Just how weak is energy demand right now? It appears that the Swine Flu is capable of infecting commodity prices in the energy markets. Prices declined across the board, and one of the culprits was fear that travel restrictions, or simply travel disinclination on the part of the public, would reduce fuel demand even more.

Meanwhile, we’re being told not to blame the pigs for all this.

Well, we’re willing to cut the swine some slack when it comes to viruses, but there are some other pigs…or hogs, anyway…that we think have been living too high on the hog for far too long. We’re talking about energy hogs of course: out-of-date systems, leaky or uninsulated pipes and ducts, “dumb” motors and controls and the like.

With more of our customers requesting energy audits, we’re finding them in abundance. We’ll resist the urge to say they’re a pandemic…but that’s pretty much what we’re finding.

Unless you’ve installed new systems or upgrades within the past year, it’s highly unlikely that the concept of a “smart” system was even part of the conversation, because energy systems have been built on the assumption of cheap fuel and on the principle of keeping costs down. You turn them on, they run. You turn them off, they don’t.

The problem is that in the real economy, the cost of operating a wasteful system far outstrips any savings from a cheap purchase cost. And systems which don’t react to hourly, daily, and seasonal changes in load are hogging fuel most of the time they’re in operation. It’s easy to picture the waste when you light a room and nobody’s there. What we’re showing people during energy audits is how to picture the waste of a motor running full-tilt all the time when most of that power isn’t needed.

This is the idea behind “intelligent” systems: they monitor conditions and such as load and environment and adjust output accordingly. There’s an assumption, we’re finding, that intelligent systems are complex and expensive. They can be, but they don’t have to be. Many are simple and some are surprisingly cheap for the return they give.

Have we recommended that people replace systems that are still in good working order? You bet. And when they tell us that “if it ain’t broke, don’t fix it” we remind them that the system might not be broke, but they could be.

We’ll be doing a detailed walk through energy audits in the weeks to come.

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The economic ride continues to be rocky, which means that two steps forward and one step back is going to be the norm for a while. Sometimes it’s going to be one step forward and two steps back.

We’ve covered credit before. The market is telling us it’s time to cover it again.

After a bit of easing, credit for energy providers has tightened up again, perhaps tighter than at any previous point. No one wants to take any risks with anyone, and no one is getting cut any breaks. We’re seeing conditions and demands we haven’t seen before.

In the current market, with energy prices so favorable and substantial savings to be had, this is leading to some heartbreak.

We can’t stress this enough: maximum savings come to those who are ready to sign a contract NOW. That means having your credit in shape for quick approval. These days, that means six-pack-abs shape. An offer may be valid for just a day, or even just a few hours, and if credit holds things up it can mean offers withdrawn, contracts refused, or hefty upfront deposits demanded. Increasingly, we’re finding that customers who have let their credit get flabby aren’t even getting offers.

And boy, this is not a market you want to miss.

Are you ready to act? Are you ready to save? What follows are the seven deadly sins of credit…the farther down the list, the worse the sin. Do you see yourself anywhere on this list?

#7: No Dunn & Bradstreet listing
This is the first place they look. If you’re not here, you’re nowhere.

#6: An incorrect Dunn & Bradsteet listing
You’ve got a D&B? Great. Have you checked it lately? Is the description correct, as well as the address and contact information? These little details have grounds more than a few contracts to a dead stop.

#5: Multiple company names
If your name changes, if partners change, if business focus changes or the business expands, the company legal records need to updated accordingly. Otherwise, creditors see multiple DBA’s (Doing Business As) on your D&B. This does not make them happy. Record updating is one of those “we’ll get around to it someday” things…get around to it. By the way, federal and state tax laws require it, as well.

#4: Too many credit checks
No matter how good your credit score, each time a potential new creditor takes a look, it’s listed on your credit report. If the report shows more than 3 or 4 of those checks in a 30 day period, that raises red flags.

#3: Too many credit accounts.
AIG had lots of irons in the fire, way beyond their ability to pay. AIG was fine. AIG was king. Then AIG nearly brought down the world’s economy. Too many credit accounts is a VERY bad idea right now. Doesn’t matter that your history is rock solid, or that you don’t use the majority of them. If the potential is there to overstretch your budget, providers are going to be nervous about you.

#2: Too few active credit accounts
On the other had, you need a good payment history with a decent number of accounts. A lack of information here can make providers think your business is not as successful as it should be. Problem!

#1 Paying your bills late
This is the biggee. Even one day late is marked on your report as a late-pay. Some energy providers insist upon 6-12 months of “clean ” bills…that is, no late payments…before they will offer a contract. Oh, and right now, on time means you need to pay before the due date. Yes, things are that tight.

