Oh, How the Mighty Have Fallen

Some day I will probably get into trouble for this blog. But let's face it. Blogging, like tweeting, is not for the faint of heart. Some day one can expect those tweets, launched into the blogosphere, to come hurling back from the far reaches of the cosmos when we least expect them, uncomfortable reminders of who we were and what absurd thoughts we were hatching in a bygone era.

Speaking of which - bygone eras, that is - I have been squirming recently as I come across widespread media coverage of three companies for which I have deep and abiding affection. I admit it! For most of two decades I worked for two of the finest financial institutions ever formed: Goldman, Sachs & Co. and AIG. And during those same decades I drove cars manufactured by a third great company ,Toyota: a Celica in my single years, a Camry as a newly-wed, and a Land Cruiser as a father.

Each of these three mighty brands was synonymous with quality, professionalism, integrity. Yes, integrity. As reports circulate of self-dealing conflicts of interest at Goldman, Sachs, un-repaid bonuses at AIG and recalls of some 1.4 million Toyotas, I am painfully reminded of the fact that until recently these three brands enjoyed unblemished reputations. Their employees carried their heads high with pride. And their envious competitors sought to emulate them the way a Little League batter aims to emulate his favorite Major League heroes or a kid on the golf team pins on his bedroom wall a picture of Tiger Woods.

And then suddenly, like the ignominious fall of Mark McGwire in the steroids scandal or Tiger in the infamous sex scandal, the stars drop out of the heavens. Like Icarus their wings melt as they fly too close to the sun and they drop like stones to Earth.

Why? What happened? Is this sudden ignominy deserved? Or are these companies victims of populist rage, media witch hunts and changing rules? Standards that nobody and no company could possibly meet?

Personally (and here is where I will probably get myself in trouble,) I think much of the criticism is inflated and undeserved. Goldman, Sachs, for example, continues to do what it has always done and do it well. However, in the midst of a serious recession and high unemployment such success and profitability is viewed as greed and avarice. The culture of rewarding employees handsomely for profitable trading activity is simply insensitive. One does not need to be a Marxist to gag at the disparities in compensation that result in a teacher making no more than $75,000 after a 30 year career in the classroom and an oil trader being paid $10 million a few years out of college. I don't begrudge the success of the young oil trader but please don't insult my intelligence by discussing the risks he or she is taking or the value they deliver to shareholders. A soldier in Falujah is taking risks. And it is the shareholders who take risk when the trader buys and sells on their credit line. They deserve 99 percent of the gains, not 70 percent as with many trading company compensation plans.

Still, this does not mean that Goldman, Sachs is bad. It just means that it needs to change with the times. There was a time when kings could call for the heads of their jesters for telling a bad joke. Last I checked Queen Elizabeth had relinquished that right and England seems to be doing alright, thank you very much. I am happy to report that Goldman, Sachs did show some more sensitivity when it decided to pay only 30 percent of its profits to its employees as bonuses instead of its usual 50 percent. A step in the right direction to be sure.

Likewise, I think AIG has gotten a bad rap. The product that got them in trouble - credit default swaps - was perfectly legitimate and served a genuine need. When the economy tanked in 2008 those swaps were devalued and counterparties (including the aforementioned Goldman, Sachs) asked for collateral to cover their mark-to-market losses. This was all perfectly legal and I would argue prudent. Finally the huge bonuses that AIG paid its people were not wrong. They were insensitive. Ironically, however, I would argue they may have been more justified by the fact that the people who received them helped to save the company from a collapse that would have had devastating consequences on governments and others that relied on AIG's insurance arms. The bonuses did not go to people who had screwed up as those people had been canned long before.

As for Toyota, I simply cannot believe that the company that prided itself on maintenance free cars willfully set out to endanger its customers with faulty accelerators and breaks. The facts are not out, but I will bet dollars to doughnuts that the company was feverishly trying to solve the problems before the government intervened and the story came out.

It should be obvious by now that I do not share the Populist view that these are companies that have gone over to the dark side. That they are somehow corrupted by their own short term interests. That until the music stopped they were happily engaged in a feverish quest that included "relentlessly jamming its blood funnel into anything that smells of money," as one writer put it about Goldman.

But I do agree they blew it. Their brands may forever be tarnished not for what they were or for anything they did but for how they responded to a crisis and adapted to new circumstances. Goldman ignored then fact that its success was taxpayer financed. Without the bailout and access to commercial paper it would have been dead meat.
Sure the economy benefited but so did they.

