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Fraud in Calif. Air Board Rules

By Kennedy Maize

This is so California. The all-powerful California Air Resources Board, which drives regulations affecting cars, power plants, and virtually anything with moving parts in the state, has ordered a new study of the health effects of diesel engine emissions, after it turned out that a staff member who did the analysis leading to expensive new regulations on diesel engines falsified his credentials.

Here’s the California part. The CARB did not suspend it’s new diesel rules when it discovered that the health effects report upon which it based its regulatory decision could be flawed. Instead, it ordered a new report.

What’s worse, when the board adopted its regs last year, based on a report by staffer Hien Tran, who claimed a Ph.D. in statistics from the University of California at Davis, CARB chief Mary Nichols knew that Tran’s degree was actually from an unaccredited, online institution, before the board voted on the new rules. She didn’t speak up at the time.

Nichols, the clean air chief in the Clinton Administration’s Environmental Protection Agency, and a Natural Resources Defense Council attorney before that, apologized to the board after the fact at its December 2009 meeting.

In it’s defense, the CARB did tell the staff in its reworking of the study to look at potential amendments to the rules, which are designed to reduce particulate emissions. The air board is scheduled to take up the diesel rules again in its April meeting.

The regs, which would go into effect in 2011 and ratchet up over the next 10 years, rely on a requirement for a new diesel low-carbon reformulated fuel that would not be required anywhere else in the U.S. It would apply to all diesel engines, from trucks to cars to power plants. The fuel required under the California rules does not yet exist, according to trucking industry claims. They argue that it will require costly technology retrofits on existing engines.

The California rule would also apply to trucks coming into the state from other states that do not have similar rules. According to legal experts, that could trigger lawsuits alleging that the California rules are a violation of the Commerce Clause in the U.S. Constitution. Similar attempts to bar out-of-state coal in Ohio and Illinois fell afoul of the federal courts on Commerce Clause grounds.

Writing in the San Diego Union-Tribune, former CARB member and chairman (1994-1999) John Dunlap said, “What has emerged, it seems, is an attitude and belief among some CARB staff that the ends justify the means and that full disclosure and transparency are not required before the board or the public. This runs counter to the very tenets of democratic law and due process.

“It is a system that begs for scrutiny and reform and can only benefit from more board-level involvement. As it now stands the CARB chief counsel plays the role of a sort-of regulatory sheriff, prosecutor and judge. It defies due process and fundamental separation-of-power principles that CARB staff – or any government official – could be allowed to assume all these positions of power – with unlimited discretion and without any meaningful checks and balances.”

In my judgment, Mary Nichols should be looking for a new job.

Is GE’s Immelt Headed Out the Door

By Kennedy Maize

Is Jeff Immelt, General Electric CEO, headed out the door at the enormous conglomerate he took over from “Neutron” Jack Welch in 2001? As GE continues to deliver lackluster business performance, and as Immelt continues to focus on what appear to me to be peripheral business targets, I’d suggest his days are limited. There is scuttlebutt among large money managers to the same effect.

Immelt has made big bets on alleged green technologies, particularly wind, as GE has become one of the largest wind developers in the world. As former Enron employee Rob Bradley notes in his MasterResource blog, Enron bought a floundering Zond Corp. wind business in 1997, failed to generate a profit from it, despite persuading Texas to adopt a very wind-favorable renewables standard, and sold the business to GE in 2002, under Immelt’s leadership.

Wind has been a core in GE’s loopy “ecomagination” strategy, which it appears has never shown a profit (GE’s financial disclosures are less than transparent when it comes to sussing out the results of this goofy strategy).

The latest GE wind news is that T. Boone Pickens, an oil and gas magnate who has been backing wind as a play to boost his gas assets, is rapidly backing away from wind in general and General Electric in particular. Pickens has scaled back his 687 wind turbine order from GE and will deploy the rest of his turbine buy in various sites. Pickens earlier abandoned plans for a 1 GW West Texas wind project, using GE turbines, because of the lack of a transmission grid to move the power from where it would be generated to where it would be used.

Immelt’s latest business move was to unload NBC Universal, the company’s ill-fated entertainment enterprise, to Comcast (in fairness, Welch bought NBC). Dumping NBC was an admission that GE has been pursuing false gods and abandoning its core competencies in manufacturing.

In a year end, year-to-come forecast, Immelt said GE has put “the worst behind us,” and, “We’re going to be very disciplined” in the year ahead. I don’t believe that, and I don’t think investors do either. Discipline has not characterized Immelt’s reign. GE’s market capitalization has tanked in recent years, as the stock has underperformed an underperforming market since 2007. I share the views of Welch, who said in April 2008 that he would shoot Immelt if he didn’t meet the company’s targets for 2008 and 2009. Immelt didn’t, but Jack was, fortunately, unarmed.

