Saturday, March 22, 2014

“Shockingly stupid” electric policy threatens consumers

When the head of a major electric company says today’s policies are “shockingly stupid,” we probably should pay attention.

At the premier annual energy summit, David Crain, CEO of NRG, a company owning more generators than are in all of New England, said, “Think how shockingly stupid it is to build a 21st-century electric system based on 120 million wooden poles.”

Crain believes people will buy less power, making less use of the electric system.  They use power more efficiently, and more electricity will come more from “distributed generation,” small units serving individuals and local areas.

Not everybody agrees with Crain, but his warning cannot be ignored.  And the market is showing some of what he forecasts is already happening.

All electric utilities own wires.  Customers pay their wires charge for each kilowatthour – the unit of electricity – they use.  If customers use less electricity and utility revenues fall, the wires companies still want to cover the cost of their wires.

Beyond cost recovery, most utilities also collect a profit from their customers.  The state grants electric utilities monopolies, and regulators allow them to set their rates to achieve a specific level of profit.  Most other companies get neither break.

Utilities seek to protect their profits by “decoupling,” which separates their profits from all other wires charges.  In other words, they get to collect the same amount of money to pay to their shareholders even if their wires are used less.  That pushes up their rates, because the profit is spread over fewer kilowatthours.

A utility can make up shortfalls in its revenues to pay for the wires and profits by raising the rates paid by all customers.  Across-the-board increases mean customers who have not cut their usage pay some of the costs left behind by those cutting their purchases.

Or the utility can argue customers cutting their usage may still occasionally place demands on the system, so they alone ought to pay higher rates serving as a sort of insurance premium.  That’s what Central Maine Power is now proposing.

At some point, that approach could encourage some customers to completely drop off the system.

If utilities risk losing sales, their investors will want even higher returns on their investment, pushing rates up.  Fearing rate increases, customers will be discouraged from cutting their purchases of power from the grid.

That looks like a lose-lose situation.  The utilities have a financial obligation to their investors, so they look to customers to pay more.  Customers feel cheated of the promise of efficiency and distributed generation if rate increases are their reward.

Regulators are supposed to strike a balance.  But, in New England, they done just the opposite, piling on wires costs and boosting utility profits, supposedly to get more renewables to the market. 

Customers who want the utility to maintain its wires for their possible use when needed should pay for this insurance.  Perhaps smart meters can help make how they pay more fair.

Instead of charging for wires service by the kilowatthour delivered, as is usually done today, utilities could charge for the maximum demand by each customer, as shown on the new meter.  The customer would pay for the highest amount of wires used each year instead of the amount of power flowing on the lines

That could encourage customers to try to use the grid even less, especially at peak usage times when power costs are high, promoting conservation and distributed generation.  But it might send us into the same spiral of less usage leading to higher rates. 

Maybe it’s time to change the nature of the electric industry.

The country has already made one big change.  Though electric service is a vital necessity, Congress decided that it could be supplied by non-utilities, taking their own risk on building power plants, rather than utilities and their customers taking that risk.

We are no longer stuck with the same old way of generating power.  Should we be stuck now with the same old way of transmitting it?

Today we face a situation just like having customers pay for buggy whips, even though we now have automobiles.  The buggy whip makers had to either change their business or quit.

Electric utilities could get into the unregulated businesses of selling distributed generation or efficiency services.  They would have to move away from their current all-wires business model.

Change is essential unless regulators expect to have people pay more and more for less and less, thus preserving the traditional utility at its customers’ expense. 

Saturday, March 15, 2014

Young adult voters pose problems for GOP

When political conservatives met last weekend in Washington, a split in their ranks emerged.  Younger activists urged the right wing to focus on economic issues and downplay opposition to same sex marriage and marijuana legislation. 

That divide is concrete evidence of a newly reported break between younger and older adults, not limited to conservatives.

The widely respected Pew Research Center, a nonpartisan, independent organization, found through its surveys the so-called Millennial generation, young adults between 18 and 33, has different views from older adults.

Young American adults are less connected to political parties or formal religion than their elders.  They are big users of social media, marry late or not at all, distrust others and carry big debt.

They are better educated than any young Americans have ever been, but they suffer greater economic hardships than others in the past few decades.  The recent recession hit them hard.

This group is more racially diverse than any before in American history.  About 43 percent are nonwhite as is about half of all newborns in the country.

Most Millennials are political independents and not formally aligned with either the Republicans or Democrats.  Only 31 percent of them think there’s a great deal of difference between the parties.  Those with party affiliation are Democrats by a big majority.

They are less likely to affiliate with any religion and or to say they believe in God.

They have a different life style.  Only 26 percent of Millennials are married.  When they were the same age, 65 percent of the Silent generation, those now 69 and over, were married.

Don’t all young people go through this stage and then grow wiser with age?  Pew says that’s not the case, because on identical matters, the Millennials hold different attitudes from those held by older adults when they were as young.  And the older people seem to have held onto many attitudes they had when they were youthful.

How do all these findings translate politically?

The country is changing, not merely going through a growing-up phase.  And that change can have a huge effect on American politics.  The Pew report may not be good news for Republicans.

Political polls have shown Millennials vote “strikingly Democratic,” Pew reports.  They hold “liberal views on many political and social issues, ranging from a belief in an activist government to support for same-sex marriage and marijuana legislation,” according to Pew.

