Friday, February 26, 2010

Green energy hurts the economy

From the 01 March 2010 Greater Niagara Newspapers


By Bob Confer

Since his days as a U.S. Senator, President Obama has trumpeted renewable energy as the catalyst for the future growth of America’s economy. He believes that investments in wind, solar, and ethanol energy will excite the marketplace and put Americans back to work. Similarly, the supposed positive domino effect of Green Economics was a key part of the Bush administration’s efforts to promote and subsidize ethanol. But, rather than increasing employment, those efforts increased consumer prices and accounted for vast transfers of wealth, something that should be a lesson to learn from for the President.

The economic weaknesses of corn-based ethanol have long been discussed by critics of the federal government’s ill-advised foray into the alternative fuel market. For years they have said that its makes no sense to turn into fuel something that is such an important food both directly (as corn at the dinner table) and indirectly (as corn syrup and feed for livestock and poultry). A negative impact on consumer prices was virtually guaranteed: A bushel of corn produces an average of 2.7 gallons of ethanol and federal mandates require that the nation uses at least 36 billion gallons (13.3 billion bushels of corn) by 2022. The industry appears to be on its way to exceed that goal: 2010’s production is expected to surpass 13 billion gallons.

Following the laws of supply and demand, corn prices have gone out of control, reflecting the emphasis on ethanol. From October 2002 to September 2003 corn prices ranged from $2.15 to $2.35 per bushel. In the months leading up to the recession in 2007, corn prices exceeded $4.00 per bushel. During the first part of the recession prices fared no better, for in April of 2008 they surpassed the once-mythical $6 mark and actually reached $7.88 in June of that year. With the collapse of the global economy in 2008/2009 and the associated declines in demand and prices for nearly all commodities, corn was in a stretch that saw it stay within the mid-$3 range. Projections for 2010 show another up tick that will take it far beyond $4/bushel.

This trend in increased ethanol production and the reliance on corn has had a detrimental effect on the consumer. Not only has corn itself gone up, affecting everything from sodas to cereals to tortillas, but so have the costs of meats and dairy products. At the turn of the century feed costs accounted for 50 percent of an average meat or dairy farm’s operational costs. As the price of corn doubled and even tripled, the beef, milk, and chicken producers had no choice but to pass on the higher costs to consumers. During the second half of 2007 and the first half of 2008 consumer prices at the grocery store grew at unprecedented rates and economists who disbelieve misleading government statistics like the Consumer Price Index had price inflation pegged at 12 percent, not the 5 percent as indicated by the government.

Over the past few years criticism of ethanol was met with a blind eye and a deaf ear by most in Washington. Recently, though, we saw the federal government actually admit to having inadvertently manipulated market prices through the emphasis on ethanol. A Government Accountability Office report says feed costs for livestock producers more than doubled from 2006 to 2008 as a direct result of ethanol production.

This, of course, has done nothing to create jobs or jumpstart the economy. Instead, it closed dairy farms, cost people their jobs in manufacturing and retail, and helped to escalate the recession. A Purdue study notes that $15 billion per year has been extracted from the economy to satisfy ethanol demands. Rather than being spent on the purchase of more products in volume or invested in discretionary purchases of all sorts - all of which would have had positive economic impact - those funds were instead spent by individuals to maintain the status quo in their diets.

That’s $15 billion per year lost in the ether of our economy, the direct result of government intervention into markets in which it does not belong. It is not a tax per se, but in practice it has the same effect as a tax: Wealth has been forcibly transferred away from the people by the government resulting in a lower standard of living.

Saturday, February 20, 2010

NYSERDA and your power bill

From the 22 February 2010 Greater Niagara Newspapers


By Bob Confer

A couple of weeks ago New York launched the Great Appliance Swap Out. This program offers $50 to $105 rebates on the purchase of qualified appliances. You may have noticed in various news articles and public service announcements that it was funded by the American Recovery and Reinvestment Act and administered by an organization that calls itself NYSERDA.

Chances are you probably didn’t concern yourself with NYSERDA. But, you should.

First, grab your most recent electrical bill. Scroll down through the delivery services portion of it. You’ll notice something called “SBC”. Depending on how big your household may be the SBC line item ranges from $2.50 to $5.00 a month. That’s not chump change. You’re shelling out $30 to $60 per year, money that both you and I know would be best spent by you and not the government.

You see, the SBC is a tax. The acronym means “Systems Benefit Charge”. According to National Grid these funds “reflect costs associated with mandated public policy programs - low income assistance, energy efficiency programs, and certain research and development programs including the advancement of renewable energy resources.” The recipient of these fees is the aforementioned NYSERDA – New York State Energy Research and Development Authority.