Under Welch, GE went from a $13 billion manufacturing company, heavy into machines such as railroad locomotives, airplane engines, and electric power turbines, into a $500 billion conglomerate, including RCA, the owner of NBC and Universal Studios. Value Expectations, an online financial advisor, commented, “Welch, once the youngest CEO in GE’s history, is highly regarded for his innovative management strategies, leadership style, and a good understanding of how to create shareholder value. From 1980 to 2001, Welch was able to grow GE’s revenues from just over $26 billion a year to $130 billion and took GE’s stock price from around $1.25 a share to nearly $50 a share. Welch streamlined GE and made it a more competitive company in the market through his dedication to identifying and improving ways of adding value to its shareholders as well as numerous successful acquisitions. During the 1990s, Welch transformed GE from a simple manufacturing company to one of the world’s largest conglomerates.”

Immelt came on board promising more of the same, and emphasizing politically correct businesses such as wind power. That all quickly turned brown and runny. The company’s stock crashed by 60%. GE’s financial arm, GE Capital, became the only element of the company that was turning a consistent profit.

The same online analysis firm, Value Expectations, slammed Immelt last year: “Jeffrey Immelt on the other hand has not been able to achieve the same success as Welch in his time as CEO so far. To be fair, Immelt took over GE at an unfavorable time, just days before the 9/11 terrorist attacks, which cost GE’s insurance arm over $600 million. Along with 9/11 Immelt also had to deal with last year’s financial crisis and the prolonged economic recession in developed nations, which dealt a huge blow to GE Capital and GE’s industrial businesses. Under Immelt the company lost two/thirds of its stock’s value, missed earnings estimates for the first time and has continued to miss, and lost its place as the largest company (by Market Cap) in the U.S. to Exxon Mobil. GE’s stock price has gone from $39/share when he took over to less than $12/share, underperforming the Dow Jones Industrial by nearly 60% (price return). Despite the above-mentioned environment Immelt had to deal with, it is not encouraging as an investor to see Economic Margins evaporate away while other businesses have adapted and been able to change their misfortunes. It is yet to be determined if Immelt can recover but it is certain he has yet to prove his ability to create shareholder value.”

GE's Immelt Last year, GE slashed its dividend by 68 percent, the first dividend cut since the 1930s. The stock has traded at dismal levels, recently moving into the teens from single digits, a result of the general rebound in U.S. stocks as the U.S. recession has apparently receded.

Given the performance history, Jeff Immelt should be toast when GE’s board next gets together to assess his performance, unless the company has seen a major turnaround. So far, there’s not much evidence of that.

But in reality, I doubt GE will unload Immelt, regardless of the company’s performance. Most boards of directors these days at major corporations are lap dogs to company management.

White House Chews on Chu’s Nuclear Budget

By Kennedy Maize

Energy Secretary Steven Chu can’t serve two masters, only one: the White House. Chu is going learn that truth, in an ongoing battle between DOE and the Office of Management and Budget. Predictably, the showdown between the entrenched bureaucracy and industrial interests that Chu serves daily and the political administration he serves ultimately has come over nuclear energy research. Chu will lose, unless the White House wants him to win.

The Energy Daily has reported that, in the traditional federal budget kabuki that characterizes this time of the year, Chu has objected to the “pass back” budget document from the White House’s OMB. The pass back, which came last December, was the OMB’s final version of the DOE budget that the administration will present to Congress sometime in February.

Chu’s lament is that OMB doesn’t look kindly on DOE’c spending desires for non-traditional nuclear technologies. In particular, according to The Energy Daily account, based on DOE documents almost certainly leaked to the newsletter by the agency, Chu is irritated that OMB doesn’t support the agency’s requests for “fast reactor” research (we’re talking liquid sodium cooled, fast neutron breeder reactors), and for small, modular light-water technology.

The “fast reactor” funding is the crux of the dispute, according to my sources with close ties to OMB. The nuclear power industry, led by GE-Hitachi, is pushing a revitalization of sodium-cooled fast neutron breeder reactors, touting their ability to process nuclear waste into plutonium fuel. GE-Hitachi have long been touting their machine, dubbed PRISM, aiming for substantial DOE R&D support. That orchestrated campaign has included an entirely credulous article in a recent issue of Esquire magazine, touting liquid metal fast breeder reactors as the next great thing in nuclear power. That, of course, is bogus.

The Energy Daily story noted, “Chu’s letter did not explain the rationale for OMB’s proposed nuclear R&D restrictions, which are surprising on several fronts and which appear likely to harden perceptions among industry officials and others that the administration is fundamentally anti-nuclear.”

