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Good morning! And happy birthday to the late Freddie Mercury, whose remarkable voice (with a special guest) provides today's intro tune...

1 big thing: The luck factor in oil execs' pay
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Reproduced from a chart by The Conversation; Data: Standard & Poor's Compustat; Chart: Axios Visuals

Newly published research finds that luck plays a role in oil-and-gas executives' compensation — and one author says it's time to rethink how C-suite pay is structured.

What they did: Professors from UC-Berkeley and University of Michigan broke down 1992–2016 data for hundreds of executives at 80 oil-and-gas producers in their working paper (not peer-reviewed).

  • The study looks at exploration and production companies, but the analysis excludes companies that also have refineries. In short, that means the findings don't apply to big integrated companies like Exxon and BP and so forth.

What they found: Executives' pay rises when oil prices do. A 10% increase in oil prices leads to a 2% rise in compensation.

  • That's where luck comes in. These execs don't influence the commodity cycle. But its upward swings juice the value of their packages of bonuses, incentives, stocks and options, and other compensation. Per the paper:
Reflecting the size of this industry, the dollar value at stake in executive pay is substantial: total compensation of all energy executives in the latter part of our sample is almost $1 billion per year.

Why it matters: One of the authors, Lucas Davis, says the results should prompt changes in pay decisions. Davis, a professor at the Haas School of Business at the UC-Berkeley, tells Axios:

“Let’s make pay depend on relative performance. Not absolute. Let’s compare you to a group of peer companies."
“I would love for the boards of directors of oil and gas companies to think a little bit harder when they are negotiating the next pay package for executives.”

The intrigue: Execs' compensation rises more when oil prices are going up than it falls when prices are heading down.

  • Add it all up and the paper sees "rent extraction" rather than maximizing shareholder value. It suggests that executives have "co-opted the compensation process" to increase their pay during periods of "windfall profits."

One level deeper: The authors describe it this way a new blog post:

[A]t least to some degree, executives are exercising influence over the board of directors — extracting compensation packages that exceed what would be expected in a competitive labor market.

The big picture: The paper has corporate governance ramifications. It finds less "pay for luck" at companies where fewer executives sit on the board.

  • The paper looks back at a 2001 study by other researchers that introduced the term and finds the dynamic remains. The new analysis finds that "executives continue to be rewarded for luck despite the increased availability of more sophisticated compensation mechanisms."
2. Battery startups eye long-sought breakthrough

Axios' Steve LeVine writes ... One of the most confounding areas of research is the battery, a technology that, while invented more than two centuries ago, is still frustrating scientists.

But amid robust electric-car competition pitting the U.S. against Germany, China and other nations, researchers say their hopes are growing for a breakthrough.

Driving the news: One of the companies that has attracted much attention is Sila Nanotechnologies, an Alameda, Calif., startup that claims to have figured out how to build a working silicon anode, one of the two electrodes that make lithium-ion batteries work.

Why it matters: A breakthrough using silicon would pack much more energy than the standard graphite anode. The problem with silicon, however, is that it expands dramatically in use, shattering the battery.

What they did: Sila says it has solved this problem and raised battery performance by 20% over current commercial rivals.

  • Gene Berdichevsky, Sila's CEO, tells Axios that the company's anodes still swell, but that the structure of the electrode absorbs most of the expansion.
  • "We solve this by compensating for it in the particle structure (creating room for its expansion correctly)," he says.

Yes, but: A significantly better battery is still years ahead. Even companies such as Sila that claim to have resolved a fundamental technical roadblock say they will need to try out their batteries first in small devices, not electric cars.

Go deeper: Read the full story in the Axios stream.

3. Two Exxon things: Guyana and methane

Axios' Amy Harder reports ... ExxonMobil is reasserting its self-imposed commitment to cut emissions of methane, a potent greenhouse gas that’s the primary component of natural gas, as the EPA prepares to repeal regulations.

Why it matters: The comments, posted Tuesday by the CEO of XTO Energy, an Exxon subsidiary with large U.S. natural gas operations, illustrate an awkward predicament facing industry under President Trump.

  • Some of the biggest global companies are seeking to emphasize a social license to produce fossil fuels even as the Trump administration pursues aggressive regulatory rollbacks.
  • Read more of Amy's story.

