Double Blind

Trying to keep a three-time-a-week running training commitment while dealing with a baby is an interesting challenge, but it is possible with a supportive partner. I have managed to get out three times last week – Monday, Wednesday and today (Sunday). I wasn’t planning on a four-day break but I didn’t have enough time (or energy) to do anything on Thursday to Saturday. On Monday and Wednesday, I ran a 30 minute load – on Monday, 5 minute run, 1 minute walk, which went fine. On Wednesday, I did 10 minute run, 1 minute walk. On the 25th minute I felt fairly winded, but made it relatively comfortably.

On Sunday, I did 35 minutes straight running. I was going to repeat Wednesday’s run, but I felt extraordinarily well on the treadmill that I continued and did the run continuously. I was only interrupted by the fact that the gym closed and I wanted to leave about 5 minutes for a proper cool-down. It was a rather strange feeling – no cardiovascular problems, no feet problem, no back problems – it felt like I could have done the whole 10km right there and then if given the opportunity.

During the next week, I am going to try to step up my running endurance to 40-45 minutes and make sure I still have my cardiovascular strength. During the month of April I will also have to time things such that I will be able to do the run cleanly, which means doing a few 10km experimental runs, with at least one of them outside when the weather is a bit nicer.

I signed up for the Starbucks Duetto Visa card about three or four years ago since I liked to have the occasional conversation and Starbucks was generally a good venue to have it in. The card was simple – every 1% you spent on the Visa went into a “Starbucks money” account, which you can apply to anything in Starbucks. Also, if you spent more than $30 in a quarter, you would receive an extra $3.50 credit (up to $10.50/quarter) which was a nice kickback if you had a particularly high volume in a quarter.

The other good thing about the card was Starbucks was nearly everywhere and the card recently gave you a couple hours of free wireless if you needed it.

There is no way I could financially rationalize going to Starbucks, but with the Duetto card, it was one of my few ‘luxuries’ that I would indulge in once in awhile.

What was great was that the card worked with a minimum of fuss – since I racked up a certain amount of fixed expenses (e.g. cable, gasoline, ICBC, etc.) 1% back is a small kickback which I made great use of.

Much to my disappointment, I received a notice stating that Starbucks would be discontinuing the card, effective at the end of April. Royal Bank, who was the Canadian issuer of the credit card, stated they would give everybody their RBC Gold card as a replacement, and enough points to cover the purchase of a $25 Starbucks card if you decided to continue with them. Starbucks would mail you a Starbucks card for the value of of the remaining Starbucks balance on the card.

The new RBC Gold card is significantly worse than the Starbucks card in that it has a payback ratio of 0.42%, which is significantly worse than the 1% that you had with the Duetto card.

There is zero chance I’ll continue spending money with the RBC card – they have another card that will enable you get a 0.83% payout ratio by spending $35/year, but I do not believe in the concept of paying money to have a credit card.

I have no intention on keeping my RBC credit card, and whenever I receive it, I will just stick it in a filing cabinet and use it as a backup card (which I will never end up using).

I have since start shopping around for another credit card, and have attempted to apply for MBNA’s card which gives you 3% off on gasoline and groceries, and 1% off on everything else, in $50 increments. Assuming this is approved, I am guessing that it will amount to a substantially higher cash savings than with the Starbucks card.

Starbucks made this decision to consolidate their customers into their own card program, which gives a kickback of 1 free drink for every 15 visits, considerably worse than the original card. Their program also costs $25/year to enroll into, and again, I abhor the concept of paying for the right to spend money at an establishment. The only except I will make to this is Costco, which you are paying $55/year to ensure the right that you can return anything you bought for any reason, and the privilege of shopping at what has to be the cheapest place to buy bulk goods with other like-minded suburbanites.

I do not think Starbucks is making a correct business decision – they are screwing around with something that works very well. I know for sure once my Starbucks money runs out, I will likely go to alternative locations (especially non-chains establishments) since there is no way I can rationalize Starbucks without the Duetto card.

“Vancouver seems to me like the souvenir shop at the airport where items are sold for twice their value.”

This guy’s valuation exercise is pretty much correct, but the market’s ability to remain irrational is longer than your ability to remain solvent.

I found this article to be highly enlightening – how to make maple syrup.

The following is my submission to the Local Government Elections Task Force.

To the Local Government Elections Task Force,

I was elected as a park commissioner in November 2008 pursuant to the Cultus Lake Park Act. The purpose of this letter is to express my opinions on the matters that your task force is considering.

