Nome is Waiting On Jones Act Waiver

I am finding myself getting "sucked in" to another political article. I find it unavoidable this time. I apologize to all of the people on the Left and Right that I may offend.

Several weeks ago, the Congress and the Senate unanimously passed the America's Cup Act of 2011 in order to allow the America's Cup World Series (ACWS) Event to take place in San Diego. (See our blog entry from 06 November 2011) from The noteworthy aspect of this was that Congress provided, essentially, a Jones Act Waiver to host the ACWS event in under 10 days. Nome has been trying to solve their Winter/Spring fuel problem for over a month now.

I find it interesting that our elected congressional officials were the "only ones" who could preserve the America's Cup event enabling jobs, an economic boost for San Diego and San Francisco. They did this in 10 days, yet a small town in Alaska can wait for a month to find out if they will freeze in February. I see that congress is very concerned with the welfare of all Americans. 10 days to pass a waiver that will create nearly 8000 jobs is impressive until you contrast it with the heating fuel and gasoline that will keep 5000 people warm during the coldest part of the year.

The point of this being, the America's Cup Act was completely and entirely one politician's PR stunt to put a feather in her cap for her (and her party's) re-election hopes. It was unnecessary, because the America's Cup Authority could have gotten the Jones Act Exemption the same way Nome, Alaska is getting it. Now, for every expedited exemption to the Jones Act gets to be run through Congress, which will continue to punch holes in a law that has been around since 1925.

For now, Nome, Alaska's well being (financial and otherwise), according to congress' inaction has been told its citizens are not as important as San Diego's.


The following is an Broadcast from Alaska Public Radio:

By Ben Matheson, KNOM - Nome | December 29, 2011 - 5:51 pm

Vitus Marine, the company contracted to help get fuel delivered to Nome, is hoping to hear back Friday on the status of the Jones Act waiver for the Russian tanker Renda. The waiver is necessary for the tanker to be able to load gasoline in Dutch Harbor. Mark Smith, CEO of Vitus Marine says the Defense Department and Maritime Administration have weighed in to Customs and Border Protection, who ultimately makes the decision. The waiver claims that Nome’s fuel is of indirect significance to national security. Alaska’s congressional delegation has sent a letter urging the government to approve the waiver.
Meanwhile, the tanker is headed towards port. Smith says the Renda was 340 miles southwest of Attu this morning. It’s expected to be in Dutch Harbor by the afternoon of Jan. 2.
Several question remain on the final routing and offloading of the fuel, but the regulatory pieces are starting to come together. On Tuesday, Vitus submitted its delivery plans to be approved by the state, filing an amendment to its oil discharge prevention and contingency plan to incorporate the cold weather considerations. The vessel support plan is unique as ice-capable tugs and spare barges will not be on hand – instead the Healy will assist, and land based tanks will provide space in the case of an emergency. The Renda itself is ice capable, but the state Department of Environmental Conservation is requiring the Healy’s participation.
The plan calls for the staging of skimmers, thousands of feet of boom, pumps, sorbent pads, tank trucks, and a bobcat. Vitus has contracted with the Chadux corporation to have spill response equipment on hand. There will be a spare 610,000 gallon tank available for emergency use even after the fuel is transferred.
John Kotula is the Manager of the Marine Vessels section for the Department of Environmental Conservation. He says the agency now is making sure that the plans and resources will be ready.
Additional logistics plans are in place for lighting and monitoring the transfer hose if it goes across the ice. The Renda will have extra environmental protection on board, plus three extra officers for a crew of 21. The document says Crowley has agreed to lend equipment in Nome should it be needed. And in addition to the Healy, the plan calls for the Coast Guard to supply a helicopter on shore, with C-130 support overhead, plus specialty personnel. Kotula says the state is in communication with private industry and government groups to make sure the pieces come together in the plan.
Vitus CEO Mark Smith says he’s confident in the plan. He says it’s based in part on what happens on the North Slope on a regular basis. The oil spill response plan is out for public review until Jan. 3.

House prepares to vote on ship ballast standard.

