more on prop 7

The prior research and discussion on Prop 7 continues, both on this blog and in the comments here. Here's where things stand now.

1. I've managed to convince myself that Prop 7 will not affect the legal status of distributed power generation (such as rooftop solar) that's operating under a net metering program.

Net metering is a program where you hook your rooftop solar up to the grid. You pay your utility company for the amount of power you use minus the amount you generate. Under net metering, if you generate more than you use, the utility doesn't have to pay you for it unless you have some sort of separate contract with them.

I was concerned that Prop 7's language would interfere with distributed generation. It turns out it still might, but not the part of distributed generation that's part of net metering. The Energy Policy Initiatives Center has a useful article (pdf) on California law governing Renewable Energy Credits. Section 5, along with its footnotes, gets into distributed generation. It points out that distributed generation through net metering is governed by a separate set of laws, not by the part Prop 7 changes. That's what the exclusion from the definition of "Retail Seller" of generation consistent with Section 218(b) is all about in Public Utilities Code section 399.12(i)(4)(A).

Now, if you want a contract where you get paid for generating more than you use, that may well put you in the category of being a photovoltaic producer under 30 megawatts, so Prop 7 may have some implications for you.

2. It's still not clear what effect Prop 7 has on producers under 30 megawatts.

There are basically two arguments that prop 7 locks out producers of less than 30 megawatts. I think I may have cleared one up, but the other's still murky.

2.a. Must an "in-state renewable electricity generation facility" be a "facility"?

The first argument goes something like this: to be an "eligible renewable energy resource," you must be a "solar and clean energy facility" and you must also be an "in-state renewable electricity generation facility" as defined in the public resources code. The public resources code § 25741 defines "in-state renewable electricity generation facility" as "a facility that meets all of the following criteria" and then gives a list of criteria. It also contains a definition of the word "facility" in § 25110, which the text of prop 7 (official pdf, unofficial HTML version) changes to specifically include "solar and clean energy plant", a term that means a plant of 30MW or more. So the question is whether an in-state renewable electricity generation facility must be a "facility" as defined in § 25110, or whether the word "facility" there is just the generic, English word "facility" without the statutory meaning. If it has the statutory meaning, then to qualify for the renewable portfolio standard, your solar or clean energy generator would have to generate at least 30MW.

I haven't been able to find a court case, a California Public Utilities Commission decision, or a California Energy Commission decision that addresses that question. However, the California Energy Commission publishes a set of guides for energy producers interested in the Renewable Portfolio Standard. One guide (pdf), in particular, covers what energy generators are eligible to participate in the Renewable Portfolio Standard. The current definition of "facility" is restricted to transmission lines and thermal power plants (which must have a capacity of at least 50 megawatts), but the eligibility guide says that solar photovoltaic generators are eligible and doesn't give a minimum size. So I can't point to chapter and verse, but it seems likely that the CPUC and CEC are using "facility" in its common meaning in this case, rather than as the defined term.

2.b. Is a "solar and clean energy plant" the same as a "solar and clean energy facility"?

When the "no on prop 7" folks put in their ballot response that prop 7 excludes renewable energy producers of less than 30 megawatts, the "yes on prop 7" folks took them to court. Peter Wall was kind enough to get a copy (pdf) of the ruling, which he posted to his blog. The associated legal whitepaper (pdf), which appears to be a moderately-edited legal brief, goes into more detail about the arguments. Essentially, the argument boils down to the fact that, to be eligible under the renewable portfolio standard, prop 7 requires that you be a "solar and clean energy facility" and an "in-state renewable electricity generation facility." But it doesn't define "solar and clean energy facility." It does define "solar and clean energy plant," however, and that definition sets a 30 megawatt floor on its size. It also defines "facility," but it does it over in the Public Resources Code, not in the Public Utilities Code where it uses "solar and clean energy facility."

In the court case, the folks against Prop 7 argued that Prop 7 made the two terms the same, that a "solar and clean energy facility" is a "solar and clean energy plant", blocking out producers under 30 MW. The folks in favor of Prop 7 argued that they're different. The court found "each of the party's interpretations has some support in the initiative's text." Personally, I'm not convinced either way by the arguments, so this one's still murky.

3. And now, two rants.

3.a. Rant the First: For cryin' out loud, California, fix your defined terms!

When you write a contract, it's common practice to capitalize defined terms. For instance, you might say something like this:

"Facility" means an thermal power plant which produces electricity and has a capacity of at least 30 megawatts.

And then when you use the definition, if you mean the defined term, you capitalize it, and when you don't mean the defined term, you leave it lower case to indicate the word takes on its ordinary meaning in common written English:

The Commission will consider the application of any facility, but it will approve an application only if it is submitted by a Facility.

This is something California does not do. Which means when they pepper the Public Utilities Code and the Public Resources Code with the word "facility," there's no way to know whether they mean the common term or the defined term. I mean, come on, all you'd have to do is distinguish between "Solar and Clean Energy Plant" and "solar and clean energy facility" and that whole issue 2.b. would just go away.

3.b. Rant the Second: Could we please raise the level of information here?

