When the boss throws a tantrum

Image courtesy of Dan/freedigitalphotos.net

According to its own website, Murray Energy Corp. is the nation’s largest privately-held coal-mining company, “producing approximately 30 million annual tons of bituminous coal … [from] eight (8) underground and surface mining operations, plus 40 subsidiary and support companies.” The website also states it has “a support team of 3,000 hard-working, dedicated, and talented employees in six (6) states.”

Make that 2,844. Because on Nov. 7, 2012 – less than 24 hours after a valid election awarded another 4-year term to Democratic Pres. Barack Obama, CEO Robert Murray laid off 156 workers.

In doing so, according to the Washington Post, he offered this prayer:

“Dear Lord:

The American people have made their choice. They have decided that America must change its course, away from the principals of our Founders. And, away from the idea of individual freedom and individual responsibility. Away from capitalism, economic responsibility, and personal acceptance.

We are a Country in favor of redistribution, national weakness and reduced standard of living and lower and lower levels of personal freedom.

My regret, Lord, is that our young people, including those in my own family, never will know what America was like or might have been. They will pay the price in their reduced standard of living and, most especially, reduced freedom.

The takers outvoted the producers. In response to this, I have turned to my Bible and in II Peter, Chapter 1, verses 4-9 it says, ‘To faith we are to add goodness; to goodness, knowledge; to knowledge, self control; to self control, perseverance; to perseverance, godliness; to godliness, kindness; to brotherly kindness, love.’

Lord, please forgive me and anyone with me in Murray Energy Corp. for the decisions that we are now forced to make to preserve the very existence of any of the enterprises that you have helped us build. We ask for your guidance in this drastic time with the drastic decisions that will be made to have any hope of our survival as an American business enterprise.

Amen.”

Though Murray’s company offers very little public insight about company financials, he has had plenty to say about his political preferences. An article by The New Republic lays out his significant financial support for Republican candidates and his vehement opposition to Pres. Obama.

It also repeats the accusation that Murray compelled some of his workers to attend a rally/photo op for Presidential Candidate Mitt Romney in August. The validity of those accusations have been argued – in some cases by the same minors who made them in the first place, a retraction that brings no clarity whatsoever.

But Murray is perfectly clear: He laid off workers because he didn’t like the results of the election.

He implies the election will change the economics of mining coal. And to the extent that the Obama administration is increasingly aggressive about enforcing safety regulations and pollution regulations, he’s probably right.

But Murray declines to mention that the economics of coal mining are suffering even more under new competitive pressures from lower-cost, cleaner and newly abundant natural gas, according to a variety of analyses, including this from the University of Pennyslvania’s Wharton School of Business.

He also fails to mention that if mine regulators are a wee bit aggressive, it may have something to do with Murray Energy’s own safety record. In March 2012, it paid a $500,000 fine after acknowledging 17 out of 20 citations (3 of them deemed flagrant) in the wake of a 2007 cave-in that killed 9 people at one of its Utah mines, according to the St. Louis Tribune. And in September – less than 2 months before the election – it paid another $950,000 to settle another case stemming from the same disaster.

Coal mining is dangerous work, and it pays better-than-average wages, according to this document from the National Mining Association. In Ohio and Utah – where Murray’s post-election layoffs took place, the average annual pay is more than $70,000. Which means the annual cost savings from the layoffs will be in the ballpark of $13 million ([$74,000 + 20% for benefits]*156 workers).

That’s no small piece of change. But neither is the amount of revenue Murray Energy generates from coal. While the company doesn’t release such numbers, a simple calculation provides a useful revenue estimate. With bituminous coal selling for about $60 a ton, according to Fred Frailey in Trains magazine (who also makes a case for the impact of natural gas on coal profits), Murray Energy revenues on 30 million tons would be in the range of $1.8 billion.

So the layoff represents about 0.7% of revenue. And complete upheaval in the lives of 156 families.

It seems to answer the question: How much does it cost when a CEO throws a tantrum.

 

America’s distrust for big biz, big gov

The approval rating of Congress hit an all-time low in the months before the 2012 presidential election. And it’s not alone.

