Public Service Commission Doesn’t Help the Public

Nearly a year after the dreadful power outages of the 2012 derecho,  the Public Service Commission has finally taken decisive action, to show how well government can regulate utilities to protect consumer interests.  They’ve decided … to do nothing.

They did, however, note “a significant and unsatisfactory disconnect between the public’s expectations of the distribution system reliability… and the ability of the present-day electric distribution systems to meet those expectations.”

There are two basic ways to ensure that service providers are aware of the needs of their customers, and remain responsive to those needs.  One way is to promulgate and enforce government regulations on the service providers.  The other is to have market pressures and competition as the hammer to induce businesses to meet customer needs efficiently and effectively.

Once again, then, we see the impotence of government regulation when it comes to protecting consumer interests  Contrast it with the consumer sovereignty in a market system.  When products or services don’t meet their expectations, consumers don’t meet for a year to decide to do nothing.  They don’t need to become experts in the ins and outs of distribution systems and economic regulation.  Instead, they simply move their business elsewhere.  The state of Maryland should be focused on revamping the regulatory system to resemble a real market with choice, to enable electricity customers to do just that.

State Budget: Worse than They are Telling Us

After years of  the state government spending more money than it takes in,  Comptroller Pierre Franchot announced recently that Maryland ended this fiscal year with a surplus.  One shouldn’t be deceived by the appearance of good fiscal news, however.

First, because most of that surplus  is due to the tax increases that Governor O’Malley pushed through the General Assembly.  Soon, you can bet, he’ll be proposing more places to spend that money.

Second, the surplus is illusory.  The  balance sheet, as we can usually expect from government accounting, doesn’t reflect all of the liabilities the state is carrying. A recent study by the Pew Center for the States shows that Maryland is actually in deep debt in terms of keeping up with its obligations for funding pensions.  The state pension plans have a liability of $ 71 billion, and
are poorly funded – not only by professional standards, but also well below averages for states across the country.  Most disturbingly, retiree health care funds are even worse, as they are only about 1% funded.  Maryland health care funding got the lowest grade possible in the report.

So take the reports of fiscal health (like most positive trumpeting from Annapolis) with a huge grain of salt.  Fiscally, we are still in very bad shape, and spending on health care is going to skyrocket soon.

Addressing PEPCO Problem — for real

I thought it best to follow up on the snarky approach from my post on PEPCO solutions.  How about something a little more practical?

The problems that need to be addressed include (apparently) better maintenance of the infrastructure for distributing electricity, and improvement of PEPCO’s responsiveness, especially to repairing wiring and connections when storms cause outages.

How can these problems best be addressed?

First, forget about Councilman Berliner’s dream of a publically owned power company.  There is little empirical evidence to suggest that a publically owned utility would be more efficient or responsive than an investor-owned utility like PEPCO.

Keep in mind that PEPCO is already a monopoly – granted and enforced by the state.  The main problem with a government-granted monopoly like PEPCO is that the firm has little incentive to improve service.  Since the law precludes any competition with PEPCO, they don’t have to fear that customers will abandon them in favor of a different electricity provider.

How, then, can we provide incentive for PEPCO to do better?  In theory, oversight from the state is designed to pressure them to be more responsive to consumer needs.  And there have been many cries for the Public Service Commission to “crack down” on PEPCO.  But the PSC doesn’t seem to have successfully induced PEPCO to better service.  In fact, it almost seems like PSC has done the opposite.

The policy solution may go back to that problem of incentives.  Despite the monopoly they are granted, there are ways to improve the utility’s performance incentives.

1)      Emphasize competition, wherever possible.  Maryland law has already been changed to allow some flexibility and competition in generation of electricity.  You can choose which of several firms you would like to buy power from.  But in distribution  of electricity – that is, bringing it into your home — we have no competition yet allowed by law.  One way to do this is to emulate the model that is used for pay television services.  In much of the county, you can choose your service provider for pay television.  In addition to satellite services like Direct TV and Dish Network, service is provided by Comcast, RCN, and Verizon.   If you get junk mail, or see television commercials, you know how fiercely those three firms battle for customers.  For the most part, they are not building redundant wiring networks.  They are competing for the right to use the existing network infrastructure (both cable and telephone) to provide services to customers.   A similar model is used in telephone service.  You don’t have to purchase your telephone service from Verizon; there is an array of CLECs (competitive local exchange carriers) that you can contract with.  This doesn’t even discuss VOIP or other options.  All of this competition has helped lower rates and improve service;  wouldn’t it be nice to see the same thing happen for electricity distribution?

2)      Reduce barriers to entry.  We need to make sure that the legal framework for electricity is advancing to meet the technological framework, which is changing all the time.  Cogeneration, home solar, local generation – these are just a few ways for people to get electricity and (at least partially) bypass the PEPCO network.  Any legal or administrative obstacles to increasing these options need to be removed.