If you are an astute student of all things government the first thing that comes to mind is “why are we paying taxes to a public authority?” Authorities are corporate instruments of the State created by the legislature to further public interests. They are basically private enterprises with a public flair that are legally and administratively autonomous from the State, meaning they are accountable to no one but themselves. They are typically funded by user fees and should never be funded by taxes. Yet, here’s NYSERDA being funded by a tax in your power bill. Combined with the lack of accountability to the taxpayers, that makes the systems benefit charge a classic example of taxation without representation. That’s the same kind of thing that got the colonists all fired up during the American Revolution.

And, it’s the same kind of thing that gets me fired up at the office. Long-time readers of this column know how I despise the competitive structure of electricity in New York. My company pays twice what our competitors in Ohio and Indiana pay for power. That’s pretty significant considering we use as much electricity as two average-sized villages. In my ongoing analysis of what makes my power bill so high I’ve long had the SBC in my sights. Back in 2007 I was on the warpath over the charge that then amounted to $8,250 annually. That’s a lot of money. But, much to my chagrin, after analyzing 2009’s bills I made the grim discovery that something changed in collection of these taxes. Last year, for virtually the same amount of electrical consumption, we paid a staggering $32,050 for the SBC, almost 4 times what we did just 3 years earlier.

Back when the charge was “only” $8,250 I was intent on putting it in front of Governor Eliot Spitzer. I was hopeful that the Wall Street Watchdog would have been just as disgusted as I about the unrepresented tax. His director of operations shared my concerns with the Public Service Commission. In her response PSC Chairwoman Patricia Acampora barely addressed my concerns and instead waxed poetic about what NYSERDA supposedly does, like lowering overall electrical demand and costs for New Yorkers. She also noted that, yes, NYSERDA does collect its fees from electrical users but the State has oversight over what it does with its monies. Considering how ineffective that “oversight” is with the New York Power Authority, Thruway Authority and 700 other authorities across the state, I could only laugh.

That’s what we’re up against, folks: An entity that shouldn’t be taxing us but is and is allowed to do so at the behest of the State. Whether you’re a family or a business trying to make ends meet in these tough times you should be frustrated with this tax that is - like a few others – hidden in your power bill where you might just never see it.

Please take the time write your elected officials and let them know you’re sick of playing nice with NYSERDA.

Saturday, February 13, 2010

Super-regionalism: WNY and the GTA

From the 15 February 2010 Greater Niagara Newspapers

By Bob Confer

(Editor’s note: This is the final part of “Four Ways to Save WNY")

A good many Western New Yorkers have looked at Ralph Wilson as the anti-Christ ever since he turned the Buffalo Bills into a part-time resident of the city of Toronto.

Their assessment is quite unfortunate because Ralph Wilson is a genius for that pursuit and we need every man, woman and child to follow in his footsteps. The merging of the Niagara-Buffalo region, economically and socially, with Southern Ontario is without a doubt the most important thing that we can do to achieve the best possible future for WNY.

It’s not a stretch to say that most people in the area tend to look at Canada as a strange, far away land and that our world seemingly ends at the Niagara River. It’s almost as if we chose to ignore that Ontario is in our backyard and, oddly enough, believe that Rochester or Erie, PA – both of which are farther away than the Greater Toronto Area (GTA) - are more appropriate parts of our lives. Those blinders – based in either ethnocentrism or a misguided fear of the unknown – need to be cast aside.

The area from the border to just past Toronto is aptly named “the Golden Horseshoe”, a c-shaped territory along Lake Ontario that comprises some of North America’s greatest riches. It is home to 8.1 million residents and the Canadian headquarters of the world’s largest corporations. To put that into perspective Niagara and Erie Counties, the most populous of WNY, are home to only 1.25 million people and a depressed economy that is but a shell of its former self.

Were we to open our eyes, our minds, and our borders to our friends to the North, we’d be able to capitalize on their sizable economy and its potential for growth (the Golden Horseshoe’s population is expected to expand by 40% over the next two decades) by manufacturing the products and providing the professional and high-tech services they need. But, at this time, it’s easier said than done.

For starters, the border offers a significant hurdle. In the name of national security both nations have tightened up their vetting process at the gates, slowing traffic to a crawl and accounting for waits at the bridges that typically exceed one half hour for passenger cars and are considerably longer for tractor trailers. That’s a ridiculous amount of time when one considers that Toronto is only an hour away from the Rainbow Bridge. Few businessmen, workers or customers possess enough patience to deal with such delays on a regular basis. It’s virtually impossible to plan your day around it as you may get through the border in five minutes or fifty of them. In order to promote the easy cross-border movement of people and products both governments must fully man each crossing and expedite the screening process. The Canadian government, especially, must find ways to temper the insane number of strikes/slowdowns that their border agents go on.