TRAVERSE CITY, Mich. (AP) — Environmentalists tried to rally opposition Thursday to a proposed national policy for cleansing ship ballast water to kill invasive species, contending it is too weak and would pre-empt stronger state and federal rules.
The U.S. House was expected to vote as early as Friday on the measure, which comes as the Environmental Protection Agency is preparing to release its own regulations of ship ballast — a leading culprit in the spread of invaders such as zebra and quagga mussels in the Great Lakes and ocean coastal waters.
Sponsored by Rep. Frank LoBiondo, a New Jersey Republican, the bill would adopt a standard proposed by the International Maritime Organization limiting the number of live organisms that would be permitted in ballast water. Vessel operators would have to install technology to meet the standard.
The shipping industry has pushed for a single nationwide policy, saying the current patchwork of more than two dozen state and tribal regulatory systems is unworkable because vessels move constantly from one jurisdiction to another.
Great Lakes shippers are particularly unhappy about New York rules that set live-organism limits 100 times tougher for existing ships than those under the international standard. For newly built ships, New York's standards would be 1,000 times stronger. State officials have postponed the effective date to 2013, giving shippers more time to comply.
The industry says technology to meet the New York requirements doesn't exist. Shippers say the state's strict limits could close the Great Lakes to oceangoing vessels, since they must pass through New York waters to reach the rest of the system.
"While individual state standards and those set by the Clean Water Act function well for factories that are fixed in one location, it simply does not work for vessels engaged in interstate or international commerce," LoBiondo said.
Environmental groups said the bill would prevent EPA and the U.S. Coast Guard, which is also developing ballast rules, from imposing standards tough enough to make sure no more exotic species reach the Great Lakes. About two-thirds of the 185 invasive species in the lakes are believed to have arrived in ballast water. They've done billions in damages and are implicated in a variety of ecological problems, from runaway algae blooms to a shortage of plankton crucial for the aquatic food web.
"This bill is designed to keep the shipping industry off the hook and violates states' right to protect their waters from invasive species," said Marc Smith, senior policy manager for the Naional Wildlife Federation's Great Lakes office.
The measure would allow EPA to strengthen the federal standard beginning in 2016, or earlier if a state requests it, according to LoBiondo's office.
But the wildlife group said the bill would make it "difficult, if not impossible, to add new protections, even if the EPA and other agencies determine that the (international) standard is not doing the job."

JOHN FLESHER, AP Environmental Writer

Updated 12:28 p.m., Friday, November 4, 2011

Mercury Marine's Report/Testimony on Ethanol to Congress

There was a House Committee hearing on the unintended consequences of increasing Ethanol in fuel  from 10 to 15 percent. I would be willing to bet no one in the news covered this at all. The following is a summary from a report from the National Renewable Energy Laboratory (DOE). Mercury Marine was contracted to conduct these tests, and demonstrates some disturbing effects of E15 fuel. Thes tests were exclusively performed on marine engines, and I hope that similar tests are performed on other outdoor power equipment.

The abridged version of the results are that two of three E15 test engines did not finish the test. All three of the non-ethanol control engines finished with no problems.The two-stroke E15 test engine was damaged so badly that Mercury Marine could not determine the cause of failure.

I feel that this information wasn't given enough attention in the hearing. The two stroke engine that was damaged beyond repair retails for approximately $15,000. Nobody mentioned this at the hearing. More attention was given to the testimonies of the EPA and the various individuals representing the Oil, Gas and Ethanol industries.

Click here to view the complete report. The Summary follows:

Objective:

The objective of this work was to understand the effects of running a 15% ethanol blend on outboard marine engines during 300 hours of wide-open throttle (WOT) endurance – a typical outboard marine engine durability test. For the three engine families evaluated, one test engine each was endurance tested on E15 fuel with emissions tests conducted on both E0 and E15 fuel, while a second control engine was emissions and endurance tested on E0 fuel for each engine family.

Summary of Results:

Results are based on a sample population of one engine per test fuel. As such, these results are not considered statistically significant, but may serve as an indicator of potential issues. More testing would be required to better understand the potential effects of E15.