3)       Fix the “decoupling” policy.  Decoupling was the legislative solution to an apparent paradox (or conflict of interest) that confronts electric utilities.  On the one hand, the state wants to conserve energy, and utilities are required to subsidize energy efficiency programs for consumers.  That left the utilities in the awkward position of urging customers to buy less from their businesses.   The decoupling policy was the remedy: it guaranteed income to the utilities even if power consumption dropped.

The problem is that this creates a tremendous disincentive for utilities to be efficient about restoring power.  As UMBC economist Tim Brennan phrases it, “[T]he silliest thing we could do would be to promise these utilities the same profits regardless of how much electricity they deliver.”   The PSC has already taken steps to limit the charges that utilities can make, but the issue needs to be addressed more comprehensively.

The Costs and Benefits of Real ID

The Department of Homeland Security establishes 18 separate benchmarks that need to be met in order to be compliant with the Real ID act.  To date, Maryland has met less than half of those benchmarks.    The state is now grappling with the issue of meeting the remaining benchmarks — including verification of legal immigration status — despite the expense of doing so.

And the expenses are significant.  First, the budgetary costs.  Are these in the budget? How much are they estimated to run?  DHS estimates the costs to average $78 per state — so you can assume it will cost Maryland at least $150 million.

There are also security costs.  Implementation of Real ID will surely lead to a loss of security.  Forming a national database that lists all the private information of license-holders, is like putting all your money in one box.  Sophisticated (and maybe not-so-sophisticated) hackers will have a ready-made avenue for identity theft.  In that respect, Real ID represents a tremendous security threat.  Identity theft is already a widespread problem, and Real ID would make it worse.

Then there are costs to physical safety:  Already, 30-50% of non-native applicants for Maryland drivers’ licenses are being rejected by the MVA, because of insufficient documentation of residence.  The General Assembly is currently considering, independent of Real ID, six separate bills to require proof of federal immigration status for drivers.   What will happen if Real ID is put into effect, and even more drivers are rejected?

It’s not likely that they will just quit their jobs and plop down on the couch at home.  Rather, it’s likely that they will just drive anyway.  This means that they become kind of a black market on the highway.  They will avoid police, maybe decline insurance, and become kind of an underground, below-the-radar fleet.  Unlicensed drivers mean it’s harder for police to track them down in the event of an accident, and it is harder to hold them accountable.  The overall effect is reduced highway safety.

And what are the benefits of implementing Real ID?  Maybe you could say that all the costs are worthwhile, if it reduces the threat of terrorism.  Right.   Somehow, I just can’t imagine Mohammed Atta calling up Osama bin Laden to report, “Uh, sorry chief, we have to scrap the whole operation because I couldn’t get driver’s license from the MVA.”

“Maybe We Can Build Our Own Racetrack”

Magna Entertainment, which owns the Maryland Jockey Club, has filed for Chapter 11 bankruptcy.  The Jockey Club owns not only Laurel Race Track and Pimlico Race track, but also the rights to the Preakness itself.

If they go under, they will sell their assets, including the Preakness, which might then be moved out of state.  But Senate President Mike Miller won’t let that happen.

Once again, he’s floating the idea of the State building its own “super track” for racing in Baltimore.  He would have the state purchase the rights to the Preakness from Magna, and run the Preakness at the state-owned track.  He also said it might be necessary for the state of Maryland to skip over Pimlico, and build its own racetrack.

What’s the thinking here?  That the state can do a better job, and make money where Magna failed?  “Well, those people don’t know how to run a racetrack.  But Mike Miller surely does.”    More likely, the thought is that the business will still run in the red, but the taxpayers can pick up the slack.

Does this make sense to anybody? (As much as the US government placing itself as the guarantor of automotive warranties, I suppose.)

Miller, by the way,  has his office in the Mike Miller Senate Office Building — yes, it’s named after him.  I wonder how many State office buildings are named after living office holders — and how many of those are politicians who are still serving in office.  That has to be some kind of a record, outside of small Third World countries with imperious dictators.  Apparently, that’s not enough.

I think he’s envisioning the “Miller Preakness Stakes” at the “Mike Miller Race Track” now.  And Imperial Government continues to gain power.

New Math at the Spending Affordability Committee

Each December, the Spending Affordability Committee makes a recommendation to the governor and to the Legislative Policy Committee regarding the budget for the upcoming fiscal year. In setting the fiscal framework for the budget, the Committee defines what would be an “affordable” level of spending, in relation to anticipated revenues and the overall state economy.

As the Committee defines its mission, “The Committee’s primary responsibility is to recommend to the Governor and General Assembly a level of spending for the State operating budget that is reflective of the current and prospective condition of the State economy.”

In December, the state Board of Revenue Estimates issued a further revision to their projection of state revenues for the upcoming fiscal year. At this point, they expect the state to run a total deficit of $1.9 billion.