Did you come through clean? If not, Cost Containment Intl. can advise you on ways to get your credit out of purgatory. Give us a call.

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Our story so far: in a “cap and trade” system, the government sets allowable levels of emission for every power plant in the country. This is the “cap” level for emissions in our “cap and trade” system.

Every power plant in the country purchases (or perhaps, to get things started, is given at no cost) a set of “allowances” equal to their cap level of emissions. Each of these allowances could be considered a “right to pollute” up to a certain amount. Once the allowance level has been hit, the allowance is “retired” and taken out of circulation.

Allowances can be used until they are used up, or they can be sold (”traded” in the parlance of the system). If a power plant improves their efficiency or creates new ways to reduce their emissions, they may have leftover allowances at the end of the year which they can sell to other plants who are in danger of busting their caps.

Cap and trade accomplishes two things: it creates a truly fair energy market by forcing polluting power plants to bear the cost of the damage they do to the environment, and it creates a system where the market forces of profit and loss, rather than just government intervention, forces power plants to reduce their emissions.

Green energy plants enjoy the benefit of not having to buy allowances, because they produce no emissions. With the energy market more fairly balanced to account for the true cost of energy production, green energy can now compete for price and increase its share of the market.

Until….the government lowers the cap. Then, things get a lot better for green energy, and a lot worse for everyone else.

Supply and demand tells you what will happen. With the cap lower, there are fewer allowances. With allowances scarcer, the price per allowance rises. With the price to pollute increasing, fossil fuel plants must either invest more to reduce their emissions, or raise prices to offset the cost of increasingly expensive allowances. Either way, emissions go down and green energy increases its share.

Then…the government lowers the cap again. The day may come when the phrase “lower the cap” will replace “lower the boom.” Each lowering of the cap makes fossil fuels a less sensible energy option.

Eventually, a cap and trade system could reverse the current reality in the energy market. Fossil fuel plants will have to pay so much for allowances that they won’t be able to compete for price. Those plants that do survive will do so because they have innovated and improved…which is what the free market is supposed to do best. The government will play a role, but only a partial role, in the process, so no one will be able to grouse about “socialization” of energy…although there’s sure to be plenty of grousing.

And green energy will gradually take its place as the logical energy of the future.

This, at least, is the plan.

What this means to you. How will this actually pan out? We should get our first idea toward the end of the year. Right now, the cap and trade plan is on the back burner, but expectations are that the Administration will try and have an initial system in place before December.

Your focus right now should be on whether the initial setup will involve an auction of allowances, or a giveaway. An auction out of the gate will have a serious, and immediate, impact on electricity prices beyond the end of the year. Even if it doesn’t come in 2009, a serious impact is on the horizon.

Meanwhile, NYMEX sits comfortably in the mid-$3.00 range, and natural gas storage levels sit at near record levels. If the thought occurs that now is the time to put a cap on your future electric bills, all we can say at Cost Containment Intl. is that we agree.

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No, this is not how a cap and trade system works.

As we discussed last week, the Obama Administration is pushing hard to implement a “cap and trade” system to promote green energy development in America. At Cost Containment Intl., we agree that the time has come to make a serious commitment to a transition from fossil fuels to renewable energy sources. And we acknowledge that this transition is going to raise your electric bill.

So what is cap and trade, and how does it help green energy?

The main hurdle to green energy is that in the current energy market, green energy sources like wind and solar can’t compete for price with traditional fossil fuels. While production costs are minimal, construction and installation costs are high relative to rate of return. In competitive energy markets, low price wins, so green loses.

There’s a problem, however: the current energy market is not a true fair market. This is because fossil fuel generators don’t have to pay the cost of the environmental damage they produce. America as a country has grown up assuming that pollution is a necessary evil of energy generation, so the government, rather than the energy producers, has ended up paying the bill. This amounts to a subsidy for coal, gas and oil. One commonly sited example is the $35 billion paid out to miners suffering from black lung disease. The government paid this, not the coal mines.

As global warming has sharpened people’s focus on environmental impact, and as solar and wind have emerged as viable energy sources which don’t pollute the air, people have begun to question this assumption. The argument has been made that if you created a system which factored in the “real” cost of fossil fuels, green energy would start looking better and better from an price, as well as an environmental, standpoint.

Since the 1980’s we’ve tried to solve problems using free markets rather than government regulation. Cap and trade is a way to “level the playing field” in the energy market, and create market-based incentives for energy generators to clean up their act. While government plays a role, it’s simple profit and loss that drives the system.

