May 31, 2008 Update to General Introduction

Energy costs in the United States are in process of entering the stratosphere. I sincerely believe most people are numb and in shock at $4.30 /gallon. How high will a barrel of oil go? We surged to $135/barrel this week (last week of May 2008) and the “crack spread” has been tightened in the last year. Most of the country will now also suffer increases in costs for natural gas and electricity as well. So how can we judge how well the American consumer is adapting? If mortgage delinquencies, foreclosures, bankruptcy rates, energy shutoffs are any indication....Americans are doing poorly as a result of increased energy costs. Most people and many businesses are not structured to deal with new energy costs. This will change. Energy is in a volatile and historic moment. Predicting the economic future in a brave new world of energy costs now becomes very problematic.

Our $18K heat pump investment clearly was worth the money. We are 20 miles south of the Canadian border in Bellingham. Our natural gas used to be $1300 for the four months of winter (November, December, January, February). Now we spend less than $300 for those four months. Our two hybrids are brilliant cars. My only reservation about them is that walking or the bus would be so much cheaper. All the other expenses: new doors and windows, insulation, lightbulbs, high tech appliances have all worked dependably and as advertised. Photovoltaics are next!


May 09, 2007 General Introduction

Six years ago I published an article describing how my wife and I made dramatic cuts in our electrical and natural gas usage. The article received a lot of attention, despite it's naivete. The article was somewhat fanciful and unrealistic since it described simple activities that could cut household energy use considerably without considering how many people have a real need to maintain a high use energy profile. The motivation for the article was California's now famous energy crisis that effectively bankrupted our state for a short period of time.

Our efforts were a great introduction to energy conservation techniques and taught us important lessons about focus, experimentation, implementation of energy conservation in the home. Since then, the experiments have continued with a much different twist in another old home in another state. Suddenly, we found ourselves with a need for a much higher energy profile. It made sense to try to “buy our way” into an energy efficient household. A new article I am working on describes our latest attempts at energy conservation. The article will be updated as I have the time and energy, which I don't seem to have much of anymore.

Our country now roughly finds itself in the same position California was in six years ago: under siege from extraordinarily high energy prices that threaten to increase exponentially. It is stunning to me how little attention is being paid to how badly the recent nationwide increases in natural gas, electrical, and gasoline prices are affecting the bottom lines of families. I listened to an FOMC board member say the other day that we are moving away from the 1970s reality where high energy prices created untenable inflation. I don't believe a word of such talk. High energy prices hurt families badly. In fact, they are probably plunging many into unsustainable debt and contributing to rising foreclosure rates. Another article on deployment of our hybrid heat pump system is on-line.


October 10, 2007 A note on our Hybrids

My wife and I have now owned three hybrids:

Cost effectiveness is hard to measure with regards to energy costs. The problem is: no one can reliably predict energy costs or how important energy might be to any one industrialized life or family. Point in fact: How many people could have reliably predicted oil would hit $90 per barrel yesterday (10/19/07)?. Oil investment banker Matthew Simmons might predicts $200 - $500/barrel in the next decade or and Goldman Sachs research unit might predict $120 barrel in short term, but not many of “us” are capable of predicting exactly when oil might rise dramatically. Or when shortages of liquid fuels might occur.

Here’s the issue in another way: I just bought a Hybrid Honda Civic for the 40,000 yearly commute miles I will do between Bellingham and Redmond this next year. The Civic gets 44 mpg consistently (almost entirely commute driving), is a really nice car, doesn’t need a tune-up for 100K miles, has a $2100 tax credit, etc. . Despite the fact that I owned a Hybrid Insight (55 mpg lifetime) for seven years, I traded it in because I needed less ‘low to the ground’ driving experience for my middle aged body, if you know what I mean.

Anyway, I am coughing up about $3K per year in gas at roughly $3/gallon. If gas doubles (Iran invasion, more international chaos, GOM hurricanes), I can still pay $6K per year. But at half the mileage (22mpg instead of 44mpg) those numbers would be $6K or an astounding $12K per year. $12K per year in gas costs would be hard, even for a software engineer’s salary. Actually, for most commuters. At $21K total purchase price in the year 2000 at 55 mpg average for the following seven years with a $5700 trade-in value this year (if you can believe that), my Honda Hybrid Insight probably saved me lots of money for the seven years I owned that car. So the Honda Civic Hybrid will cost me $27K - $5700 (Insight trade-in) - $2100 (tax credit) in payments for six years at 6.5%. But it might be worth it at twice the cost unless I could find lucrative work locally. Why? Most people cannot afford to ‘not work’ to save money.

So you see how complicated these discussions become. Both the Prius and the Civic Hybrid are good cars. The Insight is not made anymore -Honda stopped it 2006. So are the cars worth the loan payments? Really, I would prefer to walk to work locally. But until I figure that out, personal cost benefit decisions are made based on whatever economic logic keeps monthly payments low and income potential high, a reality many economists tend to overlook when understanding family buying habits. By the way, the Prius is also a great family car.

Ryan M. Ferris

Bellingham, WA

rferris@rmfdevelopment.com