AIG employees should have repaid bonuses they promised, legally enforceable contracts be damned. And Toyota should not have swept its problems under the floor mats! They were serious and protracted and demanded serious attention, not PR spin.

Sometimes companies react to crisis out of enlightened self-interest. My favorite example of this is in our industry. In the early 1990s Rick Richard, then CEO of the Columbia Gas Systems, conceived of the idea that retail customers - homeowners and small businesses - should be able to buy their energy supply from third party, independent marketers like MXenergy. After all, industrial consumers had purchased gas from marketers since the 1980s and utilities were often blamed for high prices. By opening the market up to competition everyone would benefit.

When companies don't act on their own, sometimes government must step in to protect consumers. Examples include the Securities Acts of 1933-34 and their investor protection standards, our food and drug laws with their inspection and approval requirements and our traffic and toy safety laws and standards.

And sometimes the public can force reform through boycotts, strikes, and collective action. Like tarring and feathering or public flogging, public anger can sometimes force change where government and commerce are too slow to respond. Think of the Greensboro Four who, 50 years ago this week sat at a "Whites Only" Woolworth's lunch counter and refused to leave until they were served.

Hopefully these three great brands - and the decent people that continue to work hard for them - will acknowledge their mistakes and restore the luster to their tarnished images. We all benefit when we learn from our mistakes and don't flee from them or wallow in self-pity.

 

James and the Giant Reach

You’ve heard of the Roald Dahl story about James and his surreal adventures inside a giant, squishy peach. The story is bizarre, absurd, surreal, and utterly absorbing.

Now imagine a sequel to James’ adventures. Let’s call it James and the Giant Reach. Because when you read about it you’ll realize just how far a dream, some guts, and a few bucks can take you.

In place of James’ peach imagine a red, 1993 Toyota Tercel with 150,000 miles on it. Now imagine that it was purchased (because it was), rusting frame and all, for $100 in 2004. And that it sat, unloved some might say, in James garage in Fairfield, CT until one day he conceived the idea to transform the sad little rust heap into an utterly modern vehicle.

James Boncek, the 26-year old hero of our story, spent half of last year tinkering under the hood of the Tercel, ripping out the old engine – after all, internal combustion is so “last year” – and replacing it with two 12-volt batteries along with ten more batteries in the trunk. Then he turned on the engine and – voila! – not a sound. Only wheels slowly turning to take the 100% electric car out of the garage and out into the street. (Of course it took another six months for James to get approval of the Connecticut Motor Vehicle Commission but that is another story. The wheels of progress sometimes turn slower than the wheels of James’ car!)

James’ car can travel over 50 miles at a top speed of 70 miles per hour. It takes 6-8 hours to charge off ordinary house current with a wire plugged into a wall socket.

James had a little help from MXenergy – we chipped in less than $10,000 to help pay for his research, parts, and towing charges -- but the inspiration, creativity, and passion were all James’.

ABC-TV’s Good Morning America is planning to do a segment on James on Friday this week.

Now that’s reach!

And magazines and newspapers have been following James as he drives a few miles to his job as Technical Director at the Fairfield Theater Company, bypassing the gas stations along the Boston Post Road.

That’s giant!

We’re proud of the small role we’ve played in helping James get his car out of the garage. I’m just wondering whether there will be another sequel to the James story. After all, James was last heard saying something about a rocket ship in his garage and a trip around the moon and…

 

Allentown and the State of the Union

Yesterday I blogged about President Obama (“Kirk or Picard?”). I quoted Newsweek as asking whether the President needed to be more like the passionate Captain Kirk than his first mate, the cool and rational Spock. I speculated about whether the President would take a different approach in his annual State of the Union address last night. Perhaps he would turn up the heat and try to fire up his audience.

In general the commentators agreed that the President showed a little more heat last night. There was definitely more smoke: About Wall Street. About the Supreme Court ruling on corporations financing candidates. About health care.

Most of all, the President spoke about the economy. And jobs. He said he had never been more optimistic than he is now. Some of his best lines were about the resilience of Americans to weather bad times. He invoked periods in our history when we bounced back.

But he also acknowledged that there is much left to do. People and businesses are suffering. They need help, particularly small businesses which employ most Americans. Many of these were severely hurt by last year’s recession. Some people have called last year the “Great Crunch,” in reference to the drop in loans available to small business owners to finance payroll, working capital, expansion.

And then he mentioned Allentown. I took notice of this line because I spent a couple days in Allentown this week. We started offering fixed price electricity supply to customers behind PPL Electric Utilities late last year. And next month we will begin to serve thousands of customers in Allentown as well as tens of thousands of customers in other parts of the PPL territory.