Campaign finance – Contribution/Spending Limits

Our current system, mostly unlimited contributions and spending, is adequate. Enacting spending controls would require a whole new bureaucracy of ensuring compliance, which would be prohibitive for local candidates to enter elections.

I spent under $1,000 in the last election campaign, so I am not recommending ‘status quo’ with any self-interest. I strongly believe that spending and contribution limits are more “unfair” than unlimited spending, as spending limits promote incumbency protection.

I will recommend that Section 87 of the Local Government Act be amended such that only individuals (not corporations, unions, associations, etc.) be allowed to contribute to the candidate or elector organization as it is relatively easy to create a numbered corporation and funnel money into a campaign without the public having a proper way of knowing where the true source of funds for the campaign is. I also recommend that individual donators/contributors be restricted to being residents in British Columbia.

Note this recommendation means that corporations/unions cannot give “in-kind” or other non-monetary contributions.

Campaign finance – Contribution/Spending disclosure

Disclosure requirements are currently modest, but are generally adequate.

One significant change that I recommend is adding a requirement to disclose within 3 business days the cumulative receipt of a monetary or in-kind contribution greater than $1,000 from any one source. The reason for this is that if somebody is trying to “buy an election”, the information is not useful to an elector after the election is over. If this information is timely disclosed, it will counteract the “unfairness” arguments that spending limit proponents advocate.

While not currently required by legislation (Section 93 of the Act), documents pertaining to the receipt and expenditure of campaign funds should be available electronically for those that request it. The City of Vancouver currently does this on a voluntary basis, but typically for other municipalities you have to walk into City Hall and view the documents in person.

Campaign finance – public financing / tax credits

For compliance cost reasons, tax credits should not be issued to municipal donators. If the committee does recommend some form of tax credit system, I would mirror the provincial political donation tax credit system.

I do not support the concept of “public financing” based on a result of a previous election – this would be a measure of incumbency protection, something that all locally elected officials already have by virtue of their office.

All contributions/donations to a candidates’ campaign should be done through his/her own pocket, or through contributions/donations of other individuals and not be financed by the government.

Enforcement processes and outcomes

I do not believe there has been a single case of prosecution for improper disclosure of the receipt of contributions of the expenditure of funds for elections. The oversight for this function in local elections is lacking. Short of requiring external audits of campaign expenses and contributions, I believe the committee should steer its policy recommendations towards having less rules to comply with, to reduce the burden of monitoring candidates as I do not believe that verification of contributions and expenses will be more diligent in the future.

One easy method of verifying campaign contributions and expenses is to require campaign expenditure reports to attach their bank statements, as every candidate and elector organization is required to open up a bank account for the purpose of managing campaign expenses. This will clearly show cash inflows and outflows and can reconcile with the stated numbers on the donation and expense report.

Election Cycle / Term of Office / By-Elections

Three years is a reasonable term of office. It ensures accountability of elected officials, but not at the expense of long term planning.

The fixed election dates, currently held in November, should be held one month earlier in mid-October. The reason is that campaigning in November is restrictive due to the weather and short daylight hours, especially in jurisdictions in the BC interior.

As a cost-saving measure, I would consider modifying Section 37(3)(a) of the Act to enable an indefinite postponement of a by-election.

Role of the chief electoral officer (B.C.) in local government elections

The Chief Electoral Office should only be involved in instances involving the allegation of improper disclosure of contributions or expenditures, or other issues pertaining to dispute resolution. Municipalities have otherwise tended to do an excellent job of managing their own elections.

Corporate Vote

The present system is adequate – i.e. no voting for corporations. The reason why I would be opposed to this is from a compliance perspective, and potential for abuse. I also do not fundamentally see why my corporation and myself should be able to have double the representation in an election than just an individual. Having a corporate address in a municipality does not imply that my corporation pays any tax money to the municipality.

Other Issues – Methods of voting

I am against the concept of “internet voting”. I am also against the concept of mail-in ballots. These two methods of voting are susceptible to fraud and security concerns. I recommend hard-coding in legislation that voters must be physically present and show two pieces of identification before voting that establish their identity and residency. I do support and recommend the existing system of having advanced voting days.

The voter turnout of an election should not be used as a measuring tool to determine how “successful” an election was.

Other Issues – Non-residential property owners

The current system of allowing non-residential property owners to vote is adequate. This is as close to “taxation with representation” without allowing a corporate vote.

Other Issues – Voting system

The existing “at-large” method of electing local representatives is adequate, mainly because it is a system that is easy to understand and produces results that are a reasonable representation of voters’ intentions. I would recommend that whatever system of voting is used that it be applied provincially as if different municipalities had different voting methods, it would lead to widespread confusion.