Secondly, businesses need an effective means by which to network and connect with one another. Many Canadian and American companies have a hard time figuring out how to crack the market and do business on the other side of the River. I’ll admit, even I have found it extremely difficult to properly market Confer Plastics to companies in the GTA. What companies like mine and countless others need are the local chambers of commerce – like the Buffalo Niagara Partnership and the Niagara USA Chamber – and their Canadian counterparts to focus on what their name implies: Commerce. They sometimes host mixers and networking events for smaller companies in their own communities. What they don’t offer are similar events on a larger scale for their bigger clients, US-Canadian matchmaking events that would connect a manufacturer in Lockport with another one in Hamilton or a software firm in Mississauga with, say, a hospital in Buffalo that could use its services. Basically, local business groups and their member companies need to think less parochially and work together to address a macroeconomic need.

There are some people – visionaries if you will - who see the importance of greater trade with the GTA. You might choose to not listen to the Buffalo Bills front office since football teams are so “sacred”. But, if you ever get a chance to catch a speech about bi-national trade from Ken Franasiak of Calamar you’ll be really impressed about what the larger WNY/GTA region is and could be. It’s time that others followed that vision and extended the Golden Horseshoe past the Niagara River, taking it to Rochester and beyond. There’s no reason why the GTA’s prosperity shouldn’t rub off on us.

Friday, February 5, 2010

Water: The key to WNY's past and future

From the 08 February 2010 Greater Niagara Newspapers


By Bob Confer

(Editor’s note: This is part three in a series, “Four Ways to Save WNY”)

If any one thing could account for the past successes of the Western New York economy it’s water.

When the Erie Canal opened in 1825 it made the region the gateway to the West, offering a navigable trade route connecting the Atlantic Ocean to Great Lakes. It was an engineering wonder that cut transportation costs by 95% and improved the timeliness of delivery by weeks. WNY became a commercial hub and Buffalo one of the most important cities in the United States. But, the golden years of the Erie Canal lasted about a half-century. It was made almost useless by the advent of the United States’ vast rail network that, by 1869, connected coast to coast.

It wasn’t long after that, though, that the area experienced yet another economic boom driven by water. In the late 1800s power plants began to develop along the Niagara River, including the world’s first large-scale power plant to produce the alternating current so important to the efficient delivery of electricity and, therefore, industry. The technology harnessed the limitless power of the River to create vast amounts of electricity and whereas many other cities saw electricity as a luxury, Niagara Falls was able to take it for granted. This brought manufacturers by the hundreds to the Falls which became an industrial Mecca for the first half of the twentieth century.

But, after World War II, things changed. Affordable electricity was no longer specific to WNY. Vast hydroelectric projects had popped up all over the United States and power generation technologies that used coal were refined in the 1920s and again in the 1940s, making that an accessible and cost-efficient means to power homes and businesses. Niagara Falls lost its edge. And then it lost its businesses and residents. Now, the corridor along the River looks like a manufacturing ghost town. The City itself is no less unattractive, its population one half what it was in 1960.

But, there is hope. Hope in that substance which boosted our economy in days gone by: Water. It’s time again that we leveraged that asset to bring about a new age of prosperity to WNY. Later this century – and right now for that matter - water has a very good chance of being the new oil, a substance so rare and necessary that governments (even neighboring municipalities) will compete for it and sell it at a premium.

We’re fortunate here in WNY that water abounds. We have the Great Lakes, the mighty Niagara River, and hundreds of streams, ponds and lakes filling our landscape. Other places, including those where Niagara’s businesses and people migrated to, aren’t so lucky. There, water is at a premium. There’s barely enough now and, as those communities expand, they are guaranteed to be lacking in the future.

Among those, Atlanta first comes to mind. The metro area’s water woes have been problematic – if not frightening – with a drought of epic proportions having hit the region. Exacerbating the problem is that even were the area drought-free the over-built cityscape of 5 million people would still be short in regard to future development. Making matters worse, the courts ruled last year that Atlanta has very limited rights to Lake Lanier’s water, which had been its primary drinking supply. This has forced city officials to look elsewhere in Georgia for water and it has forced many companies to take a long, hard look at Atlanta. Because of that, some economists predict that 1 million people will migrate from the city in the near term, leaving it no bigger than it was in the 1970s.

Similar shortages exist in newly-developed parts of North Carolina and there’s always the naturally-dry West.

This puts the Niagara region in a unique position to profit from other people’s despair. Corporations and people need certainty when it comes to water supply and you can’t get much more certain than our backyard. A couple of years ago the Niagara County Center for Economic Development began marketing the region to water-starved states in hopes of attracting new businesses. Very few development agencies in the Great Lakes have followed suit – despite the seriousness and scale of the water shortages - which puts Niagara County in the lead based on both moxie and available natural resources. It is hoped that their continued efforts and the frustrations of southerners combine to bring companies both big and small back to the region. We definitely have the resources and we must use them wisely to recreate a robust WNY economy for future generations.