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Meanwhile, the new episode of Wood Mackenzie's podcast puts the scale of Exxon-led discoveries off Guyana's coast into perspective...

"[S]ince 2015, the year in which the wider discovery was made, which was the discovery that really kicked things off in the basin, the Stabroek block has delivered over 15 percent of all conventional discoveries by volume made globally up to the year to date.”

Why it matters: Exxon has made a string of discoveries that it says total over 4 billion barrels of oil-equivalent.

  • It's a major part of the company's future growth plans and a bright spot during what has been a rough stretch.

What's next: More discoveries are likely from Exxon, which has an active exploration program in the region. But as the podcast notes, several other companies are also poised to begin exploring off the coast of what's going to be the world's newest petro-state.

4. Utilities stay cool to coal despite Trump

The Washington Examiner reports that key utilities including Duke Energy and American Electric Power aren't looking to extend the lives of their coal-fired power plants despite Trump administration moves to help keep them running.

Why it matters: Their piece gets several utility powerhouses on the record about their plans and signals the uphill climb facing the White House as it tries to revive the fortunes — or even substantially slow the decline — of the once-dominant fuel.

  • EPA had floated the proposal recently to replace a much more sweeping Obama-era carbon emissions rule that was frozen by the courts.

What they're saying, per the Examiner:

[N]o utilities contacted by the Washington Examiner said they would commit to improving their coal plants, or re-evaluate planned coal plant retirements because of the Trump administration's new rule, known as Affordable Clean Energy, or ACE. And none of them have plans to build new coal plants.

Yes, but: The story adds to reports showing that despite the overall trend, the proposal could affect some power companies' decisions on the future of their coal plants. The Examiner writes:

Trump EPA’s coal plan could be most beneficial for smaller utilities, like co-ops that provide energy to rural consumers.

The intrigue: The administration's efforts to boost coal go beyond the U.S. power sector. S&P Global Market Intelligence looks at an upcoming report by an industry-led group of DOE advisers on ways to bolster exports.

Go deeper: The limits of Trump's new coal move

5. Lightning round: The future of Tesla and EVs
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These emails to BuzzFeed News from Tesla CEO Elon Musk are pretty jaw-dropping and not in a good way. The obvious bottom line is that Musk is erratic and that's a problem for the company.

The present is pretty messy for Tesla lately, but about the future: Motor Trend looks at the next generation of the Roadster that's due in 2020. They report:

At the inaugural Grand Basel car show in Switzerland, Tesla brought out a white Roadster to celebrate the sports car's European debut.

Back to the present, Business Insider reports on the trials and tribulations of life working at Tesla's Gigafactory in Nevada.

Meanwhile, via Reuters: "Mercedes showed on Tuesday how it is 'aggressively' gunning for top spot in upscale battery cars market currently dominated by Tesla, as it unveiled the EQC, its first fully electric car, at an event in Stockholm."

The big picture, per Bloomberg's coverage of the Mercedes rollout, is that Tesla competitors are circling...

The car joins the Porsche Taycan, Audi e-tron and Jaguar I-Pace in putting pressure on Tesla as the California-based carmaker struggles to ramp up the Model 3 and make a profit.
6. The race to become one of the "smart cities"
Illustration: Rebecca Zisser/Axios

Axios' Kim Hart reports ... Cities are increasingly marketing themselves as "smart cities" hyper-connected, sensor-equipped communities in their latest economic development pitch to attract workers and businesses.

Why it matters: Metropolitan areas across the country are trying to take advantage of new technologies to become more efficient and sustainable — two qualities that appeal to younger generations of workers, as well as the startups and big corporations who want to employ them.

"Smart city" is the buzzword adopted by tech firms and mayors to describe areas that mash together fast internet, sensors and automation to power "smart" streetlights, energy meters, water monitors and transportation systems.

One example is on the outskirts of Denver, where Panasonic has created a 400-acre mini smart city as a laboratory for easing congestion and reducing energy consumption.

  • It has built its own microgrid, a model "smart" apartment, a mini-downtown with connected streetlights that automatically dim based on natural light.
  • Light posts can also house 5G antennas, sensors and cameras. Self-driving shuttles circle the project.

Read more of Kim's story.