When asked “Do you approve or disapprove of the way Congress is handling its job,” just 10% of respondents said they approve, according to pollster Gallup Inc. That approval rating ties February 2012 as the lowest result Gallup has received in  the 38 years it’s been asking the question.

But there’s other news: In January 2012, Gallup asked people if they were satisfied with the power and influence of major corporations  in the United States. Only 30% answered yes – up one percentage point from the all-time low in 2011 of 29%. Clearly, a majority of people think corporations wield too much clout in policy and daily life. Right?

Unfortunately, the picture isn’t as simple as that. The question was asked as part of a political poll in which just 29% said they were satisfied with the power and influence of federal government. That figure was an all-time low, down from 31% in 2011.

 

Reprinted form Gallup. Click image for original.

But what seems really significant about the graphic is that this year represents the only time in the 11-year history of this particular survey in which the perception of government was worse than the perception of big business. Perhaps it’s the beginning of a trend.

But remember, this survey is taken in a political context – and during the heat of a political season in which the role of government is the dominant issue. And the results broke cleanly along political lines. Republicans tend to be more dissatisfied with the power and influence of the federal government (84% dissatisfied) and less dissatisfied with that of  big business (48% dissatisfied). Predictiably, Democrats tend to offer the opposite results (47% dissatisfied with the federal government and 71% with big business).

So once again, it all comes down to the independents. What do they say?  They hate everything (75% are dissatisfied with the federal government and 71% with big business.)

Here’s the big picture. The Gallup survey clearly demonstrates that our distrust for the largest institutions has grown over time. Except, perhaps, for the political parties that spend so much time and money dividing us.

 

Grand theft shale; Is Ohio a doormat for the gas industry?

The gold rush is on in Ohio as gas companies snap up land atop the carbon-rich Marcellus shale formation. Their goal is to begin fracking operations as soon as possible – hydraulic fracturing, in which water and chemicals are injected down a well to loosen and replace natural gas, which is pushed to the surface for collection.

In this brief report by veteran political reporter Tom Beres on Cleveland’s WKYC-TV, the main issues are spelled out:

  • Balancing the economic opportunity with health and environmental concerns;
  • Making sure Ohio gets its fair share of the money to be invested.

Beres raises serious questions about both. His report includes a soundbite from business-friendly Ohio Gov. John Kasich, who says: “… billions of dollars worth of investment in this state; we cannot let our fears outweigh the potential.”

Why doesn’t anybody question Kasich on that statement? Wherever they are in the world, the value of energy deposits has only increased over time. So what’s the harm if the state does choose to be deliberate in setting policies and regulations to manage the dangers that fracking may present? The gas has been there for millions of years; it’s not like it’s going to disappear now.

The investments by oil companies may accrue quickly to individual landholders where drilling is to take place. But Beres points out in his report that the job-creation benefit of this gold rush may be dubious. Ohioans, who don’t have experience in this kind of gas production, are less likely to land drilling jobs that need to be filled fast.

This isn’t news. Previous reports have indicated that job creation estimates for energy projects – and specifically Ohio’s shale-related drilling – are grossly exaggerated. Even the value of the shale itself is being questioned; the federal government downgraded its estimate by two-thirds of the amount of extractable gas contained in the Marcellus formation. It went from a 20-year supply to 7 years based on production history of similar wells in Pennsylvania.

There is also legitimate question about the environmental safety of fracking. In the Youngstown area, a series of earthquakes have been linked – though not conclusively connected – to fracking. In other areas, groundwater contamination is suspected.

While all that is going on, Ohio’s bureaucrats are rushing to allow drilling – even while Ohio’s 3-cent tax on every thousand cubic feet of gas harvested is one of the lowest in the nation. What is the sense of that? It’s not as if gas companies can access this energy from anywhere else. Shouldn’t the state assure that it derives a reasonable benefit from the growth of this industry?

Worse still, Ohio doesn’t even insist on accurate metering of the gas being withdrawn; it allows the energy producers to self-report what they’ve extracted – in essence, deciding for themselves what they’ll pay in taxes. In what other industry does that happen? The state could easily require meters and give a tax credit on the cost of metering equipment; it would still come out well ahead.