I also do not support the concept of “wards” in local government elections.

Summary of Recommended Changes

1. Change the fixed election date from mid-November to mid-October.
2. Allow campaign contributions from individuals only.
3. Require disclosure within 3 business days of a contribution greater than $1,000.
4. Enable electronic viewing of campaign contribution/expenditure reports.
5. Require campaign contribution/expense reports to attach campaign bank statements.
6. Explicitly require voters to be present, and show two forms of ID establishing their identity and residency.

Sincerely,
Sacha Peter

A day ago, I heard stories on news radio that a green energy lobby group claimed that exporting clean energy could eliminate the deficit and reduce the PST. These are pretty strong claims and thus caught my attention, and I researched the source of this claim. After performing some research I have hence concluded that these claims have little to no merit.

Since I anticipate people asking about my credentials, my educational background was in physics, and I am a certified management accountant, and consider myself to be very knowledgeable about issues concerning power generation and the economics behind them.

The Independent Power Producers of BC

Unrelated to the above proclamation, a February 11, 2010 report from the Independent Power Producers of BC claiming:

The study by PricewaterhouseCoopers LLP (PwC) reports that independent power producers could grow BC’s economy by as much as $9 billion by 2020. IPP construction could support 87,000 person-years of employment for British Columbians over the next decade, and more than 9,100 full-time jobs for their operations and maintenance.

By 2020, capital spending in the IPP sector could reach $29 billion. Government revenue – at all three levels of government – from the construction of IPPs could total $1.6 billion, while ongoing direct payments to government could reach approximately half a billion dollars annually.

IPPs are investing significant amounts of capital into BC (Plutonic Power is at roughly $200 million at September 2009 and this will increase) and it is reasonable to conclude that IPPs will have to employ people to construct their generation and transmission assets across the province. The full report is not a bad read, although the analysis in section 4 is a bit sketchy (where they make extrapolations in terms of the economic impact of such investment – including a “Need correct data for this chart” that was not omitted in the final report on page 18!) and the headline number ($9 billion by 2020) is assuming spin-off effects from direct investment ($4.85B direct, $3.95B induced, table 4.3) and is a misleading number.

The point is taken, however, that IPPs will be investing capital in British Columbia, and at a very minimum, the province will be realizing tax benefits from sales taxes and personal tax collections from employment. I do not anticipate corporate income taxes will be a major contributor to this revenue projection, mainly because of liberal capital cost allowances for the type of energy infrastructure and operating losses from the startup phase will be able to offset profits at least during the initial phases of operations. Plutonic, at the end of September 2009, has accumulated a $46 million operating deficit through operations and this will increase until they manage to start producing power. They will need to make these profits (and likely a lot more in losses before they go operational) before they start paying a penny in corporate income taxes.

I have used Plutonic Power as the primary example as they are largest publicly traded company that exclusively does IPP development in British Columbia. The other two companies in this group are Naikun (concentrating on wind power) and Run of River Power. Only Run of River Power has an actual running project (Brandywine) and they are losing money. Naikun and Plutonic are losing money by virtue of the fact that they are still in the build-up phase.

Powerline BC – Another (new) IPP lobby

Through a February 23, 2010 posting on Langley Politics, I started reading a new website written by some public relations people from the energy industry – PowerlineBC. Their job is to extol the virtues of how wonderful Clean/Green energy and in the process procuring a communications contract with companies that want to lobby politicians to change rules to benefit IPPs. Essentially, this is a form of economic rent seeking, which seems to be more prevalent these days that companies generating returns through economic returns.

An article by Mike Chisholm, quoting the BC Citizens for Green Energy (yet another IPP lobby group) states:

In terms of financial potential for BC from all streams, the study believes by tapping into this abundance of green energy, the province could generate $4.3 billion per year in revenues. This includes revenues from various licenses, taxes and fees paid by IPP’s, net income to BC Hydro/Powerex, and income from carbon credits and offsets.

The optimistic study also believes that income from renewable energy is so great that, over time, the government could actually eliminate the provincial debt (currently $47.8 billion) and eventually the provincial sales tax (PST).

Optimistic is an understatement. According to the BCCGE report (March 8, 2010), it assumes that carbon offsets will be $2.9 billion of this amount. Even the other $1.3 billion is optimistic compared to the IPPBC report which clearly states that be around $762M provincially on a cumulative (not annual!) basis, using 2009 dollars.

