Tuesday, Truthout.org and Christian Science Monitor published "In deregualtion of electric markets, a consumer pinch". The story investigates popular reaction to deregulation of the electric utility industry since the mid-90s. Data so far demonstrates, consumer retail prices have risen faster than expected despite price caps (or politicized formula) devised to ease customers' transition to market rates. States which have not legislated for the issue are thinking twice about the promise of lower consumer costs. It is interesting to note that WV and Texas red outliers, OK, NM, and AR, have recently pulled the plug.
When I saw the CSM map of deregulated markets, I immediately thought of the 2000/2004 electoral map. Side by side, it's curious to see the relation of "progressive" politics to the creation of a laboratory environment for the worst and best plans to manage America's energy needs. I admire the dkos authored
Energize America and can imagine tremendous blue state enthusiasm for it. Then again, I can't help wonder about a national roll-out. I see disparate regional expections. How will we "sell" an ambitious market restructure to a such a large swathe of people who have refused opportunity?
If you accept that electricity is a general purpose utility, so may you assume that gasoline (or telecom and internet access) is an equally valued commodity to consumers everywhere. But the past ten years of consumer electricity experience tells another story. 16 states have experimented with the deregulation of eletricity markets. And the regional effects on household budgeting has been deleterious for politicians in the last two election cycles, spectacularly so in California.
Deregulation proponents continue to insist that "real" price competition does not exist -- even in regions where demand and population density is greatest -- because of oligarchy installed in inustry structure. Moreover, analysts have ignored integral characterististics of "restructuring" the industry -- populations, migrations, and economic proxies, called votes -- in their forecasts of consumer "satisfaction".
"To date, at least 34 state legislatures have repealed, delayed, suspended, or have limited retail access to just large customers or are no longer considering deregulating electricity for retail customers," reports the Christian Science Monitor.
Disappointment is strong in the PJM wholesale power market, which covers a region with 51 million people in all or parts of 13 states, including KY, PA, NJ, MD, DE, OH, and VA.
PJM is a transmission grid and bid market operator (PJM Tech) for nearly 400 smaller electrity generators. It is a FERC-regulated public utility. Consolidated revenue for 2005 was $267M, an increase of 24% from the year prior. The annual report states that operating savings have increased annually because of productivity gains attributed to information technology. That is, job creation is not part of the PJM strategy.
The 2004 electoral map appears as overwhelming popular support for GOP "deciders". The CSM map of major market utility customers appears to echo the political landscape. The graphic comparison above demonstrates that the half of the country that does not participate in laissez-faire economics is the same half that allied itself to "small" government ideology. Yet such "rural" consumers accept regulation -- because they either do not value resources highly or are unwilling to pay a real, as opposed to nominal, price to assure reliable supply. When that price is a vote for Democrat or progressive representatives, the majority of electricity customers buy GOP. So goes the logic of economic preference theories.
Rural pockbooks do vote their interests. Then they consider doctrine. It's metropolitan consumers -- commuters and "poor" residents -- who are being sucked dry, one by one, by the flawed assumption that utility industry "competition" will reduce energy prices without the stimulus of new and competitive market entrants. Wisely, Energize America addresses incentives for alternatve fuel suppliers who must build-out infrastructure with little reliable sense of what their markets will bear.
More aggressive legislative tactics may be needed, short-term, to convince GOP rural and metropolitan customer/voters that energy diversification is the "right" way to, uh, influence American values. If only blue state residents have real experience with utility market "competition," then red state consumers are missing a key lesson in managing one's own expectations.
When "price comparisons are limited because rate caps are only just being removed", as CSM reporter Mark Clayton observed, utility suppliers freely engage in arbitrage. That is, the seller exploits the buyer's ignorance of a commodity cost or its price in another competitive market. The seller buys -- not makes -- low, then adds a premium -- not value-add -- that measures the void between market intelligence and price.
This practice -- also known as asymetries of information -- was the essence of Enron's market-making formulary. It remains a little understood and uncontested political dimension of profit motive and distribution, in general, and in states, in particular, where price caps are the only cost of doing business. There buyers have neither the information nor time to calculate alternatives and purchase decisions.
GOP state majorities and Congress depend on disaggregate market power, or your limited knowledge, to stay in power. Their stakes in the status quo are personal, and their information is vastly superior, one supposes, than that of any one customer/voter. We know how assiduously Shrub LLP has crimminalized international pharmaceutical sales to individuals. And we may recall how furious Shrub LLP became when the state of Venezula (Citgo) initiated direct sales of home heating fuel to state legislatures in the NE that subsidize "poor" metropolitan customers.
These objections have no obvious economic justification.
No American wants to be called "poor".
Poverty just isn't American. But here in dereg'd, mauve Maryland the ties that bind nominal consumption and arbitrage are beginning to loosen. Some commuters in the tri-state are traveling 50 miles or more to work. Lawmakers are holding up bills to approve phased rate hikes for Pepco and Baltimore Gas & Electric (BGE). Constellation Energy has proposed increases of 72% for BGE customers and 39% for Pepco customers. Gov. Ehrlich's (R) buddy Regents' Board chairman David Nevins is under ethics investigation, charged with unwarranted lobbying on behalf of university system contractors.
