Friday, January 31, 2014

When government plays in markets, customers pay

Government sometimes promises consumers that by paying higher prices now, they will pay lower prices later.

The government gets into the market, but leaves all the risk to customers.  It’s happening again, and this time the market involved is New England.

The six New England states have agreed to ask federal regulators to allow the cost of new natural gas pipelines to be included in electric rates.

The region’s power suppliers are increasingly using natural gas to replace imported oil and domestic coal.  It beats the traditional fuels on price and environmental impact.

But natural gas has been in tight supply at times, driving up its price, because of too few pipelines to bring the fuel from outside the region.  And the market has not yet spurred private investment in new pipeline construction.

So government would step in and require electric customers to pay subsidies to the natural gas pipelines.  Then, the theory goes, natural gas will be readily available at lower costs, thanks to the removal of the supply bottleneck.

Perhaps, though unregulated natural gas suppliers might not sell cheap, but could go for as much as they can get from customers who had become heavily dependent on them.

In the electric business, the promise of “pay me now and you’ll get lower rates later” has been made before, but it has not been kept.  

In 1978, faced with a slowdown in Middle East oil supplies, a federal law decreed that states should use renewables if they could be purchased at the same price as forecast for other sources.  Maine regulators guessed at high future oil costs and required the introduction of costly renewables.

In the end, the renewables cost too much, and plants were shut down.  Customers got to pay for the “stranded costs” of the shuttered plants, essentially getting nothing for their money.

In 1992, a new federal law required the transmission grid to carry power for generators, which were to be managed independently of the wires companies.  The idea was that competition among generators would bring prices down.

That was a good idea, but federal regulators could not leave it alone. Without being required to do so, they set up markets.   Under their system, New England customers are charged the cost of the most expensive supply even if their power comes from cheaper units.

The old system had charged customers different prices for various units, depending on their cost of fuel.  The new system, with its uniform high price, denied customers the benefits of competition.  Prices did not fall.

New England has among the highest electric rates in the country, hardly conducive to attracting business.  Maine, the poorest state in the region, may suffer the most.

Public policy keeps finding ways of raising rates.  The offshore wind project recently approved by the Maine Public Utilities Commission will add to rates.  The new pipeline proposal would do the same.

There’s still some hope for customers.  The proposal may not be legal.  There’s a real question if federal electricity regulators have the authority to include the costs of natural gas pipelines in electric rates.

But here’s more bad news for customers.  New England, having made hydro development almost impossible in the region, longs to buy “cheap” hydro power from Canada.

Why would Canada sell to New England at a price below the market?   

A recent long-term deal between two Canadian provinces sets the selling price of hydro at the New England market price of power as it floats in the future.  If they use the New England price for Canadian sales, why wouldn’t they do the same for New England sales? 

Politicians keep looking at Hydro Quebec, where rates seem to be lower. And that utility has a long-term deal with Vermont utilities that looks pretty good.

Provincial rates are political rates in some Canadian provinces, so it’s unlikely they would treat New Englanders the same way they treat their own customers.  After all, Hydro Quebec is owned by the Quebec government.

As for long-term deals at contract prices, buyers never know how the deal will look years after it was made.  One Canadian province has been litigating unsuccessfully for decades with Hydro Quebec over pricing in a long-term deal. 

If New England were to tap those Canadian imports, new transmission lines would have to be built, paid for by customers.

There are lessons here.  When markets don’t produce desirable results, government probably can’t fix the problem by fiddling with the market.  And when government electric policy fails, the customer gets the bill.

Saturday, January 25, 2014

Technology’s rapid momentum brings problems, dangers

Technology, with all its wonders, has brought us a raft of problems. At times, it seems we have more new technology than we can handle.

Its rapid introduction has brought efficiency and inefficiency, security and insecurity, and creativity and criminality.

The Internet is the genie the computer let out of the bottle, but it is not completely clear whether it is good or evil.

The revelations by Edward Snowden about the NSA’s collection of phone and Internet records continue to raise concerns, as does the NSA’s plans to develop a way of breaking through any protection to gain access to emails, messages and files.

News reports say that people are being flooded with unwanted emails and that telephone lines are being similarly inundated with unwanted calls intended to block some emergency services.

Journalists are being harassed by those receiving unfavorable coverage, who doctor online images to make it look like the reporters have been compromised. 

Using the tools of identity theft, crooks have stolen more than a million IRS tax refunds, beating the taxpayers by filing phony tax returns.  They simply create false W-2 forms.

Credit and debit card charges at Target, Neiman-Marcus and potentially many other stores, were hijacked, supposedly by a young man in Russia, exposing data about millions of people.

