Knowledge Is Power

by Richard R. Loomis and Susan Salter

In 1976 the movie Network showed us a man pushed to the brink. Network news anchor Howard Beale, played by Peter Finch, interrupts his top-rated program to give an impassioned speech in which he yells, “I’m as mad as hell, and I’m not going to take this anymore!” Television viewers near and far repeat his rant, shouting it from coast to coast.

Beale’s spiritual offspring are venting similar anger today. Maybe you have heard of one of them, a man who bills himself as Joe, American. He is a viral Internet star with nearly 1.5 million hits on YouTube.

In May, Joe lambasted the presidential candidates’ views on energy. “We know the productive use of energy is now the basic building block of human comfort and success,” he said. “We need to make certain that American energy supplies and costs are not controlled by others. Do you get that? Preaching about what we drive, questioning oil executives and doing nothing about this problem is not an answer. Indeed, all you senators are part of the problem.”

Can you recall another point in recent history that saw such animosity among the public, industry and government? With the flames fueled by a mass media always eager to stir up a shouting match, the loser in this fight seems to be honest opinion and reasoned ideas.

The time has long passed for consumers to expect their policymakers to bail them out of a high-energy-price mess. No matter what McCain, Obama or anyone else says, there is no magic bullet that will bring gasoline back down to $2.50 a gallon or stop home heating fuel from spiking each winter. Thanks to an evolving global market, our fuel has graduated from a tie-in expense to a full-on budget item.

Dialing down the thermostat and carpooling are excellent ways to conserve individual budgets, but of course most Americans cannot afford the lifestyle of a hermit any more than that of a mogul. They must occasionally venture out to work, to visit family, to buy food, to see a doctor, to attend school. The country runs on power, and now it must deal with the policy behind the power.

Unfortunately, many ideas, no matter how well-intentioned, don’t pan out. Experience has shown that every time CAFE standards make cars more fuel-efficient, we drive more. When the price of gas goes down, we buy gas-guzzlers. When foods are advertised as “low fat,” we eat twice as much. Now we are changing our lightbulbs like crazy. Will our low-wattage replacement bulbs cause us to leave the lights on longer? It is a fascinating form of circular logic.

Given this tendency of human nature, it will take a potent cocktail of personal responsibility, long-term thinking and old-fashioned guts to make ourselves informed and empowered consumers. Most think that beyond conservation, there is very little that we, as individual consumers, can do to reduce cost and increase utility. But that thinking is wrong.

The new breed of consumer can – and must – become a steward for his or her personal energy needs. It comes down to not only conserving the fuel we have, but also taking the lead in becoming individual, ad-hoc energy producers. Think it could never happen? It already is happening.

Do-it-yourself Oil Speculation

Say what you will about oil speculators – at least the work is steady. In response to the rising pump prices, a new online service, MyGallons.com, puts consumers into the role of oil speculators, allowing them to prepurchase gas cards at a set price. Essentially, the consumers are betting that prices will rise, thus saving them cents per gallon with every purchase on their card. Of course, should pump prices fall, buyers are encouraged to hold on to their cards until the inevitable rise.

MyGallons was launched in April by entrepreneur Steven Verona, who compares his service to any other member-driven price club. An annual fee of about $50 allows members to hedge their bets at any time by purchasing their gallons online. “Amounts are stored in swipe cards, no different from debit cards, and can be redeemed any time across a broad network of gasoline retailers in the United States,” according to a Toronto Star article. Members also have the option of prepurchasing additional fuel to their accounts at the current MyGallons price, which, according to the company’s Web site, “refers to regular unleaded fuel and includes estimated taxes based on your location.”

At least, that is the way it is supposed to work. No sooner had MyGallons made its bow than reports surfaced of dissatisfied members who could not get their swipe cards to work.

Verona found himself “playing defense after a flurry of complaints from fuel thirsty members who say they have been left high and dry,” noted CNN. “Debit cards [that] members used to access pre-paid gas [are] not working as planned or advertised. That’s earned MyGallons an ‘F’ [the lowest rating] from the Better Business Bureau.”

According to Verona, the problem stemmed from a vendor, US Banks Voyager Network/GoGas Fleet, not honoring an agreement to provide redemption services for the program. “We will be announcing our new national payment network soon,” the company vowed on July 3. By July 10, the Better Business Bureau had revised the “F” rating to “NR,” a no-rating designation displayed when the system is conducting maintenance.

According to MyGallons, some 6,000 people have already joined the gasoline price club. Yves Smith likely is not one of them. Smith, a columnist for Naked Capitalism, says that this service “promises to be a taste of what’s to come. Now I will admit to not having thought about this concept too deeply … but this screams basis risk to me. The company will (hopefully) have lots of retail customers making bets on gas prices. I see at least two problems. The first is presumably the software will aggregate the total ‘I want today’s price’ periodically since each of the trades will be way too small to hedge individually. Now, how often do you aggregate them? Daily? How often do you change the posted price in this system? Even in a day, gas prices can move a lot. Moreover, MyGallons has no idea how long it will be before consumers will buy gas at the locked-in price, so how far forward do they buy futures?”