9.9HP Carbureted Four-Stroke:

• The E15 engine exhibited variability of HC emissions at idle during end-of-endurance emissions tests, which was likely caused by lean misfire.

o Both the E0 control engine and E15 test engine ran leaner at idle and low speed operation at the end of endurance testing compared with operation at the start of the test.

o The trend of running lean at idle coupled with the additional enleanment from the E15 fuel caused the E15 engine to have poor run quality (intermittent misfire or partial combustion events) when operated on E15 fuel after 300 hours of endurance.

o CO emissions were reduced when using E15 fuel due to the leaner operation, as expected for this open-loop controlled engine.

• The E15 engine exhibited reduced hardness on piston surfaces based on post-test teardown analysis.

o The exhaust gas temperature increased 17°C at wide open throttle as a result of the leaner operation when using E15 fuel. Higher combustion temperatures may have caused observed piston hardness reductions. Lack of pre-test hardness measurements prevented a conclusive assessment.

• Several elastomeric components on the E15 engine showed signs of deterioration compared with the E0 engine.

o Affected components were exposed to E15 fuel for approximately 2 months; signs of deterioration were evident.

300HP Four-Stroke Supercharged Verado:

• The E15 engine failed 3 exhaust valves close to the end of the endurance test.

o Metallurgical analysis showed that the valves developed high cycle fatigue cracks due excessive metal temperatures.

• The pistons on the E15 engine showed indications of higher operating temperatures compared to the E0 engine’s pistons as evidenced by the visual difference in carbon deposits.

• The E15 engine generated HC+NOx values in excess of the Family Emissions Limit (FEL) when operated on E15 fuel, but did not exceed that limit when operated on E0 emissions certification fuel.

o The primary contributor to this increase in exhaust emissions was NOx due to enleanment caused by the oxygenated fuel.

o CO emissions were reduced when using E15 fuel due to leaner operation, as expected for this open-loop controlled engine.

200HP EFI 2.5L Two-Stroke:

• The 200 EFI two-stroke engine showed no signs of exhaust emissions deterioration differences due to the fuel.

o The E15 fuel caused the engine to run lean resulting in reduced HC and CO emissions. NOx was of little concern on this type of engine since NOx accounted for less than 2% of the total regulated HC+NOx emissions.

• The E15 engine failed a rod bearing at 256 hours of endurance, which prevented completion of the 300 hour durability test.

o Root cause of the bearing failure was not determined due to progressive damage.

o More testing would be necessary to understand the effect of ethanol on oil dispersion and lubrication in two-stroke engines where the fuel and oil move through the crankcase together.

4.3L V6 EFI Four-Stroke Catalyzed Sterndrive:

• Since E15 fuel was readily available in the test facility and an engine equipped with exhaust catalysts was on the dynamometer, emissions tests were conducted on a 4.3L V6 sterndrive engine to better understand the immediate impacts of ethanol on this engine family.

o At rated speed and load (open-loop fuel control) E15 caused exhaust gas temperatures to increase by 20°C on average and the catalyst temperatures to increase by about 30°C.

o More rapid aging of the catalyst system occur due to the elevated catalyst temperature when considering the high load duty cycle typically experienced by marine engine applications.

Conclusions and Recommendations:

Several issues were discovered in this study from an exhaust emissions and an engine durability standpoint as a result of running E15 fuel in outboard marine engines. Run quality concerns were also identified as a result of the lean operation on the carbureted engine.

Additional investigation is necessary to more fully understand the observed effects and to extrapolate them to all types of marine engines over broader operating conditions. Effects on operation at part load, transient acceleration/deceleration, cold start, hot restart, and other driveability-related concerns need to be evaluated. This test program was mainly testing for end-of-life durability failures, which would not likely be the first issues experienced by the end users. A customer would likely be affected by run quality/driveability issues or materials compatibility/corrosion issues before durability issues. The wide range of technology used in marine engines due to the wide range of engine output will complicate this issue (Mercury Marine produces engines from 2.5HP-1350HP).

