The Billionaire’s Bailout

by David Bier on December 13, 2011

in Blog, Features

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Billionaire natural gas tycoon T. Boone Pickens says he wants an energy plan that will benefit all Americans. After Senators Harry Reid (D-NV) and Robert Menendez (D-NJ) introduced the NATGAS Act, Pickens praised the effort. “On behalf of the American people,” he said, “I ask the Senate to do what is unquestionably in America’s best interest: seize this unique and powerful opportunity and pass this bill.” While NATGAS is not unquestionably in America’s best interest, it’s definitely in Pickens’s interest.

T. Bone Pickens is major shareholder in Clean Energy Fuels—a natural gas company—that stands to reap a windfall from the bill. The NATGAS Act “would allow consumers purchasing natural gas vehicles or investors developing natural gas refueling stations to claim between $5 billion and $9 billion in federal tax credits over the next five years.” Pickens’ Clean Energy Fuels is counting on the bill’s passage. According to their SEC filing, “Our business plan and the ability of our business to successfully grow depends in part on the extension of the federal fuel excise tax credit for natural gas vehicle fuel, the reinstatement and extension of the federal income tax credit for the purchase of natural gas vehicles and the passage of legislation providing for additional incentives for the sale and use of natural gas vehicles.”

Pickens derides the “special interests that only care about themselves [who] will attempt to create false arguments and false choices to stop this legislation.” Yet this portrayal to a word describes Pickens himself. As the Washington Examiner reported: “Pickens owns options to buy 15 million shares of Clean Energy Fuels at $10 per share…. The NATGAS Act might drive Clean Energy shares to at least $17. Pickens, in that case, could exercise his 15 million options at $10 per share, and make more than $100 million risk-free on the options (plus another nine figures on the shares he already owns outright).

If the Solyndra scandal demonstrated anything, it was that government can distort markets in unsustainable ways. Yet even in the post-Solyndra age of energy policy, companies are still building future subsidies into their business plans, and it’s not just Pickens. The American Wind Energy Association has found that over one third of wind energy jobs are supported by a single subsidy—the renewable energy production tax credit (PTC).

Creating political industries is risky when firms are this dependent on government because their success is wholly dependent on the political climate, a fact that Pickens’ SEC filing implicitly acknowledges. “Continued reduction in tax revenues,” the filing discloses, “associated with high unemployment rates, economic recession or slow-down could result in a significant reduction in funds available for government grants that support vehicle conversion and station construction, which could impair our ability to grow our business.” Government funds, however, will always be “available” if Congress wills it. What worries Pickens is that in a recession, Congress won’t want to put more debt on taxpayers to finance his handout.

Congress should have learned already from Solyndra that government support for companies that can’t survive on their own merits is a bad bet. Even if the firm doesn’t go bankrupt, the government—by paying their losses—just might.

jes December 13, 2011 at 9:24 pm

I HAVE NO DOUBT THAT CLNE WILL BE NEAR $100 A SHARE WITHIN 3 YEARS, AND WITHOUT CONGRESS PASSING A THING. NATURAL GAS AS A TRANSPORTATION FUEL IS ALREADY BEGINNING TO BOOM. IT WILL SAVE OUR ECONOMY, CLEAN THE AIR, AND BOLSTER OUR NATIONAL SECURITY.

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