It’s one thing to be business-friendly; it’s another to be a doormat. Even the payoffs to pols are disappointing. According to Common Cause, the industry has spent three-quarters of a billion dollars on lobbying in the past decade – and spent just $3 million in Ohio. Gov. Kasich has received more of that money in political donations than anybody else: $213,000, according to a report by The Plain Dealer’s John Funk. An unimpressive take for the man who is holding the front door open.

Energy extraction industries are dirty and dangerous industries; they can’t avoid having impact on the people and places around them. They are necessary industries too. So we have to find ways to let them do their work. But we also have to find ways to manage their impact. Kasich – a former Lehman Brothers rain-maker prides himself on being a manager. So when is he going to start managing the issues?

With the cost of energy rising everywhere in the world, and Ohio obviously ill-prepared to handle a burgeoning gas industry,  it’s understandable why drillers are so anxious to begin production. Everbody else would benefit by going just a little bit slower.

Poor utility work blamed for fire that burned a neighborhood

At 6:44 a.m. on Jan. 24, 2011, the fire department of Fairport Harbor, Ohio – a lakeside hamlet 30 miles east of Cleveland – was called to respond to a gas explosion inside of a home there.

Over the next five hours, 24 other fire departments from surrounding communities responded to help put out as many as 18 separate fires – all related to the original gas explosion, according to The Morning Journal, which owns a newspaper serving the community.

Miraculously nobody was severely injured. But damage totaled $1.3 million; 11 homes were destroyed or severely damaged, and another 150 suffered damage to furnaces and other gas appliances.

A year later, blame as been assessed.

According to a staff report from the Ohio Public Utilities Commission, the inferno was caused by a faulty regulator station operated – but under-maintained – by the local gas utility, Dominion East Ohio.

The report found that Dominion East Ohio failed to follow maintenance regulations, internal procedurs and safety regulations, and that it knew a year in advance about the problem, according to a report in The Plain Dealer.

The Plain Dealer wrote:

Investigators … determined from company records that before 2009, Dominion had not inspected the valves for a decade – or at least had not kept records of its inspection.

Regulations require records of an inspection at least every 15 months and preferably every calendar year, the report noted…

The company told reporters Tuesday that it has redesigned or closed seven regulator stations similar to those in Fairport Harbor and that it is installing remote monitoring equipment at 267 other regulator stations.

The Public Utilities Commission has recommended a $500,000 fine and a lengthy list of costly remedial measures to improve record-keeping and prevent such instances in the future.

 

 

 

Good read: America is not a corporation

Nobel-prize-winning economist Paul Krugman explains, in his New York Times column why American is not a corporation.

But he does omit one major point in the argument: Corporations exist to make money, while the U.S. government exists to do things that don’t translate well to the profit motive, or shouldn’t be done for the purpose of making money.

So not only isn’t government a corporation, it’s kind of the opposite.

Myths dispelled: Capitalism is extremely efficient

Followers of the Cult of Capitalism will tell you the free-market system is extremely efficient.

In truth, it’s terribly inefficient. How else can you explain, as a friend recently pointed out, the existence of more than 6,000 market research firms in the United States – all targeting the same 500 multinational companies (to use just one example)?

Most of these firms exist at a subsistence level – not winning enough work to thrive, but winning just enough to stay in business for another day … month … year. How much capital is wasted in this slow, painful process of financial evolution?

Efficiency would be a handful of market research firms; a few fast-food chains; 1 super-duper-discount-mega-chain; a couple airlines, etc. It would save a lot of money, reduce risk for investors and prevent people from wasting years building businesses that ultimately will fail. But that wouldn’t be capitalism and it would be horribly dysfunctional – as has already been demonstrated by the fall of the Soviet Union.

The free market system is ruthlessly effective. But with the amount of untold wealth that it wastes every day – allowing people to pour money into dreams that will never be realized – you simply can’t call it efficient.

 

Energy projects wildly overstate job creation

A pair of economists from Ohio State University issued a report that says the likely number of jobs that a burgeoning shale gas industry could create in Ohio has been grossly overstated – by a factor of 10 – by industry proponents and politicians who are trying to fast-track its development.