Given that wonderful news, here’s a quiz:

On Wednesday, the Spending Affordability Committee came out with their recommendation for state spending for that fiscal year. Did they recommend:
a) spending less money than the current year?
b) spending the same amount than the current year?
c) spending more money than the current year?

Sorry, no prizes for the winning answers. It’s just too damned easy.

We’re Number One! We’re Number One!

If you count from the bottom, that is.

The Cato Institute released their ratings of governors on fiscal policy.  Guess who’s rated the worst in America?   (We’re number 50! We’re number 50!)

The rating are based on a methodology which looks at changes in governors’ proposed spending, changes in actual spending, changes in rates for personal income taxes, corporate income taxes, sales taxes, and other fiscal variables.

The review labels O’Malley “a champion tax hiker”, but – let’s give credit where credit is due – the General Assembly earns that label along with him.  The report notes that not only do Marylanders get hit right in the pocketbook, but we also lose because of the resulting slowdown in economic growth.

Idiotic Occupational Licensing Stories

Occupational licensing – that is, requiring people to be approved by the government to practice their occupation – is one of the more destructive activities of Leviathan.  Often, the practice exists to inhibit competition, either to protect the interests of those already practicing the occupation, or those who are competing against them.  In Montgomery County, it also suffers from Montgomery disease; that is, the belief that (a) government knows best and (b) must control everything.

Sometimes, it produces results which are both laughable and tragic.  Here are a couple of examples:

Fortune Tellers: What in the world does it mean to be a licensed fortune teller? That you meet professional standards? That you know how to properly read a crystal ball or a palm?  That you are sufficiently expert with tarot cards?  What the hell is the county doing licensing fortune tellers??!!   Although several counties have eliminated the requirement for licensing for fortune tellers, Montgomery hasn’t.  One man was denied a license by the county, and is suing for the right to practice his trade.  For God’s sake, what is the problem here?  I assume this is just Montgomery disease (is there some competing occupation that is threatened here?)

Horse massagers: Mercedes Clemens has had a practice in Damascus where she practices “equine massage”.  She has about 30 horse clients, helping to work out muscle aches and soothe the horses.  State regulators shut down her practice, because by state law, only a veterinarian is allowed to massage horses.

This isn’t just Montgomery disease; it’s the veterinarians seeking protection against competition.  Now she is suing the two entities which have shut her down, the Maryland Board of Chiropractic Examiners and the Maryland State Board of Veterinary Medical Examiners.   The Institute for Justice is fighting for her.

They’re Making a List, and not Checking it Even Once

To the outrage and indignation over the revelations that Maryland State Police have been spying on peaceful protest groups, the police have responding by insisting that they never infringed on anyone’s rights to free speech or assembly.

Granted – perhaps.  When the State is looking over your shoulder, taking notes and naming names, it may not be blocking anyone’s rights, but it sure is intimidating peaceful protest and assembly.

Furthermore, the covert surveillance is only the beginning.  By notifying the feds (including the Transportation Security Administration and the National Security Agency), the state police have placed markers for these people in the feds’ files.  Now people can be put on the terrorism watch list, which no one is allowed to see.  If you’re on the list, though (and there may be about a million people on the list at this point), it means additional hassles and grilling by TSA goons every time you fly.

CNN carried a story about a commercial airline pilot, ironically, whose name is on the terrorism watch list.  James Robinson is certified to carry a gun into the cockpit, but he’s held back and interviewed each time he boards a plane.  Of course, so is James Robinson of Michigan (a former assistant US Attorney General) and James Robinson, a third-grader from California.

Grumbles the airline pilot, “There’s going to come a point in time where everybody’s on the list”.

I’m still waiting for the governor (whose Baltimore Police participated in the spying)  or the former governor (whose State Police carried out the spying) or the State Police Superintendent (Terrence Sheridan) to offer the words we want to hear from our children: “It was wrong, I’m sorry, and I’ll never do it again.”

Farms and the Bay

President Bush has proposed cutting back on a $188 million Chesapeake Bay nutrient reduction program. The Chesapeake Bay Watershed Program pays farmers to implement specific management practices designed to reduce the runoff of phosphorus and nitrogen from agricultural fertilizers into the bay. Such practices include planting grassy strips and other vegetation which would filter and limit runoff from farms, and construction of storage units for manure.

Bush has proposed holding off on $23 million of the funding, for budgetary reasons. Senator Ben Cardin is up in arms: [Bush] “is wrong on the science, wrong on our farmers’ needs…”

The state is also spending $25 million on this program (originally appropriating $50M, but then holding back on half for budgetary reasons. And the US Dept of Agriculture has already paid millions ($9M in Maryland alone) to farmers for these activities.

Maybe I’m missing something. We don’t pay manufacturers to install scrubbers on their smokestacks, we expect them to cover those costs themselves. We don’t pay chemical companies not to dump wastes into the Potomac. So here’s my question: Why should we pay farmers not to pollute?