The amount of time it's taking to get hard info on this initiative is really adding up, and a big part of the problem is the "yes" and "no" campaigns. The "no on 7" web site is mostly conclusory statements with nary a link or cite to supporting data. I can't even get on the "yes on 7" site because it's flash-only, and flash is giving my browser indigestion right now. The Union of Concerned Scientists' "no on 7" page is marginally better, but it still doesn't provide the raw info necessary to really assess this complex set of changes. And there are rapidly approaching limits to how much time I can spend analyzing this stuff. It really shouldn't be necessary to spend hours digging for primary sources to cut through the crap.

prop 7's giving me fits

During a slow period at work, I decided to research some of the initiatives that will be on the ballot in the November election. Proposition 7 is causing some consternation. That's the one that increases targets for renewable energy, but it also does a number of other things. One of the questions I find most troubling is whether it blocks or tilts the playing field against small energy producers. See, I eventually want to be able to put solar panels on the roof, use what I need, then sell the rest back to the power grid. And even more importantly, I want everyone else in sunny California doing the same thing, because that means fewer transmission lines, fewer fossil fuel and nuclear plants, fewer distribution losses, and eventually a more resilient grid. The Prop 7 opponents say small renewable generators don't count towards the power plants' renewables quota, while the proponents say the proposition doesn't rule them out. The news reports haven't actually quoted the language at issue, and I can't find the Sacramento County Superior Court ruling by Judge Michael Kenny (in which he reportedly refused to take sides). So I decided to dive into the language of the proposition itself.

Let's start at page 121 (page 42 of the PDF), section 399.11(a). It discusses the intent of the law: "to attain the targets of generating 20 percent of total retail sales of electricity in California from eligible renewable energy resources by December 31, 2010" (plus 40% by 12/31/2020 and 50% by 12/31/2025) (emphasis added). That term "eligible renewable energy resources" also shows up in the definitions of "renewables portfolio standard" (section 399.11(g) at page 122) and "renewable energy credit" (section 399.11(h) at page 122). Basically, if it's not from an eligible renewable energy resource, it doesn't count for the renewables portfolio standard and you can't get a renewable energy credit from it. The renewables portfolio standard governs what portion of renewable energy the utility (technically, any "retail seller", defined in section 399.11(i)) has to buy (sections 399.14 and 399.15). I think renewable energy credits are the currency of the carbon trading system. (Section 399.13) As a result, what constitutes an eligible renewable energy resource is crucial to this whole question.

An eligible renewable energy resource is, with a few exceptions related to hydroelectrics and waste incinerators, a "solar and clean energy facility" that meets the defintion of "in-state renewable electricity generation facility". (Section 399.11(c).)

Now we're getting somewhere.

An "in-state renewable electricity generation facility" is a kind of "facility." (Section 25741.) A "facility" includes a regulated "solar and clean energy plant." (Section 25110, as amended, at page 124) And a "solar and clean energy plant" is an "electrical generating facility using wind, solar photovoltaic, [or] solar thermal . . . technologies, with a generating capacity of 30 megawatts or more" (plus small hydro of under 30 MW). (Section 25137, at page 125.)

As a result, it's entirely plausible to me that my rooftop solar of less than 30 MW would not be a "solar and clean energy plant", so it wouldn't be a "facility", so it wouldn't be an "in-state renewable electricity facility", so it wouldn't be an "eligible renewable energy resource", so it wouldn't count for the "renewables portfolio standard" and I couldn't get a "renewable energy credit" for it. Interestingly, when I searched on some of these terms looking for definitions in California law, I came across the California Solar Energy Industries Association's site which has a similar analysis, though they bolster it with some of the intent language.

Now, counter-arguments exist, and I'm sure they came up in the Superior Court case, but since the folks who drafted California's Public Resources Code put all the defined terms in lower case, it's tricky to tell what's a defined term and what's not (and where the boundaries lie), leading to this kind of ambiguity. And frankly, the whole thing cuts too close to the line for my tastes, so as much as it galls me to do it, I think I'll most likely be voting against this proposition. And if some wrong-thinking commentator interprets that vote as a vote against renewable energy in general, well, I guess I'll just have to point him or her to this blog entry.

[Added 10/22: See the comments for more discussion. Also, see the follow-up post here.]

AIG and Mark to Market Accounting

There's an interesting article here on the link between AIG and under-capitalization in the European banks. The author points out that AIG's insurance on defaults allowed European banks to operate with much less capital than regulations would normally require, hence the chaos in Europe when AIG was on the skids (and the big federally engineered bailout of AIG).

There's also an interesting collection of quotes here about the proposal to give the SEC the power to suspend mark-to-market accounting. The comments are also a great read. Favorite quotes:

• "Suspending mark-to-market accounting, in essence, suspends reality." -- Beth Brooke, global vice chair at Ernst & Young LLP;
• "As a former MBS derivative trader...... all I can say is that not requiring traders to [d]o MTM is essentially a license to print your own bonus...to say the least, this is not what an already opaque asset class needs at this time!" -- comment by Anonymous;
• "If the credit markets have seized up because nobody knows who holds the toxic waste on their balance sheets, how is hiding it and pretending it isn't there going to help?" -- comment by IrvineRenter.

OK, that's enough bad news for now. If the federal government's debating suspending accounting rules, the accounting equivalent of pulling the covers over your head, then I can do the literary equivalent. Off to find some good news.

just sayin'

Mortgages had one key advantage over junk bonds: they were rated AAA by the major credit-rating agencies. The U.S. government felt that home mortgages were important and it subsidized them, not only allowing taxpayers to deduct interest payments, but by implicitly backing the payments on mortgage bonds.

Salomon stripped these mortgages into pieces in the same way First Boston had stripped junk bonds. Salomon created a trust . . . transferred a pool of mortgages into the trust, and then created a structure to separate the mortgages into different tranches. . . . These strips of mortgages were generally known as Collateralized Mortgage Obligations, or CMOs, and the different varieties had fantastically colorful acronyms . . . In most cases, the wilder the name, the riskier the bond. The riskiest versions were sometimes just called "nuclear waste."