Let’s deconstruct that run-on sentence. Surprising? On what fronts? Sodium-cooled reactors using fast neutrons to breed plutonium have been a dream of the world nuclear industry for over 50 years. They have never worked at a commercial scale. Just reference Detroit Edison’s Fermi 1 plant, Japan’s Monju, France’s Superphenix. All failures. There’s no surprise in the OMB decision that it has better things upon which to lavish federal dollars.

Liquid sodium coolant has great thermal properties, but it’s nasty as a snake to deal with in terms of chemistry. It’s corrosive, and it catches on fire and explodes if it leaks from reactor coolant systems. That’s what happened at Monju. Leaks also shut down Superphenix, touted as the exemplar for future breeder reactor plants.

The U.S. Congress more than 25 years ago pulled the plug on the Clinch River (Tennessee) Breeder Reactor. It was a wise decision to kill an outrageously expensive project with little hope of success. Ironically, the Democratic Carter administration proposed to kill the project in 1977, but a Democratic Congress refused. When Republican Ronald Reagan became president, he pushed the project in a big way. Congress, despite a Republican Senate led by Tennessee’s Howard Baker, terminated Clinch River in late 1983. I covered the whole fight on a daily basis, writing for Congressional Quarterly and The Energy Daily.

Despite the breeder’s failures, the nuclear industry hasn’t given up. Steven Chu has fallen into a trap that has ensnared many of his predecessors. He’s apparently concluded that his job is to represent the views of his industry constituents. His decision, says The Energy Daily, could “harden perceptions among industry officials and others.” So what? That’s not who Chu works for. His boss lives at 1600 Pennsylvania Avenue. Obama was elected by a majority of the American voters. Obama hired Chu.

Is the Obama administration “fundamentally anti-nuclear?” I doubt it, although there are elements of the administration for whom that shoe fits. But ask Exelon’s John Rowe if Obama is “fundamentally anti-nuclear.” And how does opposition to spending on low-priority, low potential payoff R&D constitute fundamental opposition to nuclear power? Simply put, that analysis by folks in the industry is brainless, or self-serving, or both.

When he picked Chu for DOE secretary, Obama was buying a reputation to burnish his new administration – Nobel laureate in physics – and an unknown quantity. The guy had never played in big-time energy politics, which may have been a good thing. But now he’s exposed to the real world, not the Alice in Wonderland environment of the DOE national labs.

So far, Chu has chosen to make the fight for DOE’s traditional constituents, going up against OMD Director Peter Orszag, who’s every bit as smart as Chu and has a lot more heft in terms of administration politics. Chu’s move is no surprise, but unwise.

My bet is on Orszag. In these disputes between DOE secretaries and OMB directors over budget submissions and spending priorities, OMB has won every time.

The Slouching South Texas Nuclear Project

By Kennedy Maize

The alleged U.S. “nuclear renaissance” has been slowing creeping toward the horizon of reality for over five years. Developers have filed plans at the U.S. Nuclear Regulatory Commission. The Department of Energy has dangled $18.5 billion in loan guarantees for new nukes, although so far it’s just financial foreplay. The nuclear industry avers, with fingers’ crossed in longing, that new U.S. plants are real.

Will it every happen? Not without the DOE money, according to virtually everybody in the nuclear business, utilities and vendors alike. And even then, it’s uncertain. So far, it’s a costly game, nuclear chess, as the parties line up for moves to advance their strategic positions.

Many in the game acknowledge that the first plants in the renaissance have to go well, otherwise the end game is checkmate. The units have to be financed prudently, built properly, and operated efficiently. Jack Davis, chief nuclear officer for Detroit Edison, one of the pioneers of the first round of nuclear development over 50 years ago, said in an Edison Electric Institute forum recently that “success in the renaissance will balance on whether the first plant is a success or not. Actually, the first two or three really have to go well.”

In regard to Davis’s analysis, the news today isn’t good. One of the first movers – NRG Energy’s plan for two new advanced boiling water reactors at the existing South Texas Project – is in financial trouble. San Antonio is seriously considering pulling its City Public Service municipal utility – a 50-50 partner with NRG and Toshiba – out of the project because of escalating costs. Toshiba originally estimated the project cost at $8.5 billion. In late 2008, the cost estimate escalated to $12.7 billion (a figure that was not provided to the city government until late in 2009). There are independent estimates for the plant of close to $17 billion.

The city government was scheduled to vote in late December whether to go ahead with its participation in the South Texas expansion, but has delayed the vote.

The city’s investments are crucial to the project, because the Texas wholesale power market is competitive and South Texas will have to bid its power into that market. San Antonio, as a muni, is not part of the Texas wholesale market So the city offers a safe, and lucrative, haven for a significant portion of the expansion’s output. San Antonio, as a muni taking advantage of tax-free bonds, can also finance its portion of the project at lower interest rates than NRG.

