Energy Bill 2007 - And What it Means for the Stock Trader
By Dmitriy Vilenskiy | June 21, 2007
So the latest poll is showing approval ratings for Congress at a dismal 23%, big surprise? No, and the energy bill is another example of how the Senate and Congress keep messing up. But there are elements of the 2007 Energy Bill that will be beneficial to certain energy companies. Here’s how to take advantage of it.
Alternative Energy stocks spiked after the President promised to require 35 billion gallons of renewable and alternative fuels by 2017 during the State of the Union address on January 23rd.
Recently, however, alternative energy has been getting beat up, bad. Just consider this: Verasun, the second largest ethanol producer, down 31.5% since two months ago. Pacific Ethanol down 18.7%, Rentech down almost 10%, USBioEnergy down almost 25% in the same time period.
The Energy Bill which is expected to pass the Senate any day aims to increase federal funding and tax incentives for alternative energy to the tune of $28 billion. Who will benefit? Ethanol producers will clearly enjoy the $11 billion combination of extensions of existing tax breaks and new tax benefits over the next 10 years. One of the provisions is a credit of up to $1.11 per gallon for production of cellulosic ethanol, which is produced by sawgrass, agricultural waste and other biomass. Furthermore, the increased mandate of mileage standards for car manufacturers will likely have an effect on ethanol as well.
Another big winner maybe coal fuel producers. Rentech has been on the way down since September 2006, and down sharply in past several days on news that the Energy Bill will not contain subsidies for coal to fuel production. Although the coal provision may not pass, the stock is clearly oversold at current levels. If the bill language does contain concessions to the coal states though, watch Rentech jump.
Going back to my original point about the bill. The senators threw in a clause aimed at prosecuting what Democrats call “unconscionably excessive” gasoline prices. After all, should price gauging be permitted? Clearly not. So why is it that at about $3 a gallon, major companies are making a profit of only about 10 cents a gallon on their U.S. refining and marketing operations according to the U.S. Energy Information Administration, while the government is collecting taxes of up to 64 cents in certain states like New York?
Why is it that congress is up in arms about gasoline selling at $3 per gallon, but they mandate ethanol which drives agricultural prices to record highs? What good is it if gasoline costs 20 cents less when my corn or wheat is twice as expensive as a year ago?
DISCLOSURE: The author of this article has a long position in PEIX. | |