Archive for December, 2008

Fuel Adjustment Clauses

Tuesday, December 30th, 2008

The latest issue of Energy Biz contains a short essay by Pam Radtke Russell on fuel adjustment clauses (“Fuel Surcharge Report Card,” It’s a very even-handed discussion and worth reading if you are involved in this issue.

I had not paid attention, but I was quite surprised that so many utilities that purchase fuel for resale do not have them. When I was at FERC in the late 70’s and 80’s, until the rules were changed such that interstate gas pipelines no longer purchased gas and resold it to consumers, I spent quite a bit of time on such matters. Almost every interstate pipeline had a “purchased gas adjustment clause,” which, due to the situation at the time, seemed to only go up.

Fuel adjustment clauses are much more controversial than one might think, because the regulated entity is constantly pushing the limits, as well it should, and the customers and regulatory staff are constantly pushing back, as well they should. It does make sense to use such adjustments though, particularly when fuel prices are not stable and the regulated entity buys fuel and “resells” it within its rates, making no profit or taking no loss on the fuel itself, other than the rate of return on the money tied up between the time the utility purchases the fuel and the time it collects the costs from the customers.

If you need any help on fuel adjustment clause issues, I stand ready, willing and able to help.

OK, But Where Do You Get the Steam?

Wednesday, December 3rd, 2008

In perusing the Washington Post online edition this morning, I came across a local travel article by Scott Vogel that included a visit to the America on Wheels Museum in Allentown, PA (  In highlighting the interesting artifacts in the museum, Mr. Vogel said the following, “There’s the hydrogen-powered vehicle and an exhibit that shows just what we’re up against in producing them; a Toyota Prius afforded considerable attention, and then, a museum prized possession: an 1891 Nadig, one of the first vehicles in America built to run on gasoline. I know, I know, but hold on. The Nadig sits surrounded by its contemporaries, several of them steam- or electric-powered, all of them powerful reminders that burning fossil fuels for transport is not — and never was — our only option.”

Now where does Mr. Vogel think the steam came from?  As best I can tell, kerosene (a fossil fuel) was used to generate the steam, and the engine was less efficient than the internal combustion engine.  Or the electricity to charge the batteries?  Perhaps a coal-fired generation plant?

No less an authority on such matters, the CEO of Exxon-Mobil, Rex Tillerson, related to me at a social event that Henry Ford originally envisioned that his horseless carriage would run on alcohol produced on the family farm.  What research I have done so far shows Mr. Tillerman to be correct.  This would have been a bio-fuel alternative to the gasoline/diesel powered internal combustion engine, but fossil fuels were simply more efficient and cheaper at the time.  The lyrics of a popular song illustrate the other uses of the family farm produced ethanol:

“Corn wont grow at all on Rocky Top,
Dirt’s too rocky by far.
Thats why all the folks on Rocky Top
Get their corn from a jar.” — Felice and Boudleaux Bryant

We have recently seen the implications of using a food crop for fuel production, thus driving its price up.  Would the family farmer have fueled himself at the same time he fueled his vehicle?  Would the revenuers have had a more difficult task if moonshine had been used to power the automobile?

Folks, there are no easy answers to our energy problems.  Never have been.

Buddy K

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