Allentown is in the heart of a wonderful area, one that I wrote about wistfully the other day. It is in a splendid spot on the Little Lehigh Creek. A bridge over the creek, built in 1912, actually was the largest concrete structure in the world at one time. It boasts some fine buildings, including the original PPL building which was designed by an architect of New York’s Rockefeller Center. Outside that building are some relief sculptures by Ukrainian avant-garde artist, sculptor and graphic artist Alexander Archipenko. The building was featured in the 1930 edition of the Encyclopedia Britannica as an example of a “modern office building.” In Allentown!

Here is what the President had to say in his speech, as he spoke of small businesses around the country:

Through sheer grit and determination, these companies have weathered the recession and are ready to grow. But when you talk to small business owners in places like Allentown, Pennsylvania or Elyria, Ohio, you find out that even though banks on Wall Street are lending again, they are mostly lending to bigger companies. But financing remains difficult for small business owners across the country.

I was struck by these lines because I saw for myself this week how Allentown has fallen on hard times. As I learned from Bobby Gunther Walsh (“Gunther” to his listeners), the talk show host at WAEB-AM 790, unemployment in the area is higher than the national average. Downtown Allentown is practically a ghost town, with many of the shops along Hamilton Street closed up. In the restaurants the chairs are flipped upside down on the tables as if closed for the night and a mopping. But it’s the middle of the afternoon. On a weekday. Among the bargain basement shops, banks, drug stores and newsstands are several pawn shops, bail bondsmen, and check cashing stores.

Outside the center of Allentown, the neighborhoods are as nice as you’ll find anywhere in America. Beautiful homes and lawns and parks and huge malls. Gunther told me that Allentown has become a bedroom community to New York. Many residents commute the hour and half to New York City, up Route 78 through New Jersey. They get to work in the City and live in a beautiful part of the country.

Fortunately for these businesses that are struggling and for those out of work, there are people that want to help. With the amazing support of Gunther and WAEB-790, we sponsored a food drive at the Jewish Community Center and collected a truck full of supplies for the Allentown Shelter as well as the Jewish Federation. Both organizations maintain food pantries for homeless families who are victims of the recession.

Today we are collecting winter coats and blankets at the new McDonald’s on Tilghman. So far the drive is going well. Local residents are driving up to the MXenergy truck and emptying their trunks. This winter has been cold and both adults and children can use the helping hand.

The President’s address was called the State of the Union. It might as well have been called the State of Hope. Parts of our country, and many of our friends and neighbors, remain in need. The President was right to single out Allentown as an area that needs help. I saw it for myself this week.

But I also saw its spirit. Let us hope that the spirit of Allentown will be as widespread this winter as the Arctic air that blankets the country.

 

MXenergy Comes to Allentown

I grew up outside Philadelphia. I went to high school there. Had a dog named Snoopy. Spent summers “down the shore,” where my parents rented a little bungalow from our barber.

Our house was a 1920s colonial, bought at an estate auction for $19,000. It was a big deal for my father who worked in a shoe factory. The house was a wreck, and my father fixed it up by hand, working nights and weekends for six months before we moved in. The ancient wall paper was torn down and the walls painted. The old cast iron sink hauled out and replaced with aluminum. The old push button light switches replaced with switches.

In the basement was a furnace and a huge bin of coal. That’s right, coal, delivered until the mid 1970s when my father stepped up and replaced the furnace with heating oil. I remember as a kid a truck pulling up in the driveway, setting up a chute, and letting gravity take the coal from the truck down the chute through the basement window. Periodically, my father would shovel the coal from the pile into the furnace. To this day there is a little pile of coal briquettes in the corner of the basement, waiting to be shoveled into the old boiler. The shovel is gone, I think.

I was reminded of the coal furnace this week as I visited Allentown, an hour north of my childhood home at the end of Route 309. Growing up I knew Allentown as one of the towns up north of us in the Lehigh Valley. I had friends from high school who went to Muhlenberg College, founded there in 1848.

And whenever I thought of northern Pennsylvania I thought of coal. Anthracite coal, the good coal, the kind that burns with a smokeless blue flame because it is the purest form of coal available. It was one of the economic engines for United States in its early history. It fueled the railroads, the factories, the inner cities. It was what made eastern Pennsylvania a huge draw for European immigrants in the 19th century.