Here’s how it works (in a VERY simplified form):

The government sets a standard for allowable levels of emission. This is the “cap”…the maximum level of pollution an energy generator can produce. It then sells (or, perhaps, gives away…this is a key point of contention right now on the Obama plan) these allowance. It’s a bit like owning the right to produce a certain amount of pollution.

Energy generators buy as many of these allowances as they can to meet their expected output levels. Green energy generators don’t have to buy any. Efficient, low-emission fossil fuel generators only have to buy a few. High emission plants have to buy a lot.

One immediate benefit of this is that it injects a lot of new money into the system. The government will most likely take it and use it for some form of tax relief, since energy generators are about to pass on this new expense to their customers in the form of higher prices.

In the beginning, there are a lot of allowances to sell. This will change.

Now, the market forces set in. The allowances are valuable commodities, because if a generator manages to produce less emissions than the number of allowances they own, the allowances can be sold…or “traded”. That’s the “trade” in cap and trade.

Some energy generators will innovate to reduce emissions and improve efficiency. They know that if they do this, they’ll have unused allowances left over at the end of the year. They’ll be able to sell them to other generators who haven’t done the work and may need a few extra allowances to get under their caps. Since this will be a seller’s market, they can probably make a profit, which pays for their improvements.

This is the first step in a cap and trade system. Fossil fuel plants are now paying the “true” cost of production, and the energy market is more level, so green energy competes better. The money generated by the sale of allowances is (hopefully) channeled back to the public in a way that offsets the rise in energy costs.

But this is just the first step. Now the REAL fun begins. We’ll finish the story next week.

What this means to you. Change is coming. If the thought occurs that you’d like to add a bit of security to your financial future, give me a call at 800-436-3470, or click here to e-mail me.

Side note: you may have heard reports of the Conflicker Computer Virus, also known as the April Fool’s Worm. Apparently, the joke was on everyone: it waited a week to activate. No one knows what it will eventually do, but you should check to find out if your computer system is infected. If you try to visit the Microsoft or McAfee Web sites and find out you can’t, you’ve got it, because it blocks access to sites with fixes. Take a moment and check it out. Be secure.

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Considering we call this newsletter “The BUZZ”, we have to touch on electricity from time to time…touch base, anyway. And this week, for the first time in quite a while, something caught our eye that brought the electric market to our attention.

As we’ve discussed in previous articles (by the way, we’ll be moving the entire archive of this newsletter to the Cost Containment Intl. Web site in the near future, so you’ll be able to catch up on past entries), electricity prices have closely tracked natural gas prices in the deregulated markets. Checking NYMEX gives you a way to keep on top of trends in pricing for both energy sources.

That’s about to change. It’s too early to tell how much, or how quickly, but change is coming. The reason? The policies of the Obama Administration.

Two things form the cornerstones of the Obama energy plan: the increased use of green energy sources, and the buildout of a new, “smarter” energy grid. We’re completely in favor of both these plans. Green energy is a necessary and inevitable part of America’s energy future, and the sooner we take that particular plunge, the better. And smart grids will allow this country to enjoy a new age in efficient energy use and a new era of energy cost management.

But getting there is going to cost us.

This is what caught our attention this week: we’ve seen the first in what will be a growing number of articles about utilities requesting rate increases. They’re requesting the increases in anticipation of future costs associated with the buildout of the new grid system.

Last week, there was considerable discussion about President Obama’s plan for a “cap and trade” system to promote green energy use in this country. We’ll be discussing how a cap and trade system works over the next couple of newsletters….it will take more than one, that’s for sure! Cap and trade probably won’t pass Congress this year, but it’s going to happen.

What this means to you. If you think electricity pricing in the current energy market is complex, hang on to your hat, because you ain’t seen nothing yet. The combination of higher transmission and distribution costs associated with the grid buildout, and higher generation costs associated with “cap and trade” and increased green energy use, are going to bring two things to your electric bill: higher costs and increased price volatility. It’s also going to add a new layer of complexity to electric pricing, which means the NYMEX won’t be the same reliable indicator it is today.

Are you going to need more expertise to make intelligent choices? We think so. Are providers going to go to greater lengths to make “apples to apples” plan comparisons difficult? Most likely. Are the great fixed prices and longer contracts we’re being offered right now going to look better and better in the rear view mirror? We wouldn’t bet against it.

It’s possible that 2009 will mark a return to normalcy and the beginning of recovery in the financial sector. But it’s likely that 2009 will also mark the beginning of new turmoil in the cost of your electricity. If the thought occurs that you’d like to add a bit of security to your financial future, give us a call. Because the first signs are already there that the future is a lot closer than you think.

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