Prop 87: Follow the Money

The big issue in this election may not be whether the Democrats take the Senate or not but how our National Energy Policy will be shaped for the next decade.

The battleground is being set in California where Bill Clinton and Al Gore are running a test platform for 2008 to see if voters are ready to plan for the future.

If they win this, it will be a tide-turner for Big Oil as it shows that something substantive can be done despite all the BS from Washington.

This will be a blueprint for national energy policy if the Dems take back the White House.

California is the ONLY state that currently does not derive any revenue for the oil that the drillers take out of their land (an "extraction fee"). As much of a joke as these fees are in the U.S. compared to other oil producing nations (Alaska 15%, U.S. offshore 12%, even Texas charges 4.6%) , California goes all the way and gives energy companies a completely free ride.

Proposition 87 proposes a 6% fee, almost as low as the President's home state.

Needless to say the oil companies are not too thrilled with this -- they have ponied up over $100M to fight this bill (a new record) to keep the world safe from clean energy.

Perspective: George Bush "only" spent $300M on his last national campaign!

From an investment point of view we can see who stands to lose the most by looking at who has contributed the most. No surprise that Chevron Corp. (CVX), Occidental Petroleum Corp. (OXY) and ExxonMobil Corp.'s (XOM) Aera Energy are the biggest "contributors" to the No On 87 campaign.

Aera has put up $40M in order to alert the people of California to the dangers of taxing oil companies, while Chevron has put up $30M, OXY $9M, BP $3M and, of course the California Republican Party kicked in $1.5M to help out their pals.

In the best Orwellian tradition, the Republicans and oil companies have formed the "Californians Against Higher Taxes" committee in order to make sure oil companies don't pay any.

What has got our concerned Californians panties all in a bunch? Well here's what Al Gore wants to do.

Oops, wake up!!!

Sorry, let's hear what President Clinton has to say instead...

He also made a great speech at UCLA on the issue.

Pretty good points. Let the oil companies pay California $4B (out of the $70B they are currently taking out of the ground in CA for free) and use that money to fund R&D for energy independence with the goal of reducing California's energy consumption by 25% and cleaning up the environment with renewable energy.

The proposition also contains language that makes it illegal for the oil companies to pass additional costs along to the consumers, meaning it will directly impact their profits. Although CA produces 20% of the nation's oil, they currently pay the highest fuel costs in the country.

The oil companies are trying to scare voters into thinking this will lead to huge increases while running the shameless false "fact" ads playing to the emotions of the least educated voters.

This anti-87 commercial cracks me up.

Their argument:

There are 12,000 WORDS in this proposition! Words are bad!

Prop 87 wants to create a new government agency OF 50 PEOPLE to oversee the $4B CA will collect.

Personally, I would be insulted by this kind of nonsense but apparently CVX, OXY, XOM and the Republican Party (the sponsors) know their customers.

They even found someone to hit the target audience.

Facts don't seem to matter -- here's a guy from the CA chamber of commerce who says that if you tax the oil companies, they will stop making oil -- so there!

This one is my favorite -- I suppose you just can't insult the intelligence of California voters!

I wish the Dems would dumb their ads down just a little though, why can't they convey the fact to Californians that oil companies come into your state, take your oil, and don't pay you a dime?

Is that so hard to put into a commercial? As the oil companies tell us over and over again, oil is a precious, non-renewable resource that will soon run out -- why is California giving it all away to the same guys who charge them (still) $2.40 a gallon when they need it back?

Of course we have to give President Clinton the last word.

So that's what all the fuss is about with another one of those wacky California propositions. Imagine that: the world's 5th largest economy and they let the people vote directly on important policy decisions -- Madness!

It's like some kind of government of the people, by the people, for the people.

Hopefully big oil and the California Republican Party can nip this sort of nonsense in the bud!

Read all of Phil Davis's articles on Seeking Alpha

Comments

[The Kennel:]

There are actually two separate issues here: [a] should California have an extraction tax? and [b] if they do, how should the money be spent? As you point out, the first issue is DOA for the oil companies considering that even Republican bastion Alaska and W's own Texas have them while Calfornia is the only state without one. Had the Prop 87 writers just been satisfied with the tax and left it to the legislature to set up the alternative energy program, they would have had a slam dunk, IMO.

But by explicitly proposing to set up a bureaucracy to oversee funneling the extraction tax to alternative energy programs, the Prop 87 authors provided an opening to the oil companies, who are strenuously talking around the issue as to whether there should be a tax and focusing instead plans for spending the money...whereof, it seems to me, they do make some valid points...but then, when weighing the anti-alternative energy opinions of oil companies, one must consider the source.

I guess we will soon find out how much Californians appreciate unsolicited advice from Chevron et al as to how to spend/"waste" their money.


Brad Hessel
Manager, The Kennel

2006 Nov 05 11:37 AM

[The Kennel:]

PS - President Clinton needs to check in with his own former Secretary of Labor, Robert Reich, on the subject of ethanol. If he should do so, he would apparently be surprized to learn that in Brazil they make ethanol out of sugar, which is both cheaper and more energy efficient than making it out of corn, as is done in the USA -- because, ironically, it is not globally warm enough for us to have a significant sugar crop. Corn-based ethanol actually costs more energy to plant, fertilize, harvest, and process than it saves. As it is, President Clinton's specious suggestion that what worked in Brazil will easily work in California does his cause no honor.

2006 Nov 05 08:43 PM

[kkin365:]

Good post. I have lived in both CA and TX while a university professor. I know, as to TX, oil income was used to fund college budgets, making tuition in TX one of the lowest in the nation. I might also mention that, as a fellow blogger, I have used a few figures in this entry for mine, which is mainly on US-China relations, Chinese culture and Chinese Americans, in my latest post entitled "Campaign 2006: $100m for 1 proposition" in my blog omooc.blogspot.com

2006 Nov 05 11:57 AM

[Greg Pinelli:]

Prop 87 is not about following the money. Every election in California is about money...so that tells us very little.
A more accurate moniker might be Follow the Pandering. Prop 87 plays off envy and fear. Oil companies are making lots of money..lots of people in California aren't and almost everyone is afraid oil prices will become prohibitive and we won't have anything to replace beloved crude. It seems to make little difference that taxing crude will almost certainly encourage oil companies in the State to conserve their reserves rather than pump them..and it is a definite certainty that no bureaucracy will ever efficiently develop alternative sources of energy at anything approaching acceptable market rates.
Bill Clinton and Al Gore..whose trips to California were heavily sunsidized by every U.S. taxpayer...have agendas that are politically motivated and are pushing a plan that they will never have to personally suffer the economic consequences of..How convenient.

2006 Nov 05 08:00 PM