-- Frank Partnoy, Infectious Greed at 103, describing the creation of Collateralized Mortgage Obligations in the early 1990's.

As average investors learned about the losses, they became upset with Wall Street, and bankers briefly became pariahs, as they occasionally do. . . . The bankers didn't seem to care about all the fuss. They knew it would go away soon, as it always did. Instead, they disclaimed any responsibility, and blamed investors for making stupid bets and for failing to supervise their investments.

-- Frank Partnoy, Infectious Greed at 137-38, describing the climate in December 1994 and early 1995 as news began to spread of major losses due to derivatives trading, especially losses in Collateralized Mortgage Obligations due to the Federal Reserve's increase in interest rates on February 4, 1994.

For more than a decade, a massive amount of money flowed into the United States from investors abroad, because our country is an attractive and secure place to do business. This large influx of money to U.S. banks and financial institutions -- along with low interest rates -- made it easier for Americans to get credit. . . . Easy credit -- combined with the faulty assumption that home values would continue to rise -- led to excesses and bad decisions. Many mortgage lenders approved loans for borrowers without carefully examining their ability to pay. Many borrowers took out loans larger than they could afford, assuming that they could sell or refinance their homes at a higher price later on.

-- President George Bush, Address to the Nation, September 24, 2008, describing the economic crisis of 2007-2008.

As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford. . . . A similar scenario is playing out among the lenders who made those mortgages, the securitizers who bought, repackaged and resold them, and the investors who bought them. These troubled loans are now parked, or frozen, on the balance sheets of banks and other financial institutions, preventing them from financing productive loans. The inability to determine their worth has fostered uncertainty about mortgage assets, and even about the financial condition of the institutions that own them. The normal buying and selling of nearly all types of mortgage assets has become challenged.

-- Treasury Secretary (and former CEO of Goldman Sachs) Henry Paulson, Statement to Congress, September 19, 2008, describing the economic crisis of 2007-2008.

Mortgage and asset-backed securities include residential and commercial whole loans and interests in residential and commercial mortgage-backed securitizations. Also included within Mortgage and asset-backed securities are securities whose cash flows are based on pools of assets in bankruptcy-remote entities, or collateralized by cash flows from a specified pool of underlying assets. The pools of assets may include, but are not limited to mortgages, receivables and loans. Additionally, the Company’s mortgage-related trading positions consist of loans purchased as non-performing loans, equity interests in commercial properties and asset-backed securities that are backed by mortgage loans or other assets.

It is the Company’s intent to sell through securitization or syndication activities, residential and commercial mortgage whole loans the Company originates, as well as those acquired in the secondary market. The Company originated approximately $0.5 billion and $2 billion of residential mortgage loans for the three and six months ended May 31, 2008, respectively, compared to the $17 billion and $32 billion for the three and six months ended May 31, 2007, respectively. The Company originated approximately $2 billion and $4 billion of commercial mortgage loans for the three and six months ended May 31, 2008, respectively, compared to the $19 billion and $32 billion for the three and six months ended May 31, 2007, respectively.

-- Lehman Brothers, Quarterly Report on Form 10-Q, July 10, 2008.

Lehman Brothers reported a preliminary net loss of approximately ($3.9) billion, or ($5.92) per common share (diluted), for the third quarter ended August 31, 2008, compared to a net loss of ($2.8) billion, or ($5.14) per common share (diluted), for the second quarter of fiscal 2008 and net income of $887 million, or $1.54 per common share (diluted), for the third quarter of fiscal 2007. The net loss was driven primarily by gross mark-to-market adjustments stemming from writedowns on commercial and residential mortgage and real estate assets

Net revenues (total revenues less interest expense) for the third quarter of fiscal 2008 are expected to be negative ($2.9) billion, compared to negative ($0.7) billion for the second quarter of fiscal 2008 and $4.3 billion for the third quarter of fiscal 2007. Net revenues for the third quarter of fiscal 2008 reflect negative mark-to-market adjustments and principal trading losses, net of gains on certain risk mitigation strategies and certain debt liabilities.

During the fiscal third quarter, the Firm is expected to incur negative gross mark-to-market adjustments on assets of ($7.8) billion, including gross negative mark-to-market adjustments of ($5.3) billion on residential mortgage-related positions, ($1.7) billion on commercial real estate positions, ($600) million on other asset-backed positions and ($200) million on acquisition finance positions. These mark-to-market adjustments were offset by $800 million of hedging gains during the quarter and $1.4 billion of debt valuation gains. The Firm is also expected to record losses on principal investments of approximately $760 million.

-- Lehman Brothers, Press Release filed with Current Report on Form 8-K, September 10, 2008.

I thought the symmetry was striking. What does it all mean? I dunno. You decide. I just blog here.

Oh, here's one more:

Turmoil in the credit markets has pushed Libor—the London interbank offered rate—to an all-time high, according to the British Bankers' Association. . . . Libor . . . [is] the rate at which banks lend to other banks that need temporary funds, by way of the London interbank market. This benchmark is significant because it represents the rate at which the world's most preferred borrowers are able to borrow money, and it's also a widely used reference point for short-term interest rates. . . . After the rejection of the bailout bill by the House of Representatives, banks hoarded cash, driving Libor up to 6.88 percent.

