Regulators drive electric bills higher

Two new developments show how the restructuring of the electricity industry has gone astray, leaving customers with higher bills.

Restructuring began when the federal government opened the grid – high voltage wires – to buyers and sellers, both independent of the systems’ owners.  Electric transmission became a common carrier, like a bus line, required to carry paying customers.

This change happened because the government finally realized that ownership of power plants did not have to be a monopoly.  By introducing competition among power suppliers, prices should come down.

Competition would also create marketplaces where sellers and buyers could carry out their transactions. 

 

Of course, as with other markets, government might have to adopt and enforce rules to ensure that the power markets operated fairly and nobody would be cheated.  Most markets have developed on their own, but under government regulation.

But this time, it would be different.  The Federal Energy Regulatory Commission decided to prescribe how the market would work and even designate the marketplaces.  Though FERC tried and failed to impose a one-size-fits-all approach nationally, it laid down market rules. 

It started off all right, taking steps to ensure that transmission owners could not use their control of the grid to favor their own power plants.

But, each time a new defect in its rules has appeared, FERC has tried to fix it by making the rules more burdensome and complicated.

It bought into the theories of Prof. William Hogan, a Harvard University economist.  His ideas of how the market would work do not correspond with how it really works, but FERC has not backed off.  His theories have ended up costing customers.

Hogan said that if one part of a market faced higher prices than another, the high-price market ought to buy into a financial deal allowing it to gamble on getting a payoff if the price difference materialized.  With its payment from the deal, it could offset its higher power costs.  FERC approved the gamble.

But utilities and towns are not usually gamblers.  “It’s really a big boys’ game,” said one financial analyst.  Last week, Bloomberg reported that investors, not utilities, made almost $2 billion in the first three months of this year by gambling on the difference between expected and actual prices. 

Of course, they might run the risk of losing their bets.  But a couple of banks were caught rigging bets, and they paid fines.

The risk reduction plan offered nothing to the customers who simply paid the higher price.

Also, last week, a federal appeals court upheld new FERC rules that will end up requiring more major transmission lines.  The rules require customers to pay the costs of connecting renewable power, especially wind generation, to the grid.  That’s a subsidy to investor-backed developers.

In New England and other marketplaces, Hogan’s theories have harmed customers in other ways.

Before restructuring, power was delivered across the region by the New England Power Pool.  It would identify all the available generation and select generators to supply the region based on the cost of fuel each used.  

That meant the lowest cost power was selected first and then generators were added, in order of cost, to cover all power usage.  Each was paid its own cost. 

These days, power is selected based on the price at which sellers offer it to the market.  But all suppliers are paid the same – the price paid to the highest bidder whose power is used.

The theory is that bidders into the market will keep their prices low to be sure to be selected, making the highest price paid to the last supplier less than it otherwise might have been.

Nice idea, but in a market where all the players get to know what all the others are likely to do, prices don’t necessarily come in low.  Even if the theory worked, the last bid price, which all suppliers get, is likely to be higher than the average price if each were paid its own costs.

In short, New England has competition, but that doesn’t assure lower prices for customers.   

Competition, no matter how it works, has become an end in itself and is not guaranteed to produce its desired effect.

Through its government-created markets, FERC has made electricity different from other markets, but its rules have not produced lower rates, the supposed goal of competition.  Most benefit from restructuring has gone to investors.

 
All of this gets a bit complicated, but the simple conclusion is there’s still no proof that customers are better off with a “restructured” electric industry.

Elections hinge on single issue – Tea Party power

The 2014 election campaign has boiled down to a single issue – whether the extreme conservative policies associated with the Tea Party movement will be rejected or prevail.

That means issues ranging from tax reform to health care to foreign policy may seem to matter, but they really don’t.

In 2012, the Republicans lost some seats in Congress, thanks to extreme right-wing candidates, who defeated traditional GOP incumbents and then lost to Democrats, who seemed safer.  In effect, the GOP defeated itself.

The extreme right has continued its drive to capture control of the GOP agenda, so this year provided a new series of tests, especially of Senate incumbents.

The most well known was the challenge to Kentucky Sen. Mitch McConnell, the Senate Republican leader.  By any standard, he is one of the most conservative senators, but he still faced a right-wing primary opponent.  His victory was seen as a sign of the rejection of the extreme right.

GOP Senators Lamar Alexander in Tennessee and Thad Cochran in Mississippi, who might fairly be labeled as moderates, had to overcome strongly conservative opponents.  So did conservative Republicans Lindsey Graham in South Carolina and Pat Roberts in Kansas.

These rejections of the right virtually assured Republicans they would hold onto these seats, essential if they are to gain control of the Senate, which is a real possibility.