In my opinion, after reading the material on the BC Citizens for Green Energy’s site, I have come to the conclusion that they are not credible. The credibility of people and organizations quoting BCCGE’s work should be viewed with a very critical eye. I do not regard Chisholm’s site, nor the few guest authors he has had on his site, to be credible – they repeat similar talking points, but with critical analysis you can blow more holes than swiss cheese through their arguments with respect to how beneficial Clean/Green power is for BC.

Unfortunately, the media bought the BCCGE’s March 8, 2010 report hook, line and sinker. I am guessing most media (and most politicians) have no idea how the power generation industry works from both an engineering and an economic perspective and thus will accept whatever ridiculous assumptions that are usually embedded in reports that claim some economic miracle will come out of the industry. It will not.

How power generation works

When talking about power production, one must make a distinct between quantity and time. In order for power generation to be useful, it must be produced in a sufficient quantity. Most people understand this concept. Most people are not aware that the power must be generated at the right time.

To fully understand power generation and transmission, one needs to have a basic engineering knowledge of how electricity works – energy storage is very expensive, so power generation must be aligned exactly with power consumption. If you do not produce enough power, you will have brownouts in your electricity grid. Too much power will either blow out whatever is plugged onto the grid (if such devices have no surge protection) or the excess power generated will be dissipated as heat.

Thus, power companies must find ways of aligning supply and demand on an instantaneous basis. A great source for this sort of information is the California ISO which gives their power outlook. A sample chart is as follows:

We can see that the peak energy demand in a March day in California occurs between 6:00pm to 10:00pm, when most people come home from work and turn on all the home appliances. BC’s power consumption curve is similar, but with the difference that in summertime there is less consumption (due to less air conditioning) and in the winter there is more consumption (electric baseboard heating) – heating and cooling are two major consumers of power.

Not coincidentally, power demand at 6:00pm to 10:00pm is what makes power at this time the most expensive to purchase. BC Hydro (via PowerEx) has been making a fortune selling power during these times, and purchasing power during non-peak times. How can they do this?

The answer is because BC Hydro’s main source of power production is hydroelectric dams. This type of power generation can be turned on and off with very short notice – literally seconds. The energy source for this power is stored behind the dams in the reservoirs. Thus, the dams are usually active during peak times, and are dormant during off-peak times.

The big demand for power export is during the summer months, roughly from 4:00pm to 9:00pm. This is when you want to be generating power.

What is wrong with Clean/Green power production?

The problem with Clean/Green power, from an economic standpoint, is that it delivers the power at the wrong time.

Run of river power sources have little capacity to store water, unlike conventional hydroelectric dams (which have huge reservoirs of water to draw upon). As a result, it is a continuous power source and is most active during the spring melt-off. It will produce the least amount of power during the fall and winter months. The amount of power it can produce, however, is predictable in advance depending on snowpack levels and temperatures, so this will be a marginal benefit to the power grid.

Wind power is erratic and you must be able to supplement wind power with hydroelectric sources so you can balance the two sources of power. In British Columbia, there is no way that a strictly wind-only power producer will be able to survive. It must depend on other power producing companies to “smooth” the variable energy output. In effect, wind power is parasitic to the rest of the grid – as a result, it is much more expensive than what a standard price per megawatt hour calculation would suggest. In my opinion, wind power is the worst type of Clean/Green power generation, and it will only be commercially feasible if efficiencies in energy storage technologies improved significantly.

Biomass generation is the best of the group in terms of being able to time your power production as it has properties similar to natural gas turbine power generation – you can turn on and off the turbine within a few minutes, but the big issue with biomass is obtaining fuel supply. In scale, it is difficult to secure supply that is economically feasible.

Solar power may have a future in BC, but capital costs for solar cells are still prohibitive. The power delivered is predictable based on cloud cover and time of day. Due to our northern latitude, places such as Osoyoos will receive significant amounts of sunlight for long hours and this may be economically feasible at a future date if capital costs of solar cells drops.

I have no opinion (positive or negative) on geothermal or wave/tidal energy – I have not done any research on either of these sources of power generation.

Since most Clean/Green power planned in BC is produced is from run of river sources, I do not foresee claims of this industry to be “eliminating debt” to be credible. From an investment perspective, it is quite clear that IPPs will not be able to return a reasonable return on equity unless if the province of BC significantly changed rules to favour them, or to force BC Hydro to purchase power at unfavourable rates. The other assumption that is critical to such Clean/Green power generation is that they will be able to sell carbon credits – a market that would be strictly the creation of the government.