If You Can’t Beat ’Em, Buy ’Em

Conspicuously absent among the public cries against the profits of oil companies is the idea that the consumers, themselves, can get a piece of that action by becoming shareholders.

Business Week, bullish on energy, opted to give out a few stock tips. “The Vanguard Energy ETF, for example, is up 28% over the past year,” noted Aaron Pressman and Paula Lehman in the magazine’s May 26, 2008, issue. “But with the economy slowing and drivers cutting back, the debate is over which way oil prices will move next. A better option may be Peabody Energy, a leading coal producer. On May 8, Morgan Stanley tapped the stock as an ‘overweight’ thanks to improving production out of Asia.”

“Look for companies that will benefit indirectly from oil prices and directly from increased energy efficiency,” recommends Paul Larson, editor of Morningstar StockInvestor. Speaking to USNews.com, Larson says that consumers can balance higher expenses at the pump with higher returns on their investments.

The Alternative Choice

Or, if you’re oil baron T. Boone Pickens, you can invest your $58 million in alternative energy. Pickens made headlines in July by announcing his support of a wind farm (destined to become the world’s largest) in western Texas. He cites a Department of Energy statement that wind can provide up to 20 percent of U.S. energy needs by 2030.

With heavy hitters like Pickens behind alternatives, why aren’t Congress and the public equally wired up for investment? “The problem is that most Americans, including elected policymakers, continue to live for the moment,” writes the Dallas Morning News. “The United States hasn’t had a coherent energy plan in decades. Countless blue-ribbon commissions have warned of out-of-control deficit spending and soaring entitlement obligations. The nation has unwisely postponed the inevitable day of reckoning, and now it is nearly here.”

And don’t lean on the fact that you’re not a millionaire as an excuse. You don’t need the deep pockets of a Pickens to empower yourself with wind turbines. You may instead look into “micro-wind.” Yes, it is possible to have your own windmill and generate electricity with it. Most of these prototypes do not produce very much power yet, but should the idea catch on and consumer demand rise, it is just a matter of time before you can look out your kitchen window and see your personal wind-powered generator at work. Better yet, if you are hooked up with net metering, you can sell the excess power to your local utility.

The Customer-focused Utility

In our sister publication World Energy Magazine (Vol. 11, No. 1) this summer, Bob Brnilovich of IBM Global Business Services provided a glimpse into the way consumer empowerment will change the way utilities do business:

In the past, utility companies had very limited interactions with customers. Apart from opening new accounts and billing for services, the relationship was remote, with customers giving no more thought to their power provider than they would to finding a post office. Customers were indifferent to greenhouse gas emissions and essentially took a passive view of all utility functions, contacting the utility only if their lights temporarily went out.

In contrast, the utility of the future can expect a much more intense level of customer involvement. If utilities embrace programs to change customers’ behaviors – for example, by implementing time-of-use rates – customers will need more information on a timelier basis in order to make educated decisions. In addition, customers will expect higher levels of service to keep up with changes in the rest of the commercial world. As consumers get used to checking their bank account and credit card balances via mobile devices, they’ll soon expect the same from all similar services, including their utility company. As Generation Y and now Generation Z consumers begin their relationships with utilities, they bring expectations of a digital, mobile and collaborative customer service experience.

Taking a broader perspective, most age segments (even Baby Boomers) will begin demanding these new multichannel experiences at times that are convenient for them. The most significant industry shifts will alter the level of interaction between the utility grid and the home. In the past, this was a one-way street; in the future, however, more households will be adopting “participatory generation” due to their increased use of renewable energy. This will require a more sophisticated home/grid relationship – one that can track the give-and-take of power between consumers as both users and generators. This shift will likely change the margin equation for most utility companies.

Consumers Empowered

The age of low-priced energy appears to be over. Can we really afford not to consider all options when it comes to securing our energy supplies? As new ideas arise and new choices come online, it will be increasingly up to the individual to make smart buying decisions. Energy needs to be a part of the process.

A clear-headed look into what energy is worth to the individual is the first requirement. Each of us must ask ourselves: How much am I willing to pay for heat, air conditioning and mobility? If you cannot answer that question, how will you know what kind of house to live in, what kind of car to drive (if any) and what types of utilities to enroll in?

Governments have never been terribly efficient, so expecting them to come up with the answer is unlikely. Individuals have a great amount of creativity, and applying it to energy production can yield highly fruitful results. We have discussed ethanol to death, diesel might be possible, but what about other technologies we can encourage? Recently a demonstration of a plug-in hydrogen machine suggested that virtually any individual could one day own such a device and, with it, have the ability to produce his or her own hydrogen fuel at home to power cars that have become independent of gasoline. Even better, a community of hydrogen producers could band together and, with a relatively small investment, purchase the means to power a community’s cars and thereby move forward into a new profit arena.

Whether the issue is gas-club savings, backyard windmills or home-brewed hydrogen, the message is increasingly clear: It is time to stop waiting and start deciding where your energy is going to come from. Because we’re mad as hell, and we’re not going to take this anymore.