In the Obamacare fiasco, computer programming was not up to the task entrusted to it, placing one of the most significant new national programs in jeopardy.

In some places, the police can use electronically guided drones to watch anybody they choose without first getting a warrant. 

In Maine, the Department of Health and Human Services has knowingly overpaid care providers millions of dollars, because it cannot get its electronic accounting system to work properly.

Individuals themselves have contributed to the problems by the extensive use of social media – like Facebook, Twitter and LinkedIn – leading to personal information being widely available for criminal exploitation.

Finally, international battles, fought on computers rather than on the ground, produce serious threats.  Can Chinese hackers bring down the American electric utility grid?

The Internet was meant to be open to all, a system with no central control and no police. Little thought was given to the potential for abuse.

It has made many aspects of our lives easier, producing faster results.  That promotes commerce and conversation and brings the world into homes in even remote areas.  It is an aid to education.

Despite its problems, its advantages are so great that we cannot try to stop its momentum.  But a case can be made that its relentless advance should not continue to provide uncontrolled access to hackers or to trample the privacy rights of its users.

There are some reasonable steps that can be taken to reduce the threats of technology.  Many of them are in the hands of users themselves and do not require government action.

We should take seriously advice to use strong passwords and change them frequently.  It’s annoying but as essential as locking away your valuable property. 

In their haste to wring profit from the Internet, many companies do not pay enough attention to their own security.  In the end, both the user and the merchant or bank must get tough and be continually watchful.

Target should have made business aware of the need for great security and customers understand the value of carefully reading their credit card statements.

And we need better backup systems for conducting our business and operating the power grid, something like we had before the coming of the technological revolution.

That could mean making and retaining paper records.  It could also entail keeping mechanical systems available as backup instead of eliminating them when electronic solutions come along.

As for government, beyond the big questions created by the Snowden NSA revelations, cyber policing needs to be increasingly.  We need an electronic cop on the beat. 

In short, we need a visible police presence always on the lookout for those who would distort the technology marketplace for illegal purposes.

On the international level, it should be obvious countries will always spy on one another and that the Internet will help them.  There’s not much that can be done about that.

But all countries’ economies are vulnerable to outside hackers.  Russia and China are as easily hacked as the United States.  

Illegal use of the Internet anywhere should be a crime everywhere. That’s exactly what the world did to sharply reduce piracy on the high seas, and it’s time to treat Internet crime in the ether the same way.

Friday, January 17, 2014

Government, like weather, beyond our control

Two forces affect the lives of many people and are beyond their control.

The weather and the government.

Businesses accept the inevitability of their influence and try to work around the effects of government action as much as they adjust to changes in the weather.

Last month’s unemployment figures show the effect of weather on business.  New job creation and construction jobs were well below expectations and many people stopped looking for work, influenced by storms and bitter winter chills.

Those weather-induced impacts may cause the Federal Reserve to maintain its easy lending policies and could encourage the continuation of unemployment payments.

They could also prompt business to step up their online sales, making shopping easier in almost any weather but not creating many new jobs.

Business must adjust to the weather, because it cannot change or influence it.

“Everybody talks about the weather, but nobody does anything about it” goes the old saying. 

The more worrisome problem is the “us and them” attitude of government, which leaves both business and other people feeling as helpless and leaving them frustrated and unhappy.

Big business is often able to influence government, but most businesses must simply find a way to live with rules, paperwork and policies that seem to them burdensome, costly and pointless.

Government often treats citizens with the same indifference as the weather instead of recognizing that its purpose is to serve the people.

Items in the news recently illustrate the point.

Political staffers of New Jersey Gov. Chris Christie engineered a four-day traffic jam in that state’s Fort Lee on approaches to the George Washington Bridge as a way of punishing the city’s Democratic mayor for not supporting Republican Christie’s re-election.

The tie-ups were incredible, slowing ambulances, making school children miss their classes and causing many to be late to work.

The staff showed no concern for the people affected.  Perhaps they expected those caught in the jam would figure out the reason why and beg the mayor to support Christie. It didn’t happen.

In this case, politics took precedence over public service. And the instrument used by the governor’s staff was government, supposedly “of the people, for the people and by the people.”

The press, which can be a powerful force it is own right, smelled something wrong and finally got out the story that the blockage was caused by politics and not a phony “traffic study.”

Christie’s staff was forced to release the emails showing that they had conjured up the traffic crisis.   But their action only partially solved the problem.

If you look at the emails, you would see that large parts are blacked out, “redacted” as the lawyers call it.  Why? No reason is given, but it seems clear the reason is to protect some of those involved.

Not only is the public mistreated, but it cannot gain access to documents written and sent on the government email system for which it paid.

Before people write off New Jersey as a special case, it’s worth remembering that the arms-length treatment of citizens by government happens elsewhere.