The Census Bureau projects a majority of Americans will be nonwhite in less than 30 years.  As this group ages and adds their children to the population, their views are expected to count more in voting.

Current GOP opposition to resolving the immigration problem, mainly a Hispanic issue, could cost the Republicans in elections as early as this year.

In short, if the Republican Party cannot find a way to appeal to younger nonwhites, it risks losing power to the Democrats.  In solidly Republican Texas, for example, voting analysts expect that Hispanics there will be numerous enough in the next ten years to turn power over to the Democrats.

These days, in many parts of the country, the GOP bases its political domination on social issues having a religious basis.  Opposition to same-sex marriage and abortion, so-called “wedge issues,” have helped it gain political victories.

If the Millennials take their attitudes into later life, which Pew appears to see as possible, faith-based issues may count for less among the voting public.  Such a shift could weaken GOP support. 

The young conservatives at last weekend’s annual conservative conference complained these social issues highlight what conservatives oppose, when they should be talking more about positive policies.

Young adults, not only conservatives, are favorable to business, traditionally linked to the GOP.  If the Republicans emphasize economic issues more and stress social concerns correspondingly less, they may be able to capture support from Millennials.

Despite its low trust of others and the economic worries of many of its members, the generation of young adults is more optimistic about the future of the country than were the Boomers (now 50 to 68) when they were the same age.

And Boomers have become more conservative over time, so it is possible than Millennials will as well.  But the racial mix and more difficult economic conditions of today’s young adults might produce a much different result.

Millennials are about a quarter of all adults.  While Maine has the highest median age in the country, the percentage of Millennials among the adult population is only slightly less than in the country as a whole.

Saturday, March 8, 2014

Tax reform dead on arrival, killed by Dems, GOP

Democrats and Republicans have again shown their unusual capacity to get nothing done in Washington.

Both parties recognize the federal tax code is a mess, riddled with so many deals for a wide variety of special interests that it is no longer fair in the way it treats most Americans. 

The last time there was full-scale tax reform was in 1986, when Ronald Reagan, a Republican president, negotiated an agreement with Sen. Daniel P. Moynihan, a New York Democrat.  It cut rates and eliminated loopholes.

But loopholes seem to regenerate almost by themselves.  Now the code is again riddled with special breaks and is hopelessly complex.

Rep. Dave Camp, a Michigan Republican and chair of the House Ways and Means Committee, has waded into the mess and come up with a proposal for tax reform.  It’s a serious plan that does much the same as was done by Reagan and Moynihan.

The reaction of the parties?  The Democrats rejected it instantaneously, because it does not raise taxes on the rich.  The New York Times, friendly editorially to the Democrats, echoed their view, finding it “a huge missed opportunity.”

On the other side, GOP House Speaker John Boehner’s reaction, when asked to comment on the proposal, was devastatingly simple: “Blah, blah, blah, blah.”  To him, it was not worth commenting on a plan that was dead on arrival.

What Camp offered was a comprehensive and thoughtful attempt to eliminate tax breaks, many benefiting big business and the wealthy, and using the proceeds to reduce rates for all.  The proposal was intended to be “revenue neutral,” meaning that it would raise the same amount of money as the current tax code.

That’s the essence of tax reform.  It fixes a broken code without at the same time either raising or cutting tax revenues.  The object is increase fairness.  Tax increases or decreases are completely separate matters.

A tax loophole allows somebody to avoid paying some taxes, leaving it to others to pick up the shortfall.  To lower rates for most people who do not use many of the loopholes, they have to be closed for others. 

A good illustration was provided recently by the Maine Center for Public Interest Reporting, which found TIFs – tax increment financing – amount to a tax break for some towns at the expense of others.  Yes, loopholes exist in Maine law, too.

Tax breaks find their way into the federal tax code thanks to the pressure of those who expect to benefit from them and politicians who favor them, often in anticipation of some of that money flowing back as campaign contributions.

Those who benefit from the breaks defend them by claiming they are essential to the well-being of the country.  They want more of them, not fewer.

What both sides miss, probably intentionally, is the Camp proposal is serious and likely to produce its promised result, making it a good starting point for negotiating a compromise version of tax reform.  Camp has not said it is a take-it-or-leave-it proposal.

But this is a Congress that does not negotiate or compromise.  Camp, in his last year as head of the powerful House tax-writing committee, has tried to get something going, but it looks like he has failed.

Take one example.  He proposes interest on mortgage debt should only be deductible for loans up to $500,000.  That covers most people, but New York City mortgages are often for much more.  Does that mean the plan should be killed?

If it makes sense to vary the allowance for mortgage interest, the amount could be set for each county.  That’s not difficult to do.  But the discussion will never get that far.

The reasons are simple.  Members of Congress find it less politically risky to leave the tax breaks alone rather than getting rid of them, even though, in some cases, those benefiting from the breaks would do even better with reform.

Reforming the tax code makes those using loopholes nervous.  So they make some more campaign contributions to Democrats and Republicans, who helpfully kill reform proposals. 

Members of Congress have become more responsive to the special interests supporting them than they are to average people, who are almost completely unrepresented in tax policy discussions.

Democrats want to see government play a bigger role in the economy and want tax increases to pay for it.  Republicans want to cut taxes and government’s role, leaving the economy to the private sector.  

Both oppose real, “revenue neutral” tax reform, because it does neither – just makes life more fair.