-- U.S. News & World Report, The Low-Down on Libor: Why its Surge Signals Despiration in the Credit Markets, September 30, 2008, noting that more than half of U.S. adjustable rate mortgages are tied to Libor.

One More Question

Mr. President, there's one more question that's been bothering me. In a free market, I would expect assets to move to the entity best equipped to extract the most value from them. For instance, I would expect banks to hang onto their mortgages, because banks are in the best position to make sure that the mortgage holder makes payments on time. If the bank sells the right to receive mortgage payments to someone else, and the mortgage holder defaults, won't that someone else have to go back to the bank to harass the mortgage holder into paying up, or to seize and sell the house? It seems to me that having to go back to the bank would increase transaction costs, making the right to payment worth less to that someone else than it is to the bank. So the bank shouldn't normally be willing to sell that right in the first place.

Yet, according to your speech, mortgage securitization, selling that right to get payments, is a big part of the mess we're in. A really big, $700 billion size, part. That means a lot of banks have been selling mortgages that basic economic theory says they shouldn't be able to sell. And it wasn't a fire sale, because they were doing it in a period of rapid economic growth. What's going on?

The only thing I can think of is that someone was either fibbing or asleep at the switch. Maybe the people buying the securitized mortgage debt didn't know how to value it properly, either because they had bad information from the sellers or because they simply weren't financially sophisticated enough to value it, despite the accredited investor safeguards we have in place. Or maybe that debt was being repackaged into securities designed to skirt around laws and regulations that would normally prevent purchasers from buying that kind of debt.

In any case, I'd really like to know. Preferably before we commit to giving these people $700 billion of our tax money. After all, if they're not savvy enough to value the mortgage debt properly, are we confident they'll use the money wisely? And if they were fibbing, then we'll want to keep an extra close eye on them, maybe closer than what a few members of a bipartisan panel can keep.

Follow-up: if you're not sure what I'm talking about, you can find a readable summary of mortgage securitization, complete with "chicken parts" analogy, here.

The Bush Economy Speech

Dear Mr. Bush,

Thank you for taking time out of your busy day to explain to us why your administration is proposing this $700 billion Troubled Asset Repurchase Plan. I feel it is the least I can do to respond to some of the points you have raised.

First, you mentioned a number of questions that you knew many Americans have tonight: "How did we reach this point in our economy? How will the solution I've proposed work? And what does this mean for your financial future?" I would like to add two more: How will we prevent this situation in the future? And why is the solution you have proposed the appropriate one?

I couldn't help but notice that your discussion of how we reached this point in our economy did not touch on some factors that are probably significant. You mention large amounts of foreign investment, easy credit, a faulty assumption that house prices would continue to increase, and a large number of mortgage defaults triggered by an oversupply of housing. But you did not discuss the role of deregulation in creating a complex, intertwined financial system, in which no one knows the size of the Credit Default Swap market, an issue that led to the government's $85 billion line of credit to American International Group.

You also did not address the role of the credit ratings agencies and their failure to properly rate this mortgage debt. Nor did you touch upon the role moral hazard plays, in which a free market, hands-off philosophy only during good times allows financial companies to keep their profits but encourages them to take on too much risk, on the belief that the government will bail them out. Finally, you did not provide your thoughts on whether compensation packages that reward chief executive officers for short term gain, coupled with severance packages that do not take into account the long term financial position of the company, create an incentive for too much risk.

In fact, Mr. President, your discussion of how to avoid this situation in the future was limited to Mr. Paulson's suggestion that the Federal Reserve (not the SEC?) "take a closer look at the operations of companies across the financial spectrum and ensure that their practices do not threaten overall financial stability" and that Congress consider "other good ideas," but with the stern caution that they must "ensure that efforts to regulate Wall Street do not end up hampering our economy's ability to grow."

That last caution was enough out of step with the rest of our address that it seems necessary to address some of its implications. In justifying this deviation from your normal inclination against intervening in the markets, you said that "these are not normal circumstances" and that "the market is not functioning properly." Mr. President, I put it to you that, by the time a company has grown "too large to fail," it is already operating outside the free market system--by definition. Once it has reached that size, the market forces that apply to that company are already not functioning properly.

You also did not address why the solution you propose is the correct one. You made a case for quick action, painting a gloomy picture of the consequences of inaction and noting that the government's top economic experts are warning there must be immediate action. But from there, the primary justification you offer for this particular economic rescue plan is to say "after much discussion, there is now widespread agreement on the principles such a plan would include." I cannot help but note that the news reaching us taxpayers does not portray anything approaching "widespread agreement" from Congress.

Why are you confident that $700 billion, spent primarily to buy bad debt from financial institutions, is the appropriate fix for this problem? What will be the long term effect on the economy of raising the debt ceiling? Is it appropriate to delay addressing those "good ideas" to prevent this problem in the future until after spending the money, rather than building provisions into the contracts with the firms that will receive the money, or at least building in additional latitude such as the ability to obtain a significant voting block of stock?

Finally, I understand there is only so much you can fit into a fifteen minute appearance, and you no doubt had good reasons to limit your talk to fifteen minutes. In the future, however, may I suggest asking your speech writers to include a good sound bite. Here's a good starting point: "we have nothing to fear but fear itself."

Al Gore's speech

This post was originally going to be an analysis of Al Gore's energy challenge speech and some of the criticism of it.

