Thursday, 27 September 2012 09:03
Vitter, John Young wrong in take over public utilities plans in Louisiana
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money2Politicians who know better have thrown their support behind a statist scheme that will make matters worse regarding power provision in emergencies, when the solution to reduce the incidence of post-emergency problems lies in the opposite direction.



Sen. David Vitter, joined by Jefferson Parish President John Young, ask state government to set in motion constitutional changes to allow any of a private company, private/public partnership, or government to take over forcibly a utility deemed to be underperforming. Incredibly, they argue it “would inject real competitive pressure” into power provision.

Let’s see if we have this straight: according to these guys, government’s bringing its power to bear to achieve an outcome it desires by fiat, where the decision-making doesn’t have to have anything to do with customer service but instead may be captive to fulfilling dozens of allied (on this issue) different special interest agendas for dozens of different reasons, is what defines “competition?” There’s zero guarantee that this action of stripping a company of its assets, even at fair market value, would not reflect a hidden agenda driven by political considerations.

Maybe some big campaign contributors who favor one company over another for financial reasons want to bring down an opponent to be replaced with their favored owner? Just fire up the proposed process, which will be just one step removed from the corruption not rarely spawned when government is given so much licensing power over one industry such as with waste storage. Or how about activists pushing green power, which works in all but rare cases only with massive subsidization, decide they want to oust an energy producer using traditional oil, gas, coal, and/or nuclear? Just get enough of their fellow travelers elected to the right offices, and they can spring this coup under Vitter’s and Young’s plan.

There are far less potentially destructive options if you think performance lags, as in this case spurred by days of power outages in parts of Louisiana in the wake of Hurricane Isaac, and they rely on less government interference. To understand this, it helps to know something of the complex nature of power delivery.

It has three components: the producer, the transmitter, and the distributor. The producer actually creates the power from some source. The transmitter picks up the electricity and gets it to distribution points (except for a few very large users that tap directly from transmission lines). The distributor takes it, puts it into a usable form depending upon the end user, and gets it to them.

In Louisiana, the three essentially are vertically integrated, dominated by Entergy, but also including American Electric Power, Cleco, and many smaller concerns public, private, and cooperative, although some act as retailer and wholesaler in that they buy and sell power from others or that they generate. This arrangement is becoming the exception, as deregulation of the industry which began in earnest about 15 years ago has brought choice and competition to many states. In essence, in these places at the single-user level you can buy power from multiple sources, use different transmission lines depending on your source, but almost always have no choice for the final, distribution leg.

Isaac really only affected that distribution leg. Power was available whether that meant importing it from outside the companies, and the storm really didn’t disrupt the transmission lines. Only the storm knocking down and around lines and transformers near end users affected delivery. And keep in mind that whatever is in charge of the last mile of delivery has every incentive to keep the power flowing, because if it doesn’t flow, it doesn’t make money. Thus, market pressures provide every encouragement to have power interruptions solved as quickly as possible.

The authors of this government-knows-best idea should know this and know such pressure is more than enough to induce top performance out of a deliverer. Increasing that kind of market pressure then is the key to increasing performance. For example, Louisiana could join the deregulation parade, which for consumers started off spottily but with technological changes, greater consumer awareness, and a recognition that absence of market control made it easier to cost shift for political purposes, choices finally are becoming meaningful with lower rates. Already, there are stirs this might be happening in state, as with Entergy’s plans to sell transmission lines approved by the Louisiana Public Service Commission.

Relevant to the current situation, it means by taking this further eventually governments could treat the distributor as they do the cable delivery industry – franchise out the infrastructure with renewable performance contracts. If the distributor – which also could stay in business in the other two sectors – doesn’t meet certain standards during the contract, it can be penalized, but the specter of losing the deal at renewal time should be more than enough for them to maximize delivery efforts.

Even if Louisiana doesn’t want to go this far in the right direction, an intermediate stop would be the PSC setting up performance bonds with distributors, where they put up money that the PSC could rule to tap into if certain standards aren’t met. As weak as this might be compared to deregulation, it beats the current standard where the five politicians that make up the PSC can decide on any basis whether to fine or impose sanctions on companies (as the PSC will investigate relative to Isaac) based upon their perception of public actions that do not require to be linked to any data-driven outcomes.

There’s no excuse for Vitter and Young not to know that less, rather than more, government involvement holds out hope for service improvement. His idea only interjects more politics into service provision, counter to national trends, that will not improve things and where instead introduction of more market discipline will.

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Jeffrey Sadow

Jeffrey Sadow is an associate professor of political science at Louisiana State University in Shreveport.   He writes a daily conservative blog called Between The Lines

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