Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

USS Juneau

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While visiting Alaska we toured the capital city Juneau. Juneau lies on a small flat section of land among towering mountain peaks and is very scenic. Along the water front huge cruise ships were moored, disgorging tourists to wander the local shops. So what catches MY eye…

A plague commemorating the USS Juneau, of course. The USS Juneau was a US light cruiser of the “Atlanta” class, and was relatively small in size. “Light” cruisers at the time generally carried 6 inch guns, and “Heavy” cruisers carried 8 inch guns (for comparison, battleships carried guns in the 14 to 18 inch range). The Atlanta class light cruisers had five inch guns, in twin mount turrets, and in some ways were just larger destroyers. On the other hand, they were revolutionary in that they were Anti-aircraft cruisers, similar to the British “Dido” class, which performed valuable duties especially protecting the Malta convoys which ran through heavy Axis air attack routes.< While I knew this right away it probably isn't common knowledge that the Juneau was the ship that, in a way, inspired the movie "Saving Private Ryan". The Juneau was the ship where the famous five Sullivan brothers all served as sailors. The Juneau was sunk by the Japanese off Guadalcanal in late 1942; the ship was struck by one of the powerful torpedoes and it sank quickly. Three of the brothers died when the ship sank and the other two died at sea while awaiting rescue. I did not realize it until I read the wikipedia site that the situation of the survivors was comparable to that of the Indianapolis, which was immortalized in “Jaws”, in that they were adrift at sea for several days before they were rescued, and that is why only ten survived out of a compliment of 700 sailors.

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A Lucky Country

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I can walk to work from a few different directions and I took a detour and headed south on LaSalle street. Just north of the Chicago River there is a refurbished office building with a large photo essay on the Eastland disaster. The S.S. Eastland was a passenger ship that capsized in 1915 and killed 845 passengers along the Chicago River (near where this building stands today). The exhibit is called “A Day Unlike Any Other”.

What does this essay say about America, and why are we “A Lucky Country”? As a history buff, when I see any date from the time period 1914-1918 only one thing leaps to mind – World War One. While the United States did participate in World War One, we declared war in 1917 and only had sizable forces on the ground for the 1918 German spring offensive and the subsequent Allied counterattack.

Thus while 1915 is “A Day Unlike Any Other” (and even the wikipedia page on this date, July 24, points to the Eastland disaster) in America, let’s put this in perspective.

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Nuclear Power – Demolishing the Myth

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In the media and in political circles there are debates on how electricity should be generated – while renewables are popular conceptually they don’t provide base load (reliable) power, and are responsible for a minuscule portion of our total electricity generation in the United States. In this fantasy “debate”, nuclear power has apparently had a mythical renaissance as public opinion among some greens notes that it emits little of the emissions that supposedly cause global warming.

Presidential candidates and others make pronouncements on nuclear power, such as John McCain’s call to build 45 nuclear reactors by 2030. Obama isn’t calling for a specific number of
nuclear plants, but doesn’t dismiss plans outright.

WHO CAN BUILD A PLANT

All of these discussions, and phony debates, ignore a critical element – nuclear plants don’t get built because politicians or activists want them (or even because we are running out of power) – nuclear plants get built:

1) when the regulatory climate in a particular state allows for recovery and financing of these costs
2) when individual utilities are financially strong enough to incur the debt and raise the cash to see through the 10+ year process from site selection through actually powering up the reactor and delivering power into the grid

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Guineans mark ’50 years of poverty’

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I was reviewing headlines and saw this stark headline on the BBC News Africa section titled “Guineans Mark 50 years of poverty“.

Fifty years ago the country of Guinea on the West (duh… I said East originally, sorry I am directionally challenged) coast of Africa achieved independence from France.   Celebrations were recently held to mark this anniversary and the BBC correspondent heard the cries of “fifty years of poverty”.   The article goes on to interview a man at a train station who laments that the trains used to run when the French ruled the country but now they have collapsed like everything else as the country runs low on electricity and other elements of a civilized society.

Guinea took their opportunities for independence and squandered them with 2 brutal dictatorships over the last 50 years as strongmen systematically looted the mineral rich country and let the infrastructure collapse.   This is a sad story since the country has access to the ocean and a coastline as well as mineral wealth.   Unfortunately it shares borders with failed states and risks becoming one itself as the strongmen wind down their time in power, with no likely successors in sight.

In college I remember reading articles, books and novels about how horrible colonialism was and certainly this is not something that anyone would willingly embark on in this day and age.   I don’t remember, however, seeing how a country that has been independently managed for fifty years managed to do it so badly, in the aptly summarized “fifty years of poverty”.   For many years the blame was always on the formal colonialist rulers for this or that, the borders, or how one ethnic group was favored over another.

At some point, likely today for Guinea, this doesn’t make sense any more.   From the fact book, the average life span of a Guinean is 54 years old; so they don’t have any memory of the former French rulers while they were in power.   At some point they need to look at how they have mismanaged their country and hopefully find a way to change it from within.

I will wait in vain for colleges to re-appraise their brutal picture of colonialism with a more nuanced picture, contrasting the infrastructure development and investments during colonialism with the asset stripping, infrastructure decay, and utter chaos that came after they left.

Nuclear Power in the US – Deader than Dead

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Warren Buffett, the famed investor, owns a holding company named Berkshire Hathaway. Berkshire Hathaway invests in a number of industries where Berkshire’s leadership believes that they can make money over the long term.

Berkshire Hathaway made a lot of its money in the insurance business (GEICO). They like the steady returns and solid, understandable business model behind insurance. Also, due to Berkshire Hathaway’s AAA rating (VERY few US companies have this rating), they have a very low cost of capital which gives them a significant cost advantage against competitors.

The US utility industry (electricity) is an area where Berkshire Hathaway has made investments over the years. Berkshire Hathway bought up a group of Iowa utilities (where I used to work) that were rolled up into a company called MidAmerican Energy. Berkshire Hathaway has a very long time horizon (other CEO’s have to hit immediate earnings targets and are impatient) and thus they can be opportunistic, holding on to their (vast) cash until the right target comes along. Berkshire Hathaway jumped on Pacificorp, which had previously been bought up by Enron, when Enron’s finances imploded.

Recently Berkshire Hathaway bought up Constellation Energy, which is the electrical utility with nuclear plants that serves Maryland and Baltimore. Constellation Energy had a large energy trading arm that was intertwined with Lehman; when Lehman went bankrupt Constellation was going to be forced to put up more collateral and faced a downgrade in their credit ratings. Their stock plunged from $100 / share in early 2008 to as low as $13 before Berkshire Hathaway agreed to buy them; the stock is now at $26 / share and the company is worth $4 – $5 billion.

Constellation Energy was one of the “dreamer” companies that was thinking about taking advantage of US government tax breaks to re-invest in nuclear power. As I have noted previously, don’t bet on any of these plants getting built (maybe TVA builds one and someone else another one; this is not going to even cover those plants at end-of-life and being retired from service, much less constitute a renaissance in nuclear power).

Per a September 26, 2008 Wall Street Journal Article titled “Buffett Could Reshape Nuclear Power Industry” –

“Warren Buffett’s decision to rescue Constellation Energy Group Inc. gives one of the nuclear power industry’s biggest skeptics some important clout in deciding its future.”

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