Before the oil and gas industries that grew up around the Gulf of Mexico and in Appalachia and in the Rocky Mountains there was coal and northeastern Pennsylvania was where it was produced. Today the largest source of coal in the United States is in the Powder River Basin of Wyoming, where sub-bituminous coal is produced, and the second largest is in Appalachia, where bituminous coal is made. Bituminous is the inefficient, carbon belching, sulfur dioxide producing coal that gives coal a bad name.

In the 19th century, coal came from towns like Wilkes-Barre and Scranton. Scranton today is known to TV viewers as the home of Dunder Mifflin Advertising in The Office. But in the 19th century it was the home of the Lackawanna Steel Works, founded by the Scranton brothers, and the first place in the United States where iron railroad “T” rails were produced.

Recently, PPL Electric Utilities, the electric utility in northeastern Pennsylvania, announced that it was raising a cap on electricity rates that had been in effect for years. The cap was imposed in the last decade and had kept consumers’ rates artificially low, below the actual cost of producing electricity from fuels like natural gas.

The result was that in 2010 PPL consumers would pay 30% more for their electricity. PPL, which like other utilities has never made any profit from electricity but simply passes along its market prices to customers. So PPL was happy to welcome competitive suppliers like MXenergy.

Next month MXenergy will start supplying tens of thousands of PPL customers with electricity. That electricity is now produced principally from natural gas. Some of it is produced from nuclear energy, some from hydroelectric sources. None from coal.

I visited Allentown to meet with some of our new customers, to co-host a radio talk show on WAEB 790 (“hats off to you, Gunther!”), and to help out with a food drive we sponsored for the benefit of the Allentown Rescue Mission and the Jewish Federation.

I drove around Allentown and saw some of its historic sites, including the Zion Reformed Church where the Liberty Bell was hidden from the British in 1777.

But most of all I remembered the furnace in the basement. The little pile of coal. And my father shoveling it in the boiler on cold winter mornings.

It was cold outside, 22 degrees F. Snow was predicted for today. Another Arctic blast was due to come down the Lehigh Valley this weekend and put a layer of ice on the evergreens and the sycamores.

But for some reason I felt warm inside. It’s nice to be close to home.

 

Kirk or Picard?

Starship MXenergy, Stardate January 27, 2010 -- If you’re a Star Trek fan, I hope you’ll forgive this entry. And if you’re not a Trekkie, I hope you’ll come along for the ride in hyperspace!

The other night on Charlie Rose, Jon Meacham of Newsweek observed that President Obama needs to be more like Kirk and less like Spock.

Whatever your politics, there seems to be universal agreement that the President faces huge challenges a year after taking office. Meacham seemed to be saying that Obama is being handicapped by his rational, problem-solving approach. To be successful, he needs to excite his followers. And that will take the passionate drive of Star Trek’s Captain Kirk instead of the cold clinical analysis of his first mate Spock.

I forwarded this comment to my youngest son, now in his first year of college. Within minutes (do students go to class anymore?) he shot back with this text message:

Wouldn't that be from Data to Picard? Spock is a Vulcan, in the original series. If you go with the android Data to Captain Jean Luc Picard in the Next Generation, it makes more sense.

Picard was not openly passionate. He spoke powerfully and had a deliberate thought process, but to many seemed impassionate, though they all respected him as having their best interests at heart, much like our current president whose personal approval ratings remain high.

This comment was thoughtful enough for me to start worrying that our colleges had given up studying the works of Shakespeare in favor of Hollywood sci fi.

My son has a point. Perhaps President Obama only seems impassionate. Maybe in fact he has his passions under control, like Jean Luc Picard. Obama’s thought process certainly is deliberate, as we saw recently when he took his time deciding whether to increase troop strength in Afghanistan. What really matters, ultimately is whether people think he has “their best interests at heart.”

Tonight the President delivers his annual State of the Union address. I will be watching to see how he communicates with his audience. As with every leader, he has several constituencies to reach: His own followers, who supported him in the past. Those who have disagreed with him. And those who are on the fence.

And like all leaders, he has to find the right balance between passionate advocacy and cool analysis. Too hot and he will scare people. Too cold and he will bore people.

If he’s really successful, he’ll do a Vulcan mind-meld on his listeners!

 

Deal or No Deal?

If you think about it, a utility bill is like the TV show, Deal or No Deal.

Every month you get a bill. It’s in a sealed window envelope. You look at it and ask, “What’s inside? How much is it?”

Of course, whatever it is, you’re not going to win it. You’re going to have to pay it. But until you rip open the envelope you don’t know how much. It could be $100. It could be $500. It’s a mystery.

In fact there are two numbers inside the envelope. One is the price. The utility bases the price on what it actually spent for the energy it supplied your home or business. That number is not known until after the energy is purchased in the market and delivered to the utility’s customers.

