Who Owns Congress? Us or Them? (do we need public financing?)

June 22, 2008

Who Owns Congress? Us or Them? (do we need public financing?)

It used to be that you and I, as voters, owned Congress, or at least had their attention. That is the beauty of the representative form of government — we vote into office the people we respect and trust to watch out for us.

As the election process grew, so did the costs associated with the elections. We voters were happy to contribute to a campaign in the belief that our candidate, once elected, would make sure that our interests would be addressed. We understood that a certain amount of compromise was inevitable; that our representative would be trading something we didn’t really want for something important to us. That was just the price we had to pay for the states to get along.

Our representatives in Congress, once elected, found that life in Washington DC was pretty sweet: power, prestige and benefits unavailable to the common masses. Once elected, they really, really wanted to return to Washington when reelection time came around. So they fought hard for our contributions and votes. And once reelected, they worked hard to keep us, their constituents, happy. They knew that for every person that they alienated, they lost ten contributors and perhaps ten votes.

Traditionally unions, corporations and special interest groups had to convince their members that a candidate was good for their job or organization. If they did a good job, their membership made solid contributions and turned out to vote for ‘their guy.’ Then a funny thing happened. Congress allowed unions, corporations and special interest groups to contribute directly or indirectly to their reelection campaigns. These entities couldn’t vote but they had more money than the voters so raising reelection funds became much easier.

These non-voting entities were happy to contribute to a campaign in the belief that their candidate, once elected, would make sure that their interests would be addressed. It sounds just like the expectation of the voters, except much more money is involved. So our representatives now fight hard for the special interests’ contributions and once reelected, they work hard to keep them, their new constituents, happy. They know that for every special interest that they alienate, they lose large campaign contributions, which are necessary to keep them in Washington, with its power, prestige and benefits unavailable to the common masses.

So who really owns Congress? And whom do our representatives really serve? Is it the voter who contributes $150 or is it the corporation or special interest group that contributes serious money, or runs sympathetic ad campaigns?

Does it make you wonder why we’re giving the oil industry $17 billion in tax benefits while they are making the greatest corporate profits in history? Even after paying all of their research and development costs? Does it upset you that our tax dollars are going to benefit the shareholders of the oil company stock? Hmmmm?

In my opinion, the election laws need to be changed to ensure that only voters can contribute to our representatives’ campaigns. We need to take back our Congress. We need decisions and laws that benefit us. Only when we reestablish control over the election process will we once again own our Congress and have their attention.

—————— Personal observation ——————
It works the same in some local legislatures. One state legislator has been reelected several times. Each campaign he holds a single small fundraiser in the district for the voters, and raises a small amount as compared to the cost of the campaign. He sends out mailings and raises another small amount. He then rents a bar near the legislative offices and places a large jar on the bar. In four hours his campaign is mostly paid for — by lobbyists and other special interests. Hmmm?

Makes some people wonder why electricity was deregulated in spite of the history of other states that deregulated. Their cost of electricity doubled and tripled in spite of the lobbyists’ claim that deregulation would spur competition — thus reducing the cost of electricity. Hmmm?

In this case the legislators believed the lobbyists (the same ones who filled the contribution jar) and deregulated electricity. Just whom was the legislature serving? The voter who contributes $150 or the corporation that hires the lobbyist that contributes the serious money?

IndiscreetSage