Why Not a Power Purchase of Super Efficient Vehicles to Cut Gas Prices?

April 26, 2008 – Vol.13 No.5

WHY NOT A POWER PURCHASE OF SUPER EFFICIENT VEHICLES TO CUT GAS PRICES?

As of the end of fiscal year 2007 the federal vehicle fleet totaled 208,000. Nearly a third of those (more than 69,000) are alternative fuel vehicles and hybrid-electrics. In fiscal year 2007 alone, the US General Services Administration (GSA) ordered more than 24,000 additional AFVs and HEVs for use by the military and federal agencies.

In the interest of reducing the nation’s dependance on imported oil, perhaps reducing the cost of gas at the pump, and helping to build the market for a new generation of highly efficient vehicles, why doesn’t the Federal Government buy a new fleet of vehicles that gets better than 100 miles per gallon? The technology is already available. The vehicles in large numbers aren’t.

Drivers in the US are nearing a shock – $4 a gallon, on average, for regular gas. And that’s only the first milestone. $5 might be in the future.

Blame it on OPEC, blame it on commodities traders, blame it on politicians, the sinking value of the dollar, the war in Iraq or the oil companies. Take your pick or choose them all. In the simplest view, however, blame it on the basic principles of market economics – the law of supply and demand – now gone global.

The demand for petroleum products in petro-based economies grows in parallel with the economies themselves. Even as the US economy remains stagnant (or shrinks) and petro consumption drops a bit (which it has) the demand for fuel is still going up in other petro-based countries like China. New auto sales there are increasing at a rate of 20 percent per year. China is now the single largest purchaser of autos behind the US (knocking Japan down to third place).

But, unfortunately for drivers, the global supply of petroleum is, at best, just keeping pace with the global growth of petro-based economies. As long as supply is just meeting demand and drivers are willing to pay the price, there’s no reason to think prices will fall. Prices will fall when there is excess supply: This scenario is not likely.

(Something to be considered, too, in the petro supply/ demand equation. In growing nations like China and India, consumers may be buying their FIRST car ever. Thus, never having purchased gasoline before, the price at the pump may not be high, it just is what it is.)

Clearly some dramatic action needs to be taken. Gas and oil prices could cripple the US and other economies. There are some ideas floating around Washington. Drop the Federal gas tax. Pump oil from the Strategic Petroleum Reserve. Link a US arms sale to Saudi Arabia with increased oil delivery. (Sounds like some kind of armed robbery doesn’t it?)

Here’s another idea (really just a dream, I suppose) that would send a shock wave through the oil markets: The US could embark on a crash program to switch to Super Efficient Vehicles with a large purchase of them by the Government. Super Efficient Vehicles could be defined as vehicles that get in excess of 100 miles per gallon.

First a little background. Some electric utility companies when they feel the need for more power generation put out Request for Proposals (RFPs) in attempts to find companies willing to build new powerplants and supply the power. Within the RFP is usually a Power Purchase Agreement (PPA) that states that the utility will buy the power from the new powerplant for a period of time. In essence the PPA is a guaranteed sale of power, guaranteed revenues and profits, for the builder or operator of the new power plant. With the PPA in hand the builder/ operator can run down to his local bank (or other investor) and ask for the cash to build the generating capacity. With the guaranteed sale of power the loan or investment is less risky.

So here’s the idea. Why doesn’t the US government put out an Super Efficient Vehicle Request for Proposals for vehicles to be used in its own fleets? Like the PPAs with utility companies, the RFP from the government would include a Super Efficient Vehicle Purchase Agreement to buy a large number of cars or trucks over a period of time. As with the power plant builders, vehicle builders would have a guaranteed presale of tens of thousands of cars or trucks thus would be more willing, and able, to invest in plant and equipment and build the vehicles.

Some notes and nuances:

--- It has already been determined that vehicles can be built that get over a hundred miles per gallon on gasoline or equivalent with ample range: Plug-in Hybrids (PHEVs).

--- The cost of fueling or recharging stations, if necessary, would have to be included in the bidder’s proposals. And, in the case of using alternative fuels (including electricity) bidders would have to prove the availability of supply. (There already is excess capacity on the grid in off-peak hours to keep a huge fleet of PHEVs charged.)

--- The RFP could include many stipulations such as crash worthiness, number of passengers, doors, and especially domestic content. (These vehicles should be made in the US.) (Ford’s Escape Hybrid PHEV, now in testing, might already fit the bill. It can run on ethanol if the biofuels bunch want to get in on the action.)

--- Car companies submitting bids could include electric vehicle startups like Tesla or Aptera.

--- If the Federal Government issued this RFP, state governments might be willing to follow along to increase the number of vehicles in the Super Efficient Vehicle Purchase Agreement. Other fleets operated privately or by municipal governments might get on the bandwagon as well.

--- Individuals, or groups of them, should be allowed to place advance orders for the cars or trucks.

All this would take some time, but the announcement that the US (the world’s biggest consumer of petro-fuels) is about to embark on a fuel belt-tightening might send a shock wave throughout the global oil markets. At the same time the program would be taking tens of thousands of vehicles out of the greenhouse gas/ global warming equation, which by the way is something General Motors, for instance, has said it wants. The President says he wants technology to fix global warming. This is one opportunity in that direction. The government buys cars and trucks all the time. Why aren’t they buying the most fuel efficient available?