Wednesday, May 02, 2007

It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses.

There are some things the government should be doing and there are some things that are better left to the free market.

Utilities are one of those sectors that should almost always be run by the government.

In today's Business section of The Oregonian there's this little tidbit-

PGE takes on utility tax law

2006 sale - A filing argues money from equipment bought in 2001 should go to shareholders, not ratepayers.

Ratepayer advocates are voicing concerns about what they see as an attempt by Portland General Electric Co. to turn back the clock to tax accounting machinations employed by Enron and subsequently outlawed by Oregon legislators.

Filings PGE and customer groups made to utility regulators in the past week could, in fact, presage a legal challenge to a controversial tax law commonly referred to as Senate Bill 408. The 2005 law requires utilities to match the taxes that they collect from customers in rates with what they actually pay the government, and offer a refund or surcharge to customers if the gap is too large.

PGE collects taxes as part of our electric bill. The law passed by the state legislature in 2005 says that if those taxes aren't forwarded to the government in turn then they should be returned to ratepayers. This is basic, common sense to anyone outside of those who own oodles of stock in the electric utility company. The 2005 bill is about as "controversial" as the idea that you shouldn't leave your dog in your car on an August day with the windows rolled up.

PGE is giving Oregon voters the finger yet again. This is the same PGE that's continually getting stroked by the state Utilities Board that's supposed to be looking out for ratepayers as they rubber-stamp every planned rate increase by the company. They get away with this because they are a virtual monopoly so they have no free market competition and because they know how to play the political system so they have no real chance of competition from the government.

Not that legislators haven't tried to make the utility a public entity. Most recently the city of Portland tried to put together a bid to purchase the company which was thoroughly defeated by PGE and it's threatening political muscle. It's absolutely absurd that given PGEs constant abuses of Oregon ratepayers - from transferring the costs of shutting down Trojan to ratepayers to the Enron tax scam they're continuing to try and apply here - that the state hasn't privatized the wayward company. I simply cannot understand this thinking.

The idea that the free market is some sort of panacea that automatically means better service to customers, lower cost to customers and greater returns to shareholders all at the same time is just nuts. Corporations pay nothing but lip service to trying to balance those three competing interests and if they hold a monopoly on the industry not even that. Something will always suffer and it will never be the shareholder aspect of the equation.

Yet governments continue to do exactly the opposite of what would be good for citizens as they rush towards transferring public assets into the private sector without a second thought to how the customers, sorry citizens, will come out of the deal. Consider this story from Business Week-

In the past year, banks and private investment firms have fallen in love with public infrastructure. They're smitten by the rich cash flows that roads, bridges, airports, parking garages, and shipping ports generate — and the monopolistic advantages that keep those cash flows as steady as a beating heart. Firms are so enamored, in fact, that they're beginning to consider infrastructure a brand new asset class in itself.

With state and local leaders scrambling for cash to solve short-term fiscal problems, the conditions are ripe for an unprecedented burst of buying and selling. All told, some $100 billion worth of public property could change hands in the next two years, up from less than $7 billion over the past two years; a lease for the Pennsylvania Turnpike could go for more than $30 billion all by itself. "There's a lot of value trapped in these assets," says Mark Florian, head of North American infrastructure banking at Goldman, Sachs & Co.

There are some advantages to private control of roads, utilities, lotteries, parking garages, water systems, airports, and other properties. To pay for upkeep, private firms can raise rates at the tollbooth without fear of being penalized in the voting booth. Privateers are also freer to experiment with ideas like peak pricing, a market-based approach to relieving traffic jams. And governments are making use of the cash they're pulling in—balancing budgets, retiring debt, investing in social programs, and on and on.

But are investors getting an even better deal? It's a question with major policy implications as governments relinquish control of major public assets for years to come. The aggressive toll hikes embedded in deals all but guarantee pain for lower-income citizens—and enormous profits for the buyers. For example, the investors in the $3.8 billion deal for the Indiana Toll Road, struck in 2006, could break even in year 15 of the 75-year lease, on the way to reaping as much as $21 billion in profits, estimates Merrill Lynch & Co. What's more, some public interest groups complain that the revenue from the higher tolls inflicted on all citizens will benefit only a handful of private investors, not the commonwealth.

Why would investors be "clamoring" to buy these assets if they weren't worth more than what the governments that own them are raking in on these deals? Infrastructure should remain under the government's control. All of us, as well as future generations, own these assets. They are better owned and managed by the public sector.

Private industry is very good at a number of things, especially when they face competition. Shoes, jeans, soda, televisions and cars are all things that government should stay the heck out of. But when it comes to basic necessities - electricity, water and the very roads we commute daily on the government is the best, if imperfect manager, of those resources.


Don Snabulus said...

Like hogs at the trough...

Swinebread said...

I read about this in regards to toll roads becoming owed by private firms... Yuk

PGE doing us again

Dean Wormer said...

Yuck indeed.