But the Tea Party is far from dead.  House GOP leader Eric Cantor lost to a tea partier in a Virginia Republican primary.  And the right wing movement lost some Senate primaries by narrow margins, leaving it defiant, not dispirited.  The Tea Party retains the votes to dominate House Republican policy.

Maine’s GOP Sen. Susan Collins, whose voting record is rated as moderate, successfully discouraged a challenge from the right.  But her position, if re-elected, has to be considered in terms of what happens in the Senate under Republican leadership.

Has McConnell been lining up as a pure conservative to enable him to defeat a challenger or is he really deeply conservative?  Collins and others GOP senators must follow his lead, and, moderate or not, she could end up supporting his conservative policies.

The possibility that Collins would find herself once again backing a conservative McConnell is the best issue Shenna Bellows, her Democratic opponent, can raise.

But some GOP senators now say they want to support compromises.  They see that simply adopting the politics of “no” could cost them in the 2016 elections.

These pragmatic Republicans would rather make some progress on their agenda than win nothing by insisting on completely pure conservative positions.  The GOP problem will be to get their most conservative members to go along.

The mere fact that some senators have come to support compromise over ideological purity may be a sign they are no longer fearful of the Tea Party movement.  Perhaps the electoral victories this year have encouraged them to believe that the traditional, pro-business, small government GOP can succeed without abandoning its willingness to make deals and gradual progress toward its goals.  

Given the extensive use of the filibuster, a Republican-controlled Senate will need to get 60 votes to pass its program.  Only if the GOP moderates its agenda can it hope to pick up votes it must get from middle-of-the-road Democrats.

If the traditional Republicans in Congress, many of whom have strongly conservative credentials, can succeed in convincing their extremely conservative colleagues to accept less than complete legislative satisfaction, Obama seems ready to negotiate deals with them.

The President is probably less of a liberal than the hard right makes him.  Given a GOP Congress willing to accept some progress on its policies as a sign of success, he could work on improving his image just as Congress improves how voters see it.

In short, in both elections this year and in Congress next year, the real issue will be Tea Party conservatism.

That also applies in the Maine election for governor.  Gov. Paul LePage is a favorite of the hard right, but not of a majority of the state’s voters.  He can only win if Democrat Mike Michaud and independent Eliot Cutler cancel each other out.

Cutler has laid out sound and innovative policies.  If the campaign were about issues, he might legitimately claim to be the best candidate.

But the campaign is about whether a Tea Party backed candidate will be reelected.  The election won’t be decided on policy proposals like Cutler’s, but on defeating LePage, and Michaud, with his party behind him, is seen by many as the better bet.

Is the Constitution misused for partisan purposes?

It looks like the Constitution is going to be bent again, adding to a growing trend to use its broad principles to achieve narrow results.

This time, the Republicans in the House of Representatives have decided to sue President Obama for allegedly having exceeded his authorized powers as chief executive.

They claim that he is applying laws passed by Congress in violation of their own provisions.  They want a federal court to decide they are right and order him to pull back.

The Constitution requires a separation of powers among the executive branch headed by the president, the Congress and the courts.  The lawsuit would ask a court to settle a dispute over the powers of the other two branches.  Courts usually stay away from such disputes, and that’s likely to happen now.

Besides, who pays for the lawsuit?  Isn’t all money spent by the federal government supposed to be covered by a bill passed by Congress and signed by the president?

So why is the House, after a narrow majority vote, suing the president?

The short answer is it’s just politics, an attempt to embarrass Obama and weaken the Democrats in an election year.

The long answer is the GOP has frustrated Obama, who has used executive power to do what he thought necessary, when Congress refused to deal with major issues.  In this action, he followed American political tradition.

While the Constitution was meant to ensure the president would not gain excessive power, presidents since Washington have pushed at the limits of their authority.  Because no law can cover every situation, presidents have assumed they could impose their own interpretations or fill in the gaps and issued executive orders.

Presidents have also asserted their power by using so-called signing statements.  The president signs a bill but, at the same time, but says he will not enforce those parts of it he considers unconstitutional.

In fact, Obama has issued fewer executive orders and signing statements than his predecessors.

While the president uses his executive power to take actions that might look legislative, Congress sticks its nose under the presidential tent.  It passes bills trying to direct foreign policy and limiting clear presidential powers.  And it can deny funding to activities it does not like.

The reason why this situation is allowed to continue is the recognition the roles could easily be reversed.  So a party does not complain too loudly if it believes it might similarly want to poach across the separation of powers sometime later.

The conflict between the exercise of executive and legislative power is almost inevitable because of the American system of government.  The elections of the president and Congress are completely separate, creating the opportunity for political warfare.

Under the parliamentary system, the head of the government is a member of the legislative body.  For example, the prime minister of Canada is a member of parliament.  He heads the government, because his party controls the parliament.

If a government under a parliamentary system loses a so-called “vote of confidence,” the prime minister must step down.