On December 6, the city sued NRG and Toshiba, claiming $32 billion in damages linked to the cost increases for the new plant. On December 23, NRG and Toshiba, through their joint venture, Nuclear Innovation North America (NINA), called on the city to make a deal. NINA said it could not afford to buy out the city’s share of the project, but suggested other, unspecified, ways of working out the dispute.

NINA CEO Steve Winn said the city should make a deal quickly. “Time is of the essence in making the determination of whether CPS Energy is in or out of the project,” said Winn. “The Department of Energy is only going to select two projects for loan guarantees. STP was number one and now is second with another project close behind. Further delays could move STP to third place, losing the loan guarantee and reducing the value of both parties’ investment to zero.” A preliminary hearing on the city’s suit is set for January 25.

I’m reminded of William Butler Yeats’s magnificent 1919 poem, “The Second Coming,” which ends: “And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?”

More on Peer Review and Climategate

By Kennedy Maize

Some additional damaging brush strokes on “Climategate,” these related to statistical analysis and peer review.

When the story of the climate emails surfaced, and the apologists insisted that there was nothing behind the alleged doctoring of evidence, I first thought about the NAS review of the Mann “hockey stick” representation. It was far from favorable, although the climate evangelists spun it as supporting the hockey stick analysis by climate researcher Michael Mann.

So I resurrected the NAS report and reported here that it wasn’t a clean bill of scientific health for Mann et al. Far from it.

At the same time, I recalled from the recesses of my increasingly unreliable memory that there was a profound critique of the statistical analysis and alleged peer review of the Mann analysis about the same time as the NAS report. It pains me to attack Mann, who now works at Penn State, as I am a proud Penn State graduate, as is my wife, and as were my mother, father, uncles and aunts. My father was on the faculty, teaching mining engineering. But I still recalled a devastating critique of Mann’s work.

So I did some searching – of my mind and the internet – and came up with a 2006 House Energy and Commerce Committee hearing, where a panel of statistical experts, pro bono, analyzed the Mann analysis and found it lacking in statistical heft and displaying a form of peer review that might be better characterized as “a circle of friends.”

The major statistical problem, found the panel chaired by George Mason University statistician Edward Wegman, and including David Scott of Rice University and Yasmin Said of Johns Hopkins University, was the “centering” of the proxy data, a topic that was central to the email traffic revealed by the Climategate revelations. “Centering” involves where Mann and his colleagues chose to balance, or “calibrate” their series of climate data.

Wegman testified in the 2006 hearings, “The reasons for setting 1902-1995 as the calibration period presented in the narrative of [Mann’s work] sounds plausible on the surface and the error may be easily overlooked by someone not trained in statistical methodology. We note that there is no evidence that Dr. Mann or any of the other authors in the paleoclimate studies have significant interactions with mainstream statisticians.”

In short, Mann and his colleagues are statistical neophytes, and appear to have been doctoring their analysis to suit their preconceived notions. That’s the case that the emails, revealed four years later, makes clear. The earlier congressional testimony bolsters the case.

As for peer review, the Wegman panel explored “the social network of authorships in the temperature reconstruction area. We found that at least 43 authors have direct ties to Dr. Mann by virtue of coauthored papers with him. Our findings from this analysis suggest that authors in this area of the relatively narrow field of paleoclimate studies are closely connected.” Translating, Wegman is charging that the circle of paleoclimate scientists routinely review each others’ work in so-called peer-reviewed journals, providing a gloss of review that isn’t independent.

Wegman’s group suggested remedies for what it viewed as shoddy scientific method revealed in the case of the Mann calibrations. The first recommendation: “Especially when massive amounts of public monies and human lives are at stake, academic work should have a more intense level of scrutiny and review. It is especially the case that authors of policy-related documents like the [UN’s Intergovernmental Panel on Climate Change] report should not be the same people as those that constructed the academic papers.”

As the Climategate emails demonstrated, the researchers went to great lengths to prevent public disclosure of their data, frustrating those who wanted to try to duplicate the analysis. The Wegman report four years ago concluded, “We believe that federally funded research agencies should develop a more comprehensive and concise policy on disclosure. All of us writing this report have been federally funded. Our experience with federal funding agencies has been that they do not generally articulate clear guidelines to the investigators as to what must be disclosed. Federally funded work, including code, should be made available to other researchers upon reasonable request, especially if the intellectual property has no commercial value.”

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Fraud in Calif. Air Board Rules

Is GE’s Immelt Headed Out the Door

White House Chews on Chu’s Nuclear Budget

The Slouching South Texas Nuclear Project

More on Peer Review and Climategate

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