March 5, 2009

by Bill Levinson

The U.S. Climate Action Partnership (USCAP) supports the imposition of greenhouse gas regulations, largely for self-serving reasons. General Electric, for example, cannot apparently manufacture cost-effective wind turbines and solar power generation systems, so it needs government mandates to force customers to buy them. Lehman Brothers meanwhile wanted to speculate in carbon emission credits, i.e. act as a non-value-adding middleman that profits from the exchange of the modern equivalent of medieval indulgences. It is no surprise that a company whose management cannot deliver anything of genuine value to society is no longer in business. Government bailout client AIG also was a USCAP member, and our opinion is that its membership in USCAP says a lot about the way it was managed. Here is a list of USCAP members, and we shall examine their business performance. Data is from Yahoo fianance, 3/5/08.

In fairness to USCAP’s members, we must recognize that EVERYTHING is down this year. Companies whose names are highlighted in black, though, have underperformed both the S&P 500 and Dow Jones Industrial Index. (We are looking at the relative graphs as of 3/5/09, and 5-year price charts)

AIG (former USCAP member), a black hole for government largesse
Alcoa (AA) $5.26 a share, down from a high of more than $40 a share (85 percent). Earnings per share this year are expected to be negative. Today’s financial headlines say that Alcoa and GM dragged the Dow below 6700.
Boston Scientific (BSX), $6.51 down from a high of more than $40 a share.
BP America (privately held)
Caterpillar Inc. (CAT) $23.59 a share, down from a high of more than $80 a share. It has, however, outperformed the DJIA and S&P for the past five years. We do not like the fact that CAT is a USCAP member, but its earnings and earnings projections look good.
Chrysler LLC (privately held), dependent on government aid
Conoco Philips (COC) $35.31, down from a high of about $95. Outperformed DJIA and S&P
Deere & Co (DE) $25.33, down from a high of close to $90. Outperformed DJIA and S&P
Dow Chemical (DOW) $6.60, down from a high of more than $50 in 2005
Duke Energy (DUK) ? A nearly vertical line in 2007 suggests a stock split or something else that prevents assessment of its real performance.
DuPont (DD) $17.09, down from a high of more than $50
Environmental Defense Fund: non-producing entity
Exelon (EXC) $44.17. Far outperformed the DJIA and S&P. Note, however, Exelon’s vested interest in carbon emission caps; it is the nation’s largest producer of nuclear power (which we support). Nonetheless, we have little use for a company that needs government mandates to harm or destroy its competitors.
Ford Motor Company (F) $1.83, down from a high of more than $15 in 2004. It is however to Ford’s credit that it has not accepted government bailout money like GM and Chrysler.
Florida Power and Light (FPL)
General Electric (GE) $6.67, down from a high of $40 or so (more than 80%). Recently cut its dividend.
General Motors (GM) We thought we saw Oscar the Cat at the company’s headquarters…
Johnson & Johnson (JNJ) A strong performer relative to the DJIA and S&P
Lehman Brothers (no longer listed by USCAP)
Marsh, Inc. (privately held)
Natural Resources Defense Council (non-producing entity)
The Nature Conservancy (non-producing entity)
NRG Energy (NRG) Outperformed DJIA and S&P
Pepsico (PEP) Outperformed DJIA and S&P
Pew Center on Global Climate Change (non-producing entity)
PG&E (PCG) Outperformed DJIA and S&P
PNM Resources (PNM) $6.28, down from a high of more than $30
Rio Tinto (RTP listing for NYSE)
Shell (multiple listings)
Siemens (SI) $48.78, down from a high of more than $150
World Resources Institute (non-producing entity)
Xerox (XRX) $4.44, down from a high of close to $20

Of USCAP’s 32 members (including former member AIG and bankrupt member Lehman Brothers):
Eleven underperformed the DJIA and S&P 500 (not counting privately held Chrysler, whose performance cannot be assessed)
Three (AIG, GM, and Chrysler) need government support to survive
Five are non-producing entities that have to pay their employees, managers, and directors without producing anything of tangible value to society

Many of USCAP’s members are, however, well-managed businesses that do not need to be seen in the company of losers, and especially losers that the U.S. taxpayer must carry. Kimberly Strassel’s “If the Cap Fits” does not speak very highly of USCAP or many of its members.

There was a time when the financial press understood that companies exist to make money. And it happens that the cap-and-trade climate program these 10 jolly green giants are now calling for is a regulatory device designed to financially reward companies that reduce CO2 emissions, and punish those that don’t.

Four of the affiliates–Duke, PG&E, FPL and PNM Resources–are utilities that have made big bets on wind, hydroelectric and nuclear power. So a Kyoto program would reward them for simply enacting their business plan, and simultaneously sock it to their competitors. Duke also owns Cinergy, which relies heavily on dirty, CO2-emitting coal plants. But Cinergy will soon have to replace those plants with cleaner equipment. Under a Kyoto, it’ll get paid for its trouble.

DuPont has been plunging into biofuels, the use of which would soar under a cap. Somebody has to cobble together all these complex trading deals, so say hello to Lehman Brothers. Caterpillar has invested heavily in new engines that generate “clean energy.” British Petroleum is mostly doing public penance for its dirty oil habit, but also gets a plug for its own biofuels venture.

Finally, there’s General Electric, whose CEO Jeffrey Immelt these days spends as much time in Washington as Connecticut. GE makes all the solar equipment and wind turbines (at $2 million a pop) that utilities would have to buy under a climate regime. GE’s revenue from environmental products long ago passed the $10 billion mark, and it doesn’t take much “ecomagination” to see why Mr. Immelt is leading the pack of climate profiteers.

General Electric was once an innovative and productive company that relied on good engineering to sell its products. Its declining fortunes and revenues probably have something to do with its new business model that relies on government mandates to compel businesses to buy its products. As Aesop told us long ago, birds of a feather flock together, and the U.S. Climate Action Partnership is not the kind of company in which we would want any corporation that we owned to be seen.