If you view the speech as a logical or rhetorical argument, it has its share of problems. For example, when talking about the falling price of silicon for solar cells, Gore says, "the same thing happened with computer chips--also made out of silicon. The price paid for the same performance came down by 50 percent every 18 months--year after year, and that's what's happened for 40 years in a row." This conclusion doesn't follow: the price per unit of performance for computer chip drops because transistors keep getting smaller, but making the features on a solar cell smaller will quickly run out of steam because you're fundamentally limited by the amount of sunlight per unit area. Even if you increase efficiency by 50% every 18 months, and in a few years you get darn close to 100%, you still hit the limit imposed by the sun. That's not to say that solar cells won't get cheaper, but microchips' cost per unit performance is not the right model. Also, Gore has the annoying habit of not citing his sources, even in the transcript, which makes the speech very hard to fact-check.

The criticism is worse. It opens by saying "Al Gore wants you to do as he says, not as he does" and spends fully a third of its length calling Gore a hypocrite. But that doesn't follow either: the validity of Gore's contention that we need this energy challenge, and the underlying reasoning he presents, have nothing to do with his personal energy consumption habits. It could just as easily come from, for example, T. Boone Pickens. The next third of the criticism is devoted to an argument that says, essentially, it's impossible because we're not doing it now: renewables are a tiny percentage of our current energy production, therefore it is unreasonable to expect that they could reach 100% in ten years. But at its core, this argument is a simple assertion that change is impossible, which we know by experience to be false. Finally, two thirds of the way down, the criticism brings up a scientific paper that denies human impact on global temperature change, which is at least fodder for debate. (More background on that paper here and here.)

But you know, my heart just isn't in the analysis. Deep down, the reason is that I missed the last Apollo project and want one I can be a part of. And this is a cause I can get behind. It's big, it's inspiring, it'll create some fantastic spinoff technologies, and it'll produce great results. Even on the (exceptionally remote) chance that the IPCC is wrong and the paper the criticsm cites is right, that anthropogenic global temperature change is an illusion, it's extremely hard to deny that much of U.S. foreign policy is driven by a dependence on foreign oil, that even if we tap all our domestic sources they won't meet our demand, and that shifting to domestically produced renewables would give us a ton of new flexibility in foreign policy. So, yeah, I hope this thing takes off. And if it does, I want in.

Off-Shore Oil Drilling

I've been sick for the last few days, which has left me with the dangerous combination of being grumpy and having some time on my hands. Which brings me to the topic at hand.

President Bush has called for drilling in the outer continental shelf. Specifically, he has said the following:

In the short run, the American economy will continue to rely largely on oil. And that means we need to increase supply, especially here at home. So my administration has repeatedly called on Congress to expand domestic oil production. Unfortunately, Democrats on Capitol Hill have rejected virtually every proposal -- and now Americans are paying the price at the pump for this obstruction. Congress must face a hard reality: Unless Members are willing to accept gas prices at today's painful levels -- or even higher -- our nation must produce more oil. And we must start now. . . .

First, we should expand American oil production by increasing access to the Outer Continental Shelf, or OCS. Experts believe that the OCS could produce about 18 billion barrels of oil. That would be enough to match America's current oil production for almost ten years.

What's interesting about this statement is that the Department of Energy ran a study on drilling in the OCS just last year. The study looked at the current restrictions, which expire in 2012, and mapped out the cases where drilling is allowed and where the restrictions are renewed and no drilling takes place. It found that

access to the Pacific, Atlantic, and eastern Gulf regions would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017.

So if we suppose that Congress ends the restrictions in 2008, a good first guess is that'd accelerate the timeline by about 4 years across the board: no production sooner than 2013 and no significiant impact on prices before 2026.

The reason there's no significant impact on prices is that OCS drilling would increase domestic oil production by about 7%, but oil prices are set on an international basis. In other words, the amount of increased production domestically wouldn't be enough to have a significant impact on global oil supply. Let's assume that oil would increase supply and therefore lower prices in the U.S.. In that case, the oil companies would have the choice of selling at a lower price in the U.S. market or at a higher price to the international market. Past behavior suggests that the executives directing those companies would feel constrained by a fiduciary duty to their shareholders and would therefore sell on the international market. As a result, the domestic prices would rise to meet the international prices. Now, we could impose laws that prevent the oil companies from selling that crude overseas, which might artifically drive down domestic prices, but those sorts of trade restrictions seem out of character for Mr. Bush's administration. So the most likely result is that a goodly sized chunk of any oil drilled here will feed China's demand for it.

Earlier in the speech, Mr. Bush said, "In the long run, the solution is to reduce demand for oil by promoting alternative energy technologies." It is not clear what time frame "the long run" represents, but there are already interesting developments on the alternative energy horizon, particularly in storage of electricity. For example, Zenn Motor Company and EEstor have announced plans to ship an electric car in late 2009 that will go 80 MPH and have a range of 250 miles and that a properly equipped charger could recharge in a few minutes. Similarly, A123 Systems is currently selling a new lithium ion battery technology with dramatically better energy density. (You can currently buy their stuff in certain lines of Dewalt cordless power tools while they work on the long battery life necessary for plug-in hybrids. They are also currently selling plug-in conversions for the Toyota Prius, though at $10K they're currently a little pricey for my budget.) It's also possible--today--to produce biodiesel from algae (rather than, say, corn), something you don't need arable land to do. (Hmm. I wonder how much land you'd have to devote to algae production to remove a billion tons of carbon dioxide per year from the atmosphere, since bamboo ain't gonna cut it.)

In the meantime, higher fuel prices are having an impact on demand. Amtrak ridership continues to set records, and high gas prices are sending it way up. And Ford is scaling back production for gas guzzlers due to decreasing demand.

