Newsletters

Newsletter 74 - Summer 2014

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Secure America’s

Future Economy





Politicians and job creation
- Blue collar and other “middle class” jobs have been vanishing due to offshore competition, automation, etc.  The likely results include eroding prosperity, social unrest, and long-term fiscal woes for the government. To stem the bleeding, it has been said, Delawareans must make more things that can be exported instead of simply providing services for each other.  News Journal, 12/8/13. And it may be necessary to change the way things are done in the First State instead of standing pat and watching the middle class disappear. News Journal, 10/25/11.

When the discussion gets down to brass tacks, however, consensus evaporates.  It seems that most politicians aren’t inclined to be “pro-business” unless they expect to be able to claim credit for the results. 

Splashy new projects that can’t succeed without heavy government support are perversely appealing.  Heads I win (it was my idea), tails you lose (it was a bold bet that didn’t pan out). Thus, consider how the Markell administration went all in for the Bloom Energy fuel cell venture, enabling legislation soared through the General Assembly, and the Public Service Commission approved a fuel cell tariff at warp speed.  The glaring economic flaws of the project were brushed under the rug.  Bloom Energy, page 2.

Policies designed to create a favorable business environment is not the ticket; who will give a politician credit for supporting moderate tax or regulatory policies that were instrumental in attracting or keeping desirable investments. Thus, The Data Center (TDC) has been struggling to gain approval of a $1 billion data center/ power plant on the University of Delaware Star Campus.  Although this project seems solid from an economic and technical standpoint, it has been besieged by environmental objections and most politicians have been lying low instead of providing support. Newark data center, page 3.

If Delawareans are seriously interested in rebooting the economy and creating jobs, this could be a good time for them to speak up.

Clean Power Plan – Having failed to obtain legislation establishing limits on carbon emissions from the burning of fossil fuels, the administration is attempting to go around Congress and achieve the same result through administrative action.  The latest and most far-reaching step along these lines was the Clean Power Plan proposed by the Environmental Protection Agency in early June, which would mandate a 30% reduction (from a 2005 starting point) in carbon emissions by 2030.

SAFE believes the CPP is misguided from a policy standpoint and encroaches on the legislative responsibilities of Congress. Our views were sent to the members of Congress on June 16, 2014 (
http://tinyurl.com/mo6pao3).

Some see the CPP as innocuous from a local standpoint, since the proposed 2030 standard for Delaware could basically be met by complying with existing state energy policies. Politics, progress mix with EPA rules, News Journal (editorial),
6/3/14.

Good news for Delaware and other nearby states, which “already have reduced pollution by switching to renewables and natural gas and rewarding efficiency.”  Now it’s up to those other states to do their share. 

As wind and solar power is considerably more expensive than natural gas power, however, current state policies will necessarily drive up the cost of electric power for Delaware consumers.  Phasing in of the current state rules could be halted for further study or even reversed, should such action appear desirable, but this flexibility would be lost if the proposed federal rules became effective.

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Bloom Energy – On May 6, civic activist (and SAFE member) John Nichols spoke to The Conservative Caucus of Delaware on “the growing Bloom scandal.”  The premise of his talk was that the arrangements made to induce Bloom Energy to locate a fuel cell production facility in Delaware went beyond misguided policy to political considerations that cannot withstand close scrutiny.  A recap of the talk follows:

On the merits, it makes little sense to generate electric power using the Bloom fuel cells.  Not only are the power costs 3-4 times higher than from combined cycle natural gas (CCNG) power plants, a more logical benchmark for new capacity in Delaware than the average facilities on the existing power grid, but also there are no notable environmental benefits. 

The fuel cells produce electric power using natural gas as fuel (oxidation is achieved by a chemical process rather than by burning).  As they use proportionately more gas to produce a given amount of power, a greater volume of carbon dioxide and other emissions is produced.   Sulfur dioxide emissions from the fuel cells are largely absorbed in resin beds, but this creates a stream of hazardous solid waste that must be disposed of.

So why should Delaware have enacted legislation under which Delmarva Power ratepayers could be charged a surcharge over the next 20+ years to cover the extra cost of generating 30 Megawatts of electric power from Bloom fuel cells?  Expectations that the Bloom venture would create jobs in Delaware might conceivably have justified sticking taxpayers with this tab, but the job creation benefit wasn’t aligned with the economic interests of Delmarva ratepayers as such.

The deal resulted from favor trading between politicians and private sector entrepreneurs, a process sometimes referred to as “crony capitalism.”  John Doerr of Kleiner Perkins, the venture capital firm in charge of fund raising efforts of Bloom Energy and Fisker Automotive, had good political contacts with the current administration and the governor of Delaware.  DNREC secretary Colin O’Mara had previously worked in San Jose, California and knew executives at Bloom Energy.  Bloom was willing to consider an East Coast investment so long as the subsidies were deemed sufficient.  If the extra cost of the deal could be passed off to Delmarva ratepayers, the arrangement could be characterized as an “economic win” for Delaware – even though it might not truly merit this label.

As time passes, it is becoming debatable how long the subsidized fuel cell deal can hold together.  Projections that Bloom will create up to 900 jobs in Delaware are looking shaky; they simply don’t have enough cars in the parking lot at their Newark facility and many of the people who have been hired are short-term, contract employees.  The sulfur solid waste disposal issue has never been properly disclosed, and it’s not clear what is being done with these wastes.  Efficiency rates for fuel cell arrays are running lower than projected, with the result that emissions are higher.