More testing is needed to understand how ethanol blends affect lubrication systems in two-stroke engines that have fuel and oil moving through the crankcase together. Crankcase oil dispersion is the only mechanism by which two-stroke engines of this architecture provide lubrication at critical interfaces such as bearings and cylinder walls. Ethanol may have an effect on the dispersion or lubricity of the oil.

A better understanding of how long term storage affects ethanol blends in marine fuel systems would require more real-world testing. Marine vessels often go through long periods of storage that could affect the fuel systems given the fact that the ethanol portion can absorb water when exposed, especially in humid areas near saltwater.

How Significant is One Company?

It is not often that I write about a specific shipping company, however today I feel that this one is worth mentioning. There is more to this article than just one shipping company, there is a more important issue for people to think about. In a time where it is commonplace for companies to be "delisted" by the New York Stock Exchange (NYSE)  or the NASDAQ there is significance to the fact Horizon Lines was delisted from the NYSE.

What is it about Horizon that makes this so significant? The short answer is the Jones Act of 1920. Horizon lines is one of the largest Jones Act cargo carriers in business today. What the Jones Act does is restrict domestic cargo to U.S. manufactured, U.S. owned and U.S. crewed vessels for interstate cargo.

Horizon shares traded (at the time of writing this article) in the .24-.25 range, whereas in January, shares were trading at 52 week highs of 5.95. While I don’t believe this company is in serious trouble, its stock price has put its future in question.

If a foreign company were to come in and purchase this company, it would be one less Jones Act Carrier to become history. (Remember must be U.S. owned) This would mean, assets would be sold or moved and the remaining Jones Act Carriers would pick up the slack. Demand for shipping would go up, because there would be less supply. Prices would go up for shipping, and then eventually tacked on to the products each of us buys.

The government isn't helping either. Refer back to the blog article regarding the implementation of fuel usage fees on October 19, 2011. With the expansion of the definition of U.S. Waterways in the proposed fuel usage fees could in fact change the scope of the Jones Act.

The bottom lie is that if Horizon lines disappears from the list of Jones Act Carriers, it wouldn’t be the end of the shipping industry within the United States. However, there are many overlapping factors that get overlooked. If the operating costs are increased for carriers, companies that are struggling could be forced out of business. Because of the economic crisis, our elected officials are scratching their heads trying to uncover more funding. A fuel usage fee, or expansion of areas covered could give the government more funds to resolve the debt crisis. When a congressman, or senator or even the president says "this will provide millions if not billions" I submit that they have not researched the overarching effect to companies like Horizon who are struggling to come back from the last crisis caused by inappropriate legislation.

I'm thinking about this stuff, are you?

K.Swanson

New Fees for Inland Water Way Being Considered

As reported by Professional Mariner, Congress recently began considering an Inland Waterways Development Plan to improve the United States inland waterways transportation system and infrastructure over the next 20 years.

Agreed, the inland waterway system is in need of some major maintenance and upgrades, however the idea of another tax submitted under the radar of most media is a bit unsettling. The most troubling aspect, is that there have been numerous expenditures by the Federal Government earmarked for the "Nation's Infrastructure" that have funded projects such as wildlife repopulating, tunnels for turtles, beach erosion repair and countless others. The term "Shovel-ready" has been used a lot in the interest of political posturing with regards to the current unemployment situation.

I get the feeling that a six to nine cent increase per gallon of diesel assessed on commercial carriers may not seem like a big deal to a lot of people. I suggest we dissect what is happening here. First for every 1000 gallons of fuel sold to commercial carriers as a "user fee," this means a 90 dollar fee (tax). Commercial carriers use 10's of thousands of gallons of fuel per month. Next, they (the Government) is redefining the scope of what constitutes U.S. Waterways, more than doubling the covered area to include the Intercoastal Waterways (ICW). What's the big deal? The ICW commercial operators will now be assessed this fee, which means no matter the size of your boat, if you use it commercially you will pay this additional money.