Bottom line? Maybe drilling the OCS is not an effective answer either to Mr. Bush's short term goal of increasing supply (beyond insignificant levels) or to his long term goal of reducing dependence on foreign oil.

a bit of perspective

We have a simulated written test tomorrow: three essays in the morning, and a performance exam after lunch. I'm supposed to be preparing, but there are so many more fun things to be looking at. While trying to get a bit of context in President Bush's commutation of Scooter Libby's sentence for obstruction of justice in the Valerie Plame leak, and comparing it to what happened with Oliver North (and the folks who were pardoned in Iran-Contra), I discovered that Wikipedia has an interesting list of federal-level scandals going back to the Declaration of Independence.

is altering a DOI scientific finding fraud?

Several news outlets, including NPR, the San Diego Union-Tribune, and the Houston Chronicle are carrying articles on activities by Julie MacDonald, former deputy assistant secretary at the Department of Interior. The reports allege she altered scientific reports:

Rep. George Miller, D-Calif., said MacDonald's resignation was “no gift to the country. She wandered around the department for three years changing documents and ... making determinations based on her beliefs.”

(from the Union-Trib, emphasis added). That got me thinking: would willfully altering scientific reports for endangered species determination constitute fraud?

Here's the federal definition of fraud, or at least one of them, 18 U.S.C. § 1001:

(a) Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully—

(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;

(2) makes any materially false, fictitious, or fraudulent statement or representation; or

(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;

shall be fined under this title, imprisoned not more than 5 years . . .

So you'd need to (1) be in the context of a "matter" that is within the jurisdiction of the executive branch, and (2) knowingly or willfully, (3) falsify a material fact or make a materially false representation. I'm not entirely sure what a "matter" is, and don't have time to research it right now, but let's assume it's at least something fairly serious.

Here's a portion of the Endangered Species Act, 16 U.S.C. § 1533(b):

(b) Basis for determinations
(1) (A) The Secretary shall make determinations [of whether a species is endagered] solely on the basis of the best scientific and commercial data available to him after conducting a review of the status of the species and after taking into account those efforts, if any, being made by any State or foreign nation, or any political subdivision of a State or foreign nation, to protect such species, whether by predator control, protection of habitat and food supply, or other conservation practices, within any area under its jurisdiction; or on the high seas.

. . .
(2) The Secretary shall designate critical habitat, and make revisions thereto, . . . on the basis of the best scientific data available and after taking into consideration the economic impact, the impact on national security, and any other relevant impact, of specifying any particular area as critical habitat. The Secretary may exclude any area from critical habitat if he determines that the benefits of such exclusion outweigh the benefits of specifying such area as part of the critical habitat, unless he determines, based on the best scientific and commercial data available, that the failure to designate such area as critical habitat will result in the extinction of the species concerned.

(emphasis added). It looks to me like this law requires that the secretary have "the best scientific data available" when making decisions under the endangered species act. The secretary doesn't have to follow the scientific data--economic impact can come into play--but the scientific data must be the best available. Which, in turn, suggests it's "material" to the decision, as the fraud statute requires.

And that makes me wonder: if someone "willfully" or "knowingly" alters that scientific data, something a jury would have to decide, has that person run afoul of § 1001? Note that I'm not saying Ms. MacDonald has. In fact, the news reports are vague enough that I can't even tell exactly what she was altering. But it does raise an interesting question.

IPCC report on global warming

The Intergovernmental Panel on Climate Change has released a report on global warming. So far, I've been able to find only the Summary for Policymakers (pdf) available for download. Here are some things that jumped out at me during a quick read-through.

• There's a very high confidence (90%+ probability) that the net effect of human activities has been one of warming, with a net forcing effect of +1.6 W/m^2.
• The combined greenhouse gas effect is likely around +2.3 W/m^2 (with a 90% confidence interval of +2.07 to +2.53).
• Offsetting the warming is a global dimming effect due to aerosols and increased cloud cover of -1.2 W/m^2.
• The balance comes from other warming and cooling effects. The warming due to increased solar radiation is +0.12 W/m^2, about half the decrease of -0.2 W/m^2 due to changes in surface albedo (which I'm guessing means effects like desertification--don't know what happens to that number as ice melts.)
• Measurements show warming trends, increase in water vapor present in the atmosphere, and warming oceans (which have been absorbing 80% of the heat added to the system, causing the water to expand).
• Sea level rise from 1993-2003 is significantly higher than the rise from 1961-1993, driven mostly by thermal expansion and the Greenland and Antarctic ice sheets.
• Observed shifts in weather patterns are consistent with the temperature changes.
• From a paleoclimate point of view, "[t]he observed widespread warming of the atmosphere and ocean, together with ice mass loss, support the conclusion that it is extremely unlikely that global climate change of the past fifty years can be explained without external forcing, and very likely that it is not due to natural forces alone." (emphasis omitted)
• Projected temperature increases for the period from 1990-2005 were between 0.15 and 0.3 deg. C per decade. The observed increase for that period has been 0.2 deg. C per decade, strengthening confidence in the projections.
• Warming tends to reduce the CO2 uptake by the land and oceans, leaving more CO2 in the atmosphere.
• Even at the current CO2 concentration, by the end of the century the best estimate of sea level rise is +0.3-0.9 meters. Other, greater CO2 scenarios show a rise of up to about 6 meters.
• Due to the time it takes natural processes to remove carbon from the atmosphere, both past and future carbon emissions will continue to contribute to warming for a millennium.

the "war" on terror

While I'm on a kick of quoting eloquent statements, I came across this one by way of Schneier on Security:

London is not a battlefield. Those innocents who were murdered on July 7 2005 were not victims of war. And the men who killed them were not, as in their vanity they claimed on their ludicrous videos, 'soldiers'. They were deluded, narcissistic inadequates. They were criminals. They were fantasists. We need to be very clear about this. On the streets of London, there is no such thing as a 'war on terror', just as there can be no such thing as a 'war on drugs'.