The other number is the volume, i.e., how much natural gas or electricity you used the prior month. That number is not known until after you’ve consumed it.

Imagine if you walked into a diner and ordered a cheeseburger with fries and a Coke. You ask for the bill. “That will be $100, please.”

$100 for a Hamburger?!

“But, sir, the meat cost more than we thought. And the short order cooks walked out this morning and we had to hire some new ones. And the gas we used on the stove: Have you seen the price of gas these days?!”

There is only one thing that is predictable about your utility bill: The fact that the numbers inside will change each month. They will never be the same. Even if you have budget billing, there will be something that changes. The distribution cost, perhaps, or the transition charge, or the gross receipts tax.

One reason that companies like MXenergy exist is to take the mystery out of utility billing. It may not be Deal or No Deal! (although I’ve often thought our call center would make a great reality show). But we definitely help you know what’s inside the bill – before you open it!

 

“It’s the Insulation, stupid!”

Remember the 1990’s and Clinton’s famous phrase, “It’s the economy, stupid!”

When it comes to energy, I would modify that a bit. “It’s the insulation, stupid!”

Since the Arab oil embargo in the 1970s, there has been a tsunami of conservation advice and frenetic legislative efforts to reduce our energy consumption. At first it was the CAFÉ standards on auto emissions. (CAFÉ, you may recall, stands for Corporate Average Fuel Economy. The idea was to require the auto manufacturers to make cars and small trucks that drive a minimum number of miles per gallon.)

Then it was “turn down the thermostats.” Take mass transit. Turn off the lights. Pull the plug on the TV. Replace the appliances. Change the lightbulbs. Run the dish washer at night. Replace the showerhead. Take the stairs. And my personal favorite: Put a brick in the toilet.

Of course, while we were all feeling good about cutting back on our profligate ways, we were filling our homes and offices with computers, printers, wireless phones, microwaves, central air conditioning, coffee makers, laptops, cell phone chargers, ear plug chargers, camera chargers, electric blankets, …

You get the picture. Strangely enough, our energy dependency didn’t drop. We didn’t wean ourselves off Mideast oil. For a few years, from 1978-1982, energy consumption per household, not including automobile usage, dropped 19%, probably because of the recession brought on by record inflation. But from 1983-1997 it increased 19% again. And it continues to grow. And grow. And grow.

And that was all before we heard about global warming.

No doubt these measures are justified. Aside from energy security, energy conservation is common sense. It saves money and helps preserve our fragile environment at the same time.

But if we are serious about energy conservation, we must recognize a simple fact: Our homes, not our cars, are the problem. About 21% of all energy consumption is in the homes, whereas gasoline accounts for only about 18%. Now transportation as a whole (including diesel and aviation fuel) is slightly more, but the real issue is not quantity of fuel consumed. It’s efficiency. How much of the fuel we use is being converted to a productive use and how much of it is, well, going up the chimney.

And that is where our homes are Public Enemy Number One. We are still building homes like we did in the 18th and 19th centuries: Stick style, frame architecture, with woefully inadequate insulation. They leak like sieves.

Our inefficient boilers and furnaces and appliances are consuming energy and most of it is literally slipping through the cracks, the light fixtures, the walls, the doors, the windows, the ceilings, and the attic.

In other words, “It’s the insulation, stupid!”

I’m not just talking about weather stripping on doors and windows, or putting those unsightly plastic sheets over the windows in the winter time. I’m talking about R values – the measure of heat resistance. The R value is the ratio of the heat value on one side of the insulation vs the value on the other.

There are several technologies available to provide insulation. Fiberglass is the most widely known – fine glass fibers trapped within a paper barrier. Cellulose is made from shredded old newspapers and cardboard that is treated with a fire-resistant material. And spray-foam is a plastic like polyurethane which hardens when sprayed.

All insulation generally follows a simple principle: Double the thickness of the insulator and you get double the R-value.

Now I’m not Bob Vila and I’m not going to dispense construction advice without a license. But I can tell you this: A modest investment in decent insulation can pay back in months just from the savings in energy cost. I have seen statistics that suggest that insulation can reduce energy consumption in the home by 30% -- 30%! – which means the cost will be recovered quickly from 30% lower heating and cooling bills.

To learn about the benefits of insulation, treat yourself to an inexpensive home energy audit. We can give you some leads here: http://www.mxenergy.com/energy-for-living/home-efficient.php .

Not to beat a dead horse or anything, but…”It’s the insulation!”