In Maine, Gov. Paul LePage refused to release a report on Medicaid expansion, which had been requested under state law by the press and was part of a study costing taxpayers $925,000.

Though loophole-ridden, Maine’s Freedom of Access Law requires such a document to be made public on request.  LePage told Attorney General Janet Mills to “sue me” if she wanted to get the document to the public.

It looked like the politics of the situation in which the GOP governor opposes efforts to expand Medicaid coverage and the Legislature, controlled by Democrats, favors it had become more important than the interests of the people.

LePage then changed his mind and released the document, possibly as a result of getting his own legal advice. The political cost of keeping the document secret may have been higher than the repercussions from releasing it.

Washington is even worse. It has taken massive leaks of government documents for Americans to learn their phone records are being collected and kept, and the National Security Agency, which does the collecting, has lied to Congress and the courts.

Millions of documents are routinely classified as secret, often more as a way of keeping government actions shielded from public view than because of the legitimate need not to tip off America’s adversaries.

Frustrated and angry citizens form ineffective, misguided and impractical reform movements or they just don’t participate in the political system.  Like the weather, government is unaffected.

Everybody talks about the government, but nobody does anything about it.

Saturday, January 11, 2014

Without sacrifices, no budget deal or tax reform

Somebody has to give up something. Or else.

Or else there is no hope that the federal government can either cut spending or reform the unfair tax system.

Today, the law is full of spending for countless interests, while the tax code provides breaks to promote countless activities.

Anytime Congress considers a serious proposal to eliminate some of the federal spending or close some of tax loopholes, the potential losers protest loudly.  Politicians listen to the outcry and almost always back off the proposal.

The case in point these days are military pensions. 

Generally, if a person serves for 20 years or more, he or she is eligible to begin receiving pension payments upon leaving the service.

Most people who serve in the armed forces do not stay for 20 years.  Less than one-fifth become eligible for a military pension.

The new budget bill reduces the cost of living adjustment, known as the COLA, by one percent for the period from the beginning of military retirement until the person reaches 62 years of age.

When a person hits 62, the pension takes a big jump up, because the retiree then receives payments as if the full COLA had been in effect in past years. From then on, he or she gets the regular unreduced COLA.

In other words, after having served for at least 20 years, a person gets a reduced pension until reaching 62.  And the vast majority of those who serve are unaffected, because they get no pension.

Of course, that temporary COLA reduction means a veteran receives a lower lifetime amount and the federal budget spends less.  The logic is that most of these people will get another job after retiring from the military and before finally retiring from all work, so they can manage.

No sooner was the bill passed than the protests arose.  The message seemed to be that the federal budget crisis was being settled on the backs of those who had voluntarily risked their lives in Iraq and Afghanistan to protect their country.

Claims like that are political dynamite.  It takes a strong politician to explain that the cuts affect a relative few, apply only temporarily and are part of a package of sacrifices needed to meet demands to cut the size of government and spending.

Both of Maine’s U.S. senators and Rep. Mike Michaud voted for the budget bill, but say they are opposed to the military pension change.  Rep. Chellie Pingree voted against the bill.

The three supporters of the budget bill now want the military pension provision repealed. But that means there must be other cuts, undoubtedly with a new group of protesters, to keep the budget under the control that Congress says it wants.

Pingree thinks the budget savings should come from cutting benefits for the rich and large corporations benefiting from tax loopholes.  But those interests have big lobbying budgets and make campaign contributions that shield them from such changes.

And so the wheel continues to turn.

There are only two ways to control the federal budget.  One is to cut spending and be ready to withstand the political wrath of those losing some financial benefit. The other is to raise taxes.

Both involve difficult political choices.  The budget package adopted in December made some of those choices.  When faced with a widely unpopular government shutdown or the package, Congress took the easier way out – adopting the package at least temporarily.

The easiest budget cutting measure has been to take money away from the poor and those least able to bring political and financial pressure on the politicians.

That means cutting off unemployment payments for the long-term jobless and reducing or eliminating food stamps for low-income people.  In politics, that’s called throwing people under the bus.

Pingree’s position is perhaps the most honest, but probably unrealistic, because there are not enough people in Congress willing to resist the power of big money.

The point is not that the military pension cut was the right thing to do.  It’s impossible to know that unless it is placed in the context of a broad review of all government spending and tax breaks.

That means setting priorities.  How do military pensions fit with tax breaks for oil companies?  What commitments must the government keep and what can it change?

Instead of enacting last-minute legislation to prevent shutdowns and picking on the less fortunate as targets of opportunity, the president, if he has an agenda, and the Congress, if it really wants to control spending, ought to propose comprehensive budget plans.