The fight against terrorism on the streets of Britain is not a war. It is the prevention of crime, the enforcement of our laws and the winning of justice for those damaged by their infringement.

-- Sir Ken Macdonald, British Director of Public Prosecutions

To forget that, especially in the context of domestic activities, is to imperil our liberties, to risk undue expansion of the War Power, to risk using the wrong set of tools to solve the problem or to focus on the wrong problem, and, ultimately, to succumb to the very terror we feel we are battling.

reading between the comments

This is somewhat interesting. The Weather Channel has a blog. Recently, the host stirred up some controversy about global warming. (Unfortunately, I didn't spot an RSS or Atom feed, so it's not going to make the list of blogs I track regularly.) The interesting part is to read the comments section of the blog, looking for patterns.

Much of the analysis is shallow. OK, nothing new there. You see that on the larger blogs all over the Internet, both in content and comments.

The slant of the comments is strongly negative, almost uniformly, and the number is quite a bit larger than that of the surrounding articles. This tidbit from someone named "JM" jumped out at me: "Your right. This issue isn't going away. Why didn't your site accept the hundreds of comments submitted today. It stopped at 306 out of 700+ submitted. Most of which were today." I couldn't find a count of "submitted" (as opposed to posted) comments, making me wonder how JM knew. As a test, I've posted that question to the comments section--we'll see if the e-mail I get back from TWC contains any indication. If not, then I have to wonder if the comments were some sort of organized effort, a sort of "comment writing" campaign. In which case, who organized it, and why?

Follow up: nothing in the confirmation e-mail about the number of comments submitted but not yet published.

whitehouse replacing U.S. attorneys

I recently wrote "impeachment should be reserved for the most serious of cases, those that interfere with the voters' abilities to oversee the President." I'm leery of impeachment. I think it's been misused for political purposes, such as in Clinton's case, and that recalling politicians like that tends to destabilize the federal government, which isn't set up to be a parliamentary system. However, I may have to expand what I'd consider an impeachable offense.

Talking Points Memo is carrying a story on the Bush administration replacing U.S. attorneys who are involved in investigating political corruption:

Okay, so we already know that the White House has now taken the unprecedented step of firing at least four and likely seven US Attorneys in the middle of their terms of office -- at least some of whom are in the midst of corruption investigations of Bush administration officials and key Republican lawmakers. We also know that they're taking advantage of a handy provision of the USA Patriot Act that allows the White House to replace these fired USAs with appointees who don't need to be approved by the senate.

Given that these new USAs are being plopped into offices currently investigating Republicans and other administration officials and others into states with 2008 presidential candidates, there's certainly ample opportunity for mischief.

David Brin's also picked it up, presumably off Air America.

Here's the problem. We don't have special prosecutors any more, because Congress let the law lapse after Kenneth Starr's investigation. But the U.S. Attorneys report to the executive branch. So we're left with a conundrum: who investigates the executive branch? The courts aren't going to do it. They're really not set up for investigation. So that pretty much leaves Congress. Congress has the power to conduct investigations, generally in the form of hearings, and to subpoena witnesses and documents.

The question then becomes, what would happen if Congress discovered that a high-ranking official was intentionally interfering with investigations to protect him- or herself? At that point, I don't think you could expect a U.S. Attorney to be sufficiently disinterested to be able to prosecute the case in a court of law, and, depending on the official, the court might not even be able to take the case. So Congress might have to resort to an impeachment process.

I don't know enough of the facts to know if there really is a pattern here, though some investigation is probably called for, either by Congress or by an investigative journalist. (Those still exist . . . right?) There sure does seem to be a lot of smoke. I'd just like to know if there's a fire or someone's blowing it.

deficit spending

After Gov. Schwarzenegger proposed a new $43B bond measure last night, following the $37B measure in November for transportation and the one-time $15B measure in 2004 to refinance the general fund debt, I started thinking about how reputation may differ from action. Consider this graph of the national debt by President. What's interesting is a tendency, since Regan, to borrow and spend, just like too many people do with their credit cards. What's particularly interesting is that the pattern seems most common among Republicans, who many people regard as the party of fiscal responsibility. There are times when it's necessary and desirable to increase debt--sometimes the leverage is helpful, like when you're buying a house--but there are other times when it basically boils down to living above your means, to trying to live off those credit cards with just the minimum monthly payment. Next time you hit the ballot box, maybe it's time to give some thought to what really is fiscally responsible and which candidate is proposing what, regardless of party.

the impeach Bush sign

This is impressive, if for no other reason than the logistical considerations: a thousand San Franciscans spell out the word "IMPEACH" in hundred-foot high letters with their bodies. Their stated reason was for warrantless eavesdropping.

So, what do you think? Given the activities we know about,

• warrantless wiretapping and eavesdropping of domestic citizens
• the indefinite detention and interrogation of U.S. citizen(s) (Hamdi and Padilla)
  

do they rise to the level of "high crimes and misdemeanors"? Do they warrant further investigation? Should there be additional investigation into allegations of vote manipulation?