In the American system, even when Congress is controlled by the opposition party, it cannot force the president out of office on political grounds.  He or she can only be removed by electoral defeat or conviction after impeachment for “high crimes and misdemeanors.”

It is generally agreed that the two presidents who were impeached but not convicted – Andrew Johnson and Bill Clinton – faced the equivalent of a vote of confidence.  In short, they overcame an attempt to graft parliamentary rule onto the American system.

The House GOP understands that it could not remove Obama and it might be discredited if it devoted several months to drawing up and voting on articles of impeachment.  A lawsuit might accomplish the same result as impeachment by embarrassing Obama.

Some Democrats, believing talk of impeachment would backfire on the GOP, have charged the Republicans really plan to bring the president to trial.

Add to these latest actions the abusive use of the filibuster, holding phony Senate sessions to block presidential appointments, and the failure to reconcile differing Senate and House bills, and the Constitution is increasingly used to block virtually any bills, no matter how badly needed.

If Congress is controlled by the Republicans over the next two years with a Democrat in the White House, the country faces a period of either total stalemate or forced compromise.

What’s a voter, caught in the middle, to do?  We need to ask each candidate which course he or she will favor if elected.

Has America lost its world leadership?

At the end of the film “Miss Congeniality,” the FBI agent who has masqueraded as a Miss America contestant, admits she agrees with the rote refrain of the others, saying, “I really do want world peace.”

Everybody says they “really do want world peace,” while knowing it won’t happen.

For a long time, the best available substitute for world peace was the Cold War.  The atomic bomb had imposed the possibility of “mutually assured destruction,” and that was reality, not a pious hope.

So long as the United States and the Soviet Union could destroy one another, they would back off from confrontations that could lead to the use of nuclear weapons.  Perhaps that did not create a golden era with the sun shining all over the world, but it worked.

Not only did the two super powers stop short of directly going to war, they also restrained other countries from actions that might drag the two major players and the world into a war too horrible to imagine.  The threat of nuclear war served as the guarantor of world peace.

While some countries were relegated to the sidelines, many others found themselves in the orbit of one super power or the other.  Armed and financed by their patron, they had little ability to act independently.

Then, the Cold War ended.  It looked like the United States was the only remaining super power as it witnessed the breakup of countries, including the Soviet Union.  Smaller countries would pose no threat to the United States and presumably, they would be unable to unleash nuclear warfare.

The American peace would be an extension of the ability of the United States, during World War II and even during the Cold War, to use its undeniable military and economic power to impose its will on much of the world. 

Why do Americans now feel a sense of weakness and inability to control events?  American power in the world seems to have dissolved.

In a highly partisan political climate, it is easy to blame President Obama.  His personal style, soft-spoken and sometimes hesitant, seems to favor limits on American action and invite others to disturb the peace.

Sen. John McCain, the Arizona Republican who lost to Obama in 2008, almost never misses the chance to propose militant reactions to world events and to criticize the president for not taking his advice.

Even if you might want more assertiveness from Obama and less from McCain, that may miss the point.

It’s possible there are no more super powers, a fact that may be difficult for Americans to accept.  Since the beginning of the Twentieth Century, Americans had grown use to calling the shots, but now frustration has replaced self-confidence.

Look at the Ukraine, Syria, and Israel-Hamas.  War rages in all three areas, and the United States seems unable to do anything about these conflicts except to propose cease-fires, which turns out to be a bit like saying, “I really do want world peace.”

The Ukraine is torn between Russia, its historic boss, and Western Europe, which offers an opportunity for prosperity.  Because the economies of Russia and Western Europe are intertwined, Western Europe took quite a while to agree with the U.S. that Russia should suffer from real sanctions.  Finally, the downing of the Malaysian plane got it to act.

In Syria, torn by war, the Russians like the current regime and the Americans don’t.  Without a real alternative, the U.S. cannot force a resolution. 

And the conflict in Syria has deprived Hamas, which controls Gaza, of the backing essential to maintain its conflict with Israel.  It is now engaged in a last-ditch, almost suicidal, effort, and Israel responded by going to war in hopes of finishing off Hamas.  The U.S. cannot even achieve a ceasefire. 

None of this is particularly healthy, and it is a poor substitute for peace.

So long as nobody is shooting at Americans, which could become a possibility in the next couple of years after the troops leave Afghanistan, why should all this matter to us? 

The political partisan divide reflects an underlying sense of unhappiness in the country.  And that results partly from a recognition that the U.S. role in the world, as the dominant power, has eroded and perhaps been lost. 

Recognizing the world has changed, leaders on both sides of the aisle could seek a new definition of America’s role.  The goal would be to develop a consistent policy, attuned to the 21^st Century and aimed at restoring American self-confidence in world affairs.