California Bill Offers Unique Investment Opportunity
By Nick Hodge | Thursday, October 16th, 2008

Every once in a while, I get a question from a subscriber that I feel all Green Chip Review readers should get a chance to hear the answer to.

It comes from Lawrence S. in Massachusetts, and he asks, “In light of the negative political situation in California, what is the foreseeable future for Clean Energy Fuels (NASDAQ: CLNE)?”

Great question, Lawrence. Let’s get to it.

Californian Energy Policy

Before we can get into the specifics of Clean Energy Fuels, we must first take a broad look at the general policy climate in California regarding alternative energy, which has obviously been more favorable than the national climate.

It probably goes without saying that California is the most progressive state when it comes to clean energy legislation.

According to my colleague, Chris Nelder, who lives in California:

We now have the most aggressive RPS (renewable portfolio standard) in the country. If we were a country of our own, we would rank third in the world for solar energy. We currently have the nation’s biggest solar incentive program, the $3.2 billion “Million Solar Roofs” program.

Nelder added that California also enacted the California Global Warming Solutions Act of 2006, which seeks to roll back the state’s greenhouse gas emissions to 1990 levels by 2020—a similar model to the Kyoto Protocol.

Since California’s RPS was established, the state’s investor-owned utilities have negotiated to purchase between 2,945 and 4,433 MW of renewable energy capacity. That’s between 9% and14% of all electricity used in the state!

And, just a few weeks ago, the Governator signed a slew of new renewable energy bills into law. Here they are, and what they mean:

· AB 1451: Extends the current property tax exemption to 2016, and provides clarifications to make it useful for new construction. Drops the price of utility-scale solar about a penny/kWh, and generally makes everything we are trying to do with energy in the state, from AB 32 to the California Solar Initiative to the Renewable Portfolio Standard, cheaper and easier.

· AB 2768: Removes the requirement for time of use rates from SB1, allowing people to maximize the value of their solar systems.

· AB 2466: Allows for aggregate account net energy metering for local governments. Will turbocharge municipal solar efforts.

· SB 1754: Authorizes the California Alternative Energy and Advanced Transportation Financing Authority to enter into renewable power purchase agreements.

· AB 2863: Helps clarify some issues and establishes consumer protection for residential solar power purchase agreements.

Schwarzenegger also vetoed AB 2269, which would have allowed the Los Angeles Department of Water and Power to raid public solar incentive funds—money that was supposed to help residents put solar on their roofs—and instead use it for utility-owned systems.

All that was just a few weeks ago. But California also has some very interesting clean energy initiatives coming up for a vote in the upcoming election.

Future Californian Clean Energy Policy

On Tuesday, November 4th, Californian voters will have the chance to vote on several clean energy propositions.

Here’s a quick rundown of the propositions on the November ballot, along with their implications for the state (I’ll get to investment opportunities in a second):

· Proposition 1A: Safe, Reliable High-Speed Passenger Train Bond Act—Provides long-distance commuters with a safe, convenient, affordable, and reliable alternative to driving and high gas prices with state costs of about $19.4 billion, assuming 30 years to pay off both principal ($9.95 billion) and interest ($9.5 billion) costs of the bonds. Payments of about $647 million per year, to be offset by passenger fare revenues

· Proposition 7: Renewable Energy Generation Initiative Statute—Requires utilities, including government-owned utilities, to generate 20% of their power from renewable energy by 2010, a standard currently applicable only to private electrical corporations. Raises requirement for utilities to 40% by 2020 and 50% by 2025 with an increased state administrative costs of up to $3.4 million annually for the regulatory activities of the California Energy Resources Conservation and Development Commission and the California Public Utilities Commission, paid for by fee revenues

· Proposition 10: Alternative Fuel Vehicles and Renewable Energy Bonds Initiative Statute—Provides $3.425 billion to help consumers and others purchase certain high fuel economy or alternative fuel vehicles, including natural gas vehicles, and to fund research into alternative fuel technology with a state cost of about $10 billion over 30 years to pay off both the principal ($5 billion) and interest ($5 billion) costs of the bonds.

With all this background in mind, let’s get to the original question, “In light of the negative political situation in California, what is the foreseeable future for Clean Energy Fuels (NASDAQ: CLNE)?”

This is where Proposition 10 comes crucially into play. That bill, as mentioned earlier, would provide $3.425 billion to help consumers purchase mainly natural gas vehicles.

If it passes, and it looks like it will, Clean Energy Fuels will absolutely soar.

You see, Clean Energy Fuels is already the primary provider of natural gas as a vehicle fuel in California.

Here’s their chart for the past year:

It wasn’t until early last year that natural gas as a vehicle fuel really came into the spotlight. This was because of an extensive project at the Ports of Los Angeles and Long Beach that aimed to replace the thousands of dirty diesel trucks that operated in the ports with clean-burning natural gas vehicles.

The spike in late July came just as the Pickens Plan was announced. That plan calls for shifting a great deal of the natural we use to generate electricity to fuel vehicles. The gap left in electricity supply would be made up using wind energy.

Now, this plan has merit as a bridge to a completely clean energy future. But it also offers massive opportunity for profit.

You can bet that’s what the billionaire T. Boone Pickens is after. In fact, he owns more than 47% of Clean Energy Fuels, the company providing most of the natural gas for the ports project.

Undoubtedly, if Proposition 10 passes, Clean Energy Fuels will get a nice bump, setting up T. Boon and other savvy investors for windfall profits.

To that end, Clean Energy Fuels has donated $7.7 million to ensure the measure passes, along with three other companies.

I’d want to buy these shares before the vote on November 4th.

So that’s the story with Clean Energy Fuels as it relates to the current Californian political and policy landscape.

But that certainly isn’t the only way T. Boone is making boatloads of profits in the clean energy sector. He has a few initiatives that will make him (and the savvy investors that follow him) even more money.

I’ve prepared a full report on the Pickens Plan, and how you can profit from it. Be sure to check it out.

Call it like you see it,
Nick

Today’s Headlines

2008-10-16
UK Throttles Back on Biofuels; More Funding to Study Algae and Pyrolysis
UK Transport Minister Andrew Adonis outlined plans to take a more cautious approach to biofuels, as part of the Government’s response to concerns about the indirect environmental and social impacts of producing them.

2008-10-16
DHL Says Small Efficiencies Can Deliver Big Carbon Savings
“The first thing you need to understand about greening a supply chain is that the term ‘green’ is not specific enough. It has the wrong connotations. This is about saving money and becoming efficient.”

2008-10-16
California Needs a Comprehensive Green Plan: Report
Countries around the world have benefitted from tackling environmental issues with comprehensive plans, successes that can be replicated in California if the state alters its operations, according to a new report.

2008-10-16
EU Car Nations Close to Agreeing Slower CO2 Curbs
Italy is close to backing a French plan to phase in European Union curbs on greenhouse gas emissions from cars by 2015, leading to a united front among car-making nations, sources in the talks said on Wednesday