The most important thing to remember about these fees charged to the commercial carriers are passed down to the end consumer. Costs of goods that are transported on the inland waterways as well as the intercoastal waterways will go up. Who's paying for the upgrades, not the commercial carrier, but the every American who struggles to pay for the goods they already buy.

I will end this by comparing this whole situation to the revision of banking regulations Early on, many critics said there would be unintended consequences. Two years later, everyone is up in arms about the fact banks are charging customers to use debit cards. (Most notably Bank of America.) I don't blame the banks, they are a business and are simply passing on the cost of operations to the consumers. Long story short, if you spend money on any product or service you will be contributing to this increased user fee for inland waterways and the expansion to cover the ICW.

K. Swanson

Mystery Bay Marine, LLC

Some Ethanol Tax Facts - the First of Many.

I was doing a little research for a upcoming blog article on Ethanol and found this little gem in wikipedia. Honestly, the accounting involved here made my head spin and forced me to try and find the answer to one monstrous mathematical word problem. The article is intended to be about how much Ethanol costs the average person. No one, that we've found anyway, has really explored how much it costs indirectly through repairs to older vehicles, outdoor power equipment and boaters. We're publishing this a little ahead of the article this research is intended - but I thought it was worth sharing. If there's an acountant out there who has the spare time to figure this little bit out, I personally would be grateful!

Since the 1980s, domestic ethanol producers have been protected by a 54 cent tariff on imports mainly intended to curb Brazilian sugarcane ethanol imports. Also, since 2004 blenders of transportation fuel have received a tax credit for each gallon of ethanol they mix with regular gasoline.^[60][61] Historically, the tariff has been intended to offset the federal tax credit that is applied to ethanol no matter its country of origin.^[62][63] However, several countries in the Caribbean Basin have been importing Brazilian ethanol, but not for domestic consumption, instead these countries reprocess the product, usually converting Brazilian hydrated ethanol into anhydrous ethanol, and then re-export it to the United States, gaining value-added and avoiding the 2.5% duty and the USD 0,54 per gallon tariff, thanks to the trade agreements and benefits granted by Caribbean Basin Initiative (CBI) and free trade agreements. This process is limited by a quota, set at 7% of U.S. ethanol consumption.^[64]
Currently, blenders receive a US$0.45 tax credit for each gallon of ethanol that is blended with gasoline, regardless of the feedstock; small producers receive an additional US$0.10 on the first 15 million gallons produced; and producers of cellulosic ethanol receive credits up to US$1.01. Tax credits to promote the production and consumption of biofuels date back to the 1970s, and the current credits are based on the Energy Policy Act of 2005, the Food, Conservation, and Energy Act of 2008, and the Energy Improvement and Extension Act of 2008, and the tax credit is due to expire on December 31, 2011.^[28] However, on June 16, 2011, the U.S. Congress approved an amendment to the economic development bill to repeal both the tax credit and the tariff on ethanol, but this bill has an uncertain future.^[60][61]
A 2010 study by the Congressional Budget Office (CBO) found that in fiscal year 2009 the biofuel tax credits reduced federal revenues by around US$6 billion, of which corn ethanol accounted for US$5.16 billion and cellulosic ethanol accounted for US$50 million. A 2010 study by the Environmental Working Group estimated that the cumulative ethanol subsidies between 2005 and 2009 were US$17 billion. Considering the levels of ethanol production mandated by the Energy Independence and Security Act of 2007 (EISA), the same study estimates that the total cost to taxpapers will be US$53.59 billion if these tax credits continue to be extended until 2015, when 15 billion gallons are required by EISA.^[65]
The CBO estimates that the costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for corn ethanol and $3.00 for cellulosic ethanol. In a similar way, and without considering potential indirect land use effects, the costs to taxpayers of reducing greenhouse gas emissions through tax credits are about $750 per metric ton of CO2-equivalent for ethanol and around $275 per metric ton for cellulosic ethanol.<sup>[28]

To see the original Wikepedia article please click here.

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Karl Swanson
Owner/Manager
Mystery Bay Marine, LLC</sup>