Congress follows the money on energy

The bill would mandate an increase in average fuel efficiency to 35 miles per gallon for cars, vans, SUVs and pickup trucks by 2020. (The current standard for passenger vehicles carrying fewer than 10 passengers is 27.5 miles per gallon; it's 22 for pickups.) Opponents of the legislation say, rightly in my opinion, that Detroit, already struggling to meet competition from Japanese automakers, would struggle to meet the standards. (On the other hand, whom does Detroit have to blame but itself if it has so few fuel-efficient cars and the Japanese so many?)

A faithful servant

But any energy bill on the House side has to get by Rep. John Dingell, D-Mich., the extremely powerful chairman of the Energy and Commerce Committee. Dingell got about 11% of his campaign funds from automotive companies and automotive unions in his 2006 re-election. And he faithfully represents his Michigan district, which depends so heavily on the auto companies for its economic well-being.

Speaker of the House Nancy Pelosi, D-Calif., favors the Senate bill with its fuel-efficiency standards. Dingell has said, instead, that he will put only the items on which his committee has a consensus in the bill his committee reports out to the full House. Needless to say, the committee does not have a consensus on fuel-efficiency standards, and the bill that will go from committee to the House floor in July won't include the Senate's standards.

Dingell, however, is an extremely shrewd politician. You don't serve nearly 52 years in the House of Representatives by misreading the political winds. So he isn't simply stonewalling a Democratic speaker. He has offered to put all the controversial issues -- such as fuel-efficiency standards and measures to reduce global warming -- in legislation that his committee will draft for a free-for-all on the floor in September.

If this were the Senate, with its elaborate rules that enable a minority to kill a bill by threatening a filibuster, I'd say Dingell was a lock to succeed in knocking down provisions unpopular in Detroit. But this is the House, where it's much harder to keep legislation from reaching an up or down vote. My best guess right now is that Dingell will be able to horse-trade with the farm state senators who want the big boost to ethanol in the Senate bill and put off a vote on the fuel-efficiency standards until September.

If he wins that seemingly minor point, however, he stands a good chance of winning the war. Once the farm state senators have their ethanol mandate in legislation, Dingell's opponents will have one less tool to use in building a coalition in favor of higher fuel-efficiency standards. If I were Dingell, I'd then split my opponents further by giving supporters of alternative energy more than they got in the Senate bill in exchange for putting up with lower fuel-efficiency standards.

Right now, I think we can be certain that the corn-to-ethanol and oil and gas industries have won big -- and the energy-efficiency niche has done quite well. For the auto industry and for alternative energy industries such as wind and solar, this one won't be over until the Fat Lady sings in July.

And maybe not then if Dingell forces an encore in September.

New developments on past columns

"Can bond market stand to be exposed?" What a difference leverage makes. Another hedge fund is in trouble because of the subprime mortgage market. Horizon ABS Fund has blocked new withdrawals after one investor with about $150 million in the $650 million fund sought to withdraw that investment. The fund lost 2.2% in April and 2.9% more in May and will be down for June as well. But it looks like the move will be only temporary and that the fund will be able to resume business as usual since the fund has been able to sell bond and derivative positions to raise cash. The firm that owns the fund says it does not face margin calls and has about $145 million in cash on hand to meet demands from the banks that have lent it capital.

Why such an orderly response at this fund in comparison to the turmoil at the two Bear Stearns (BSC, news, msgs) hedge funds where bank creditors actually seized collateral for a forced sale? Leverage. The most leveraged of the two Bear Stearns funds had borrowed 10 times its original capital from lenders. In contrast the Horizon ABS Fund used leverage of just 1.5 times its original capital.

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At the time of publication, Jim Jubak did not own or control shares of any of the equities mentioned in this column. He did not own short positions in any stock mentioned in this column.

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