The statement is important because it debunks economic development estimates not only for this industry in this state, but potentially for any politicized energy project (think TransCanada’s Keystone XL pipeline to bring energy from Alberta’s oil sands to the U.S.) being promoted on the promise of job growth.

The report, The Economic Value of Shale Natural Gas in Ohio, was produced by Amanda Weinstein; and Mark Partridge, Swank Professor of Rural-Urban Policy – both of OSU’s Department of Agricultural, Environmental and Development Economics.

The report does not take a position against the controversial fracking process by which Ohio’s shale oil is to be extracted. Its conclusion states “there are significant benefits to producing natural gas.” But it also clearly states that job creation is not one of them.

It concludes that the industry would likely create 20,000 new jobs.

That contrasts with 204,520 jobs promised in a different study produced by the Ohio Oil & Gas Energy Education Program (OOGEEP) – a consortium funded by the oil and gas industry itself.

The OSU study spends several pages debunking the methodology behind the OOGEEP estimate, stating:

Previous studies on the economic impacts of natural gas appear to have widely overstated the economic impacts.   This is not surprising, as these studies are typically industry-funded and industry-funded studies are usually not the best sources of information for economic effects (regardless of the industry).

It identifies comparable instances of exaggerated job-growth estimates (also debunked by academic study) in Pennsylvania’s shale oil business, which is ahead of Ohio by several years. The OSU study provides this blunt clubbing of job growth as an economic justification for energy projects:

Alan Krueger, Chief Economist and Assistant Secretary for Economic Policy at the US Department of Treasury stated in 2009, “The oil and gas industry is about 10 times more capital intensive than the US economy as a whole… suggesting these tax subsidies are not effective means for domestic job creation” (US Department of Treasury). The energy industry as a whole also does not account for a significant share of employment. Even if the natural gas industry experiences significant job growth, its employment share is too small to have any significant effect on unemployment rates and on the economy…

All of this matters because energy projects are rarely, if ever, easy to authorize. The fracking process is controversial because there are legitimate concerns that it can have negative geologic and environmental impact – particularly if encouraged to proceed without proper regulation and oversight.

Similarly, objections to the Keystone XL pipeline project include concerns about habitats that may be destroyed by its construction; danger from spills during ongoing operation; and greenhouse concerns due to the fact that Canada’s oil sands are among the dirtiest-burning forms of oil.

TransCanada’s own economic development study promises the project will create anywhere from 250,000 to 553,000 U.S. jobs, depending on the future price of oil. Even TransCanada seems to back away from those figures, instead settling on 138,000 U.S. jobs, including short-term construction. Under the perhaps-overconfident headline Benefits of Keysone XL are Certain, its website states:

TransCanada is poised to put 13,000 Americans to work to construct the pipeline – pipefitters, welders, mechanics, electricians, heavy equipment operators, among other jobs – in addition to 7,000 manufacturing jobs that would be created across the U.S.  Additionally, local businesses along the pipeline route will benefit from the 118,000 spin-off jobs Keystone XL will create through increased business for local goods and service providers.

But using the OSU study as a guide, actual job creation might be anywhere from 55,000 to 12,000 permanent jobs after construction is completed.

None of this is to say that energy projects don’t provide meaningful benefits or shouldn’t be considered. But it does indicate that an honest evaluation of these projects would put job creation in the background. Any study, politician or industry that does otherwise is probably being less than honest.

BP v. Halliburton: In a better world they’d both lose

In the ongoing legal brawl between BP Oil and services subcontractor Halliburton, BP has accused Halliburton of intentionally destroying evidence related to the April 2010 explosion on the Deepwater Horizon oil platform.

The explosion, of course, killed 11 workers and resulted in the nation’s worst oil spill – not to the mention the waste of 200 million perfectly good gallons of crude oil.

But the disaster is proving to be an economic boon for corporate lawyers – whose grandchildren will probably be in position to complain about the taxes on their trust fund earnings.

In the course of serial legal filings, BP last week accused Halliburton of destroying test results on materials used in the cement casing that apparently failed in the run up to the explosion.

Halliburton, the general public’s favorite company to hate, responded with a terse press release that basically says: “I know you are, but what am I?”