Personally, I think impeachment should be reserved for the most serious of cases, those that interfere with the voters' abilities to oversee the President (as in Watergate, as opposed to, say, perjury and obstruction of justice allegations related to extramarital affairs with Whitehouse interns). If an investigation of vote flipping were to turn up links to the President, to me that would constitute an impeachable offense. The others are reprehensible but don't seem to fit the category of impeachable conduct. But I'm curious to know your views.

independence, the Constitution, and checks and balances

Another politics post. This new "labels" feature may reveal some insights about this blog's true nature.

David Brin's latest post mentions creating the office of Inspector General of the United States. He provides more details here:

Only now picture this. What if we made a very simple change, by appointing and assigning and paying all of the inspectors through a civil service unit completely separated from each department's political chain of command? Indeed, separate from the legislative, executive and judicial branches?

A uniformed service, with its own elite career path like the Coast Guard and NOAA and the Public Health Service... so that the word "general" has real meaning, encouraging higher-than-normal traditions and standards of conduct.

(Emphasis added.) I don't think it's constitutionally possible to create a governmental entity that doesn't fall into one of the three branches of government[1]--the Coast Guard, NOAA, and the Public Health Service, for instance, are all part of the executive branch--but the underlying idea is intriguing. It also raises some difficult questions that go to the heart of how you create a democracy.

The first is independence: how do you create a governmental entity that can investigate the government itself without being unduly influenced by the very government it's investigating? This is the problem Congress faced when it created the Office of the Independent Counsel, someone who could investigate the President even though he or she was part of the Executive Branch but was appointed by judges[2] upon certain triggering conditions. In Morrison v. Olson, the Supreme Court held the scheme constitutional because the independent counsel reported to the Attorney General, even though the Attorney General could remove him or her "only for good cause, physical disability, mental incapacity, or any other condition that substantially impairs the performance of such independent counsel's duties." (See Justice Rehnquist's opinion for a good explanation of how the statutes fit together.)

The second is checks and balances: how do you appropriately restrain the power of that independent entity? Remember Ken Starr's investigation of the Monica Lewenski affair? The power to investigate usually includes the power to conduct discovery, to force whomever or whatever you're investigating to turn over very large numbers of documents. That document search is an expense the party under investigation must bear regardless of whether or not there is ever a trial, and it's usually a substantial expense. How can you keep that independent investigator from conducting investigation after investigation of insubstantial issues, pursuing its own political agenda or simply to justify its own existence, all the while running up legal costs for whatever part of the government it's investigating? This problem may be a big part of why Congress let the independent counsel law lapse and we don't have independent counsels any more.

The Constitutional Convention solved the checks and balances problem by breaking the government into three pieces, instead of balling it all up in one autocrat, and designing a system in which no one piece could determine the extent of its own power. (Except maybe the Supreme Court, because they have the power to say what the words of the Constitution mean.) Ultimately, theoretically at least, the electorate retains the trump card of voting them out of office.[3]

I don't have a clean answer to this problem. Both the executive branch agencies and Congress have an incentive not to be investigated because they don't want inefficiencies made public. That incentive suggests the power of any body of inspectors general would erode over time unless there's a balancing counter-incentive. One option might be some sort of citizen suit provision, where whistleblowers or other concerned citizens could trigger an investigation and receive a reward for evidence leading to a corruption conviction. That reward may give the citizenry an incentive to keep the office strong.[4] Even that approach, though, doesn't solve the "runaway inspector general" problem or get around the fact that Congress will likely still have the power to cut the budget.

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[1] The Constitution creates a government of limited power. That means the federal government has only those powers the Constitution gives it, and no others. Because the Constitution creates only three branches of government, it seems unlikely the Supreme Court would allow the government to give itself a fourth branch without something in the Constitution giving it the power to do so. You can do it if you go outside the government, which is the basic idea behind the Freedom of Information Act, but the government seems to have whittled away at that act's powers over the years.

[2] Who appoints the person is significant because the Constitution (Article II, section 2, clause 2) says this:

[The President] shall nominate, and by and with the Advice and Consent of the Senate, shall appoint . . . Officers; but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.

(Emphasis added). The Court determined the independent counsel was an inferior officer and therefore could be appointed by Courts of Law.

[3] Give or take gerrymandering. The ultimate trump card, where the government torques off everyone so much that a supermajority votes them out, remains despite gerrymandering.

[4] I've just described a kind of qui tam action. For one example of this approach, see the new IRS Whistleblower laws (text available at whistleblowers.org).

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Update: I wonder if it would help to involve the state governments. They're also elected, are independent, and their involvement might sit well with an originalist approach to the Constitution. Hmm. This idea needs further gnawing upon.

disturbing segment on vote flipping

There's a disturbing clip from a documentary on Youtube. In it, a programmer alleges (in a sworn affidavit and later in sworn testimony before Congress) that, in October 2000, a congressman paid him to create software that would change the outcomes of specific elections that used electronic voting machines. The segment's from the documentary Eternal Vigilance: The Fight to Save Our Election System. If you don't want to install Flash 9, you can get more info about the clip in this Brad Blog entry. One factor that undercuts the credibility a bit is that the segment appears to have been released as part of a political campaign, but the technical bits are entirely consistent with my own knowledge of software engineering and generally consistent with what electronic security expert Bruce Schneier has been saying.

AccuTerror forecast

From the gold, freedomincense, and murr department, Schneier on Security's picked up a pretty funny Bill Maher bit on Youtube: the AccuTerror Forecast.