Even with all the subsidies, it appears that Bloom is under financial pressure.  The firm continues to raise capital from buyers who may not understand what they are buying, e.g., it is currently selling debt obligations to a retirement fund in New Zealand.  Suspicions about the operation have been reported to the SEC, among others, and may result in action at some point. 
   
The potential problems are not limited to Delaware.  In California, for example, Bloom is claiming satisfaction of energy efficiency and environmental commitments based the results of fuel cell power versus those of back-up diesel generators that are rarely used except in emergency situations.

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Class action suit – On or about June 23, a class action suit was filed against Delmarva Power Company and its parent company on behalf of Delmarva ratepayers in Delaware.  The suit seeks repayment of a portion of the Bloom Energy surcharges on grounds that the Bloom fuel cell clusters have operated less efficiently than was specified in the operating permits.  Stay tuned  for further developments.

Very punny - The Pillsbury Doughboy died yesterday of a yeast infection and trauma from repeated pokes in the belly. He was 71.

Doughboy rose to fame quickly, becoming a roll model for millions. But he wasted a lot of his dough on half-baked schemes, and his later life was filled with turnovers.

Surviving Doughboy are his wife Play Dough, three children: John Dough, Jane Dough and Dosey Dough, and his elderly father, Pop Tart.

If this report made you smile, please share it with someone who may be having a crumby day and kneads a lift.

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Newark data center – On April 25, SAFE sponsored a talk to the Retired Men’s Luncheon Club by Eugene Kern, founder and CEO of The Data Center LLC.  The subject was the data center that TDC is planning to locate on the University of Delaware Star Campus (formerly the Newark Chrysler plant).

A key feature of the proposed data center is an gas-fired power plant for generating electric power on site.  Some highly vocal critics (including Newark residents and members of the UD faculty) object.  They would like to see the data center reconfigured to use some other power source, or, failing that, rejected entirely.
  
Mr. Kern began by noting that data centers are power intensive.  Indeed, they use some 7% of the electric power produced in the United States – about half of which is wasted due to inefficiency of the facilities in use.

On-site generation is necessary for data centers, either to provide the electric power required or to cover periodic power outages from the grid.  Smaller data centers often draw power from the grid and use backup diesel generators, which are expensive and emit a comparatively large volume of pollutants during power outages.

The power plant for the Newark data center will be exceptionally efficient, approaching 80%.  You’ve heard of combined cycle natural gas power plants.  Well, this facility might be thought of as a tri-cycle natural gas plant, since heat produced from running the data center will be converted to additional energy via cogeneration.

Instead of using back-up power units, continuous power for the data center will be assured by over-sizing (by about 30%) the power plant and selling the excess power to other users.  A electric substation is planned, which will meet the needs of the entire Star Campus. 

There are some 600 data centers in this area. TDC’s facility could potentially replace all of them, with considerable cost savings and environmental gains.

Some data centers have been built in high-risk (earthquakes, extreme weather events) area. According to FEMA, Delaware is one of the safest areas in the United States.  

Every effort will be made to operate the data center in a non-obtrusive manner, meeting or exceeding the 52 decibels noise limit that has been set and enclosing the facility with a 25-foot wall where it abuts the external boundary of the Star Campus.

In addition to creating employment opportunities for many people, the data center will yield millions of dollars per year of tax payments to the city of Newark and the state government.  It is hoped to get the first phase built and in operation by the end of 2016.

At the conclusion of the talk, Mr. Kern, VP Brian Honish, and COO Michael Bednar responded to questions from the audience.  The presentation was timely, informative and well received. A key takeaway was that the critics are off base, because TDC’s data center will actually make a substantial contribution from an environmental standpoint.

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Video corner – Darcy Oakes appears on Britain’s Got Talent, dazzling the audience with jaw-dropping illusions. http://tinyurl.com/k5jo9ky (3:52)




SAFE Board
Andrew Betley, (302) 239-9679
Suzie Dickson
Edgar Fasig, treasurer, (302) 999-0611
Dan Kerrick, (302) 658-7101
Steve McClain, (302) 998-3910
Jerry Martin, (302) 478-5064
Ryck Stout, (302) 478-9495
Bill Whipple, president, (302) 464-2688
For e-mail addresses go
here.
 

Secure America’s Future Economy (SAFE)

 
SAFE is a non-partisan, all-volunteer organization that was founded in 1996.  We advocate smaller, more focused, lower cost government, to be achieved by cutting spending, restructuring “entitlements,” simplifying taxes, and rationalizing regulations.
 
The SAFE agenda is promoted through:
 
Our website, including a weekly blog.  Members can help to spread this content by forwarding links or downloads to their families, friends, and contacts. 
 
A quarterly newsletter for members, which is also posted on line for convenient reference and sharing.  http://www.s-a-f-e.org/safe_newsletters.htm
 
Letters to the editor, microblogs, videos, public events, and legislative contacts.
www.s-a-f-e.org
 
We appreciate your membership and support.  Dues are $10 per year (if the number after your name on the mailing label equals or exceeds the last two digits of the current year, your dues are up to date). As SAFE is a Section 501(c)(3) non-profit organization, contributions in excess of your dues may be tax deductible. 
 
To join SAFE or renew membership, please complete our form  and mail it with your check to SAFE, 214 N. Spring Valley Road, Wilmington, DE 19807. Thank you!
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