It is likely that BC Hydro did not pursue these projects simply because they were not economically feasible, and if they were, they were of such small scale that overhead allocation would render it not profitable with their cost structure. Some good news for the public is that corporations such as Plutonic Power, Naikun and Run of River Power will take on the risk of capital construction and operation, so it will be their shareholders and creditors that will inevitably be paying for their ventures. As recently as November 4, 2009, Plutonic found investors willing to buy about 1/3rd of the company for $70M. These equity investors are unlikely to realize a long-term reward better than the primary investor in Plutonic Power, which is GE Capital.

To conclude, any claims that Clean/Green power can “eliminate the debt”, or even reduce it, are very erroneous. The public will lose, however, if the government significantly changes legislation to artificially benefit the IPP industry, especially with agreements that compel BC Hydro to purchase power from IPPs at greater than market value and the establishment of a cap-and-trade carbon market that will drive costs up for everybody involved.

Limitations of this discussion

I have not discussed any “solutions” to BC’s power generation situation, nor how to make “BC power self-sufficient”. I have also not discussed the environmental trade-offs of Clean/Green vs. “conventional” power generation, except to say that Clean/Green power is significantly more expensive than conventional power sources. I also have not expressed an opinion on whether BC Hydro is correctly structured, or what their future role in developing power sources in BC should be.

Financial documents (latest as of this writing)

Plutonic Power – 3rd quarter 2009
Naikun – 2009 annual report
Run of River Power – 3rd quarter 2009

I have had time to gloss over the federal budget document, enough to comfortably write some analysis. This post is cross-posted on Divestor.

The budgetary cycle this year from both the federal and provincial government can best be described as “nothing changing, we are staying the course”.

The federal government, in particular, managed to crunch 424 pages of relatively little of political substance in their budget document. A lot of the documentation (as always) discusses the fiscal outlook which is interesting from a macroeconomic standpoint. In terms of government operations, the summary table, as follows, is what one really needs to look at:

Once you remove the effects of the stimulus package, spending continues to increase at a slow rate. This rate is actually a faster rate of spending when you compare it to the equivalent in the 2009 budget (the tables are different sizes in the documents so you will have to click on this image to see the numbers more clearly):

It is obvious that the non-action is highly political – if the government decided to slash and burn spending and government programs, the opposition would likely topple the government and force an election about “providing government programs to Canadians”. In a minority government, the status quo is the safest political approach, to the detriment of the rest of the country. It is only until a clear majority of the public and/or the Liberal opposition starts calling for real spending cuts (compared to the Mickey Mouse “we made tough choices” line given by the Finance Minister) will it be likely that we will see less largess in the present government.

Some commentators have noted that the government is heavily depending on revenue increases to balance the budget in 5 years (which is such a far-off time horizon that nobody will be kept accountable for this plan) – I think the revenue ramp is actually reasonable, not aggressive but not conservative either. It really depends on whether companies will start to hire people, but considering the government sees the big picture with respect to investment capital and corporate tax rates (which, federally, will be dropping from 18% to 16.5% in 2011 and 16.5% to 15% in 2012), this, combined with a reasonable stability in commodity markets, should help the country get back on track economically.

The last note is that interest rates will have a large effect on the bottom line – however, the government has assumed an accounted for a 3-month T-bill rate of 0.7% for 2010 and 2.4% in 2011, both reasonable projections.

“Wait and see” seems to be the message for this budget. It has been the least exciting budget so far in this government’s administration, but this is probably a good decision given the political constraints in the House of Commons. I am not happy with the huge expense ledger, however.

It will probably take me a few weeks (months… years…) before I get the site back on track, but I am proud to announce the birth of a baby boy in late February (Olympic gold baby!). I sent out an email and bcc’ed a ton of people on it, so I apologize if you didn’t get it (or if your spam filter zapped it).

Anyway, here are some pictures:

Taking a crash course in parenting has been quite an adventure. It reminds me of the Battlestar Galactica episode titled “33″ where the Cylons come and try to attack the fleet every 33 minutes, getting the crew all tired because they can’t rest. This time it’s the baby that starts yelping out every hour or so for something (diaper, feeding, just wants attention…). So my half-hour window of opportunity is spent washing dishes, eating, showering/hygene, and a five minute slice was spent compiling a few pictures and posting it here.

One commitment made before the birth was seeing if we (separately) can get to the gym three times a week for an hour of exercise – so far I did half an hour of running on Thursday which was the first time in a week that I was on the treadmill – it actually went quite well, I thought I could do the whole 10km right there.

See you in a few weeks…