Now, some suspect that proposed rate hikes are, in fact, the cornerstone of funding Constellation's acquisition of Florida Power & Light Energy Inc. (FLP) and not an operational necessity, that is directly related to the company's increasing fuel costs. Constellation chairman Mayo Shattuck has petitioned the SEC for relief from deliberation by the Democrat-controlled General Assembly and has threated to sue the state.
Is Constellation playing fair?
A vision of the level playing field is the dreamy dimension of American culture wars. But single-source gubment contracts are the reality that contribute to the nation's 401(k) wealth: Since 1999, when the Maryland deregulated, Constellation has grown from a small utility to one of the largest energy marketers the US. The stock has risen an average of 25% per year, and revenue tripled to $17.1B in 2005. Its growth has been fueled by a series of acquisition, including AES NewEnergy and Ginna nuclear plant near Rochester, NY. Constellation also has global aspirations. And why not? Constellation has had a steady stream of rate-payer cash to finance its projects. This company, like any other market agent, is under no legal or moral obligation to offer its customers a "fair" price, one tied to the company's operating footprint or plow-back profits to produce greater operating efficiencies.
Looking at the maps, it's unsurprising that the customers with the most to lose from price-driven energy strategies are concentrated in metropolitan areas. What is ironic is that the beneficiaries of Big Government paternalism are the least likely to vote for or suffer the "pains" of real, as opposed to nominal, regulatory legislation. They are categorically entrenched to vote against candidates who propose structural changes to their standard of living. They are perhaps embittered by now by the loss of sons and daughters who have migrated to big cities in search of a living wage.
Population Cartograph of 2004 Election Results by State: connecting to the family diaspora
This is a map in which the sizes of states have been rescaled according to their population. That is, states are drawn with a size proportional to the number of their inhabitants. States with more people appearing larger than states with fewer, regardless of their actual area on the ground. Thus the state of Rhode Island, with its 1.1 million inhabitants appears about twice the size of Wyoming, which has half a million.
Electoral college rather than Congressional votes is apportioned according to states' populations as measured by a census and Constiutional articles with a small but deliberate bias in favor of smaller states. That cartogram looks very similar to the population map, but it is not identical. Wyoming, for instance, is approximately doubled in size, precisely because of the bias in favor of small states.
2004 Population Cartograph of Party Majority by County
We can view detailed county topography at USAToday. Such a map is fundamentally Cartesian, where a political majority is described as either red or blue. Recently, political analysts in mainstream media have begun to adopt the idea that national GOP control is conditional and so have elected the color pink to signify so-called "swing" voting trends. By contrast, web surfing adepts are aware that Wikipedia long ago began publishing more nuanced county mapping for each state government for which it keeps a record of elected represenatives.
Robert Vanderbei uses linear formula to illustrate percentages of popular election returns by county as a function of color spectrum and 3D modeling. These graphic observations offer instructive marketing perspectives on actual energy consumption and political distortion.
GOP energy customer/voters are every where. More important, as the 3-D model shows, there is a direct relationship between population density and progressive votes. As a county's population increases -- regardless of distance from a urban center -- the number of Democrat votes increases. Let us suppose that the liberals' birth rate cannot explain this transformation. Let us suppose rather that experience with competing economic and political choices justifies this preference.
Selling Energize America to GOP Pocketbooks
On the Energize America horizon for positive national cash flow, 2012, several factors of successful implementation stand out.
- Nominal (retail) price is the most important predictor of energy consumer/votes
- Metropolitan energy consumers/votes currently subsidize rural economies
- Arbitrage disables industry competition in metropolitan and rural regions
- Existing deregulation formula (phased caps) have failed to stimulate competition
Whereas customers in deregulated markets are now ripe for competitive solutions to high retail pricing, the process of educating the nation ought to continue before any new ideas are excecuted. A nationally sweeping policy is untenable, regardless of financial incentives offered to rate payers or corporate suppliers. These carrots are tanamount to throwing good money after bad.
The problem is not simply that GOP consumer/voter reps will not disappear from Congress or that regional capacities and demand vary but that historic retail and wholesale experiences are incongruent. Appeals to vote against "regressive" taxation are votes for ignorance -- in the heartland. Price capped utility consumption is a shadow market screaming for illumination.
Moreover, statute regarding industry business practices is insufficiently putative to deter arbitrage wherever, however, the opportunity presents. No matter how one feels about either capitalism or socialism, a thoughtful review of market "successess", in terms of cash, is more often dependent on a tilt than an innovation. Corporate governance is a shambles despite Sarbanes-Oxley (2002).
The tough love lesson plan would begin with a mandate to deregulating electricity in states that have not done so. Price caps should be prohibited but rate increases audited and authorized by a fed agency such as FERC or the FTC.
Meanwhile, as appears proper and fitting for lessons learned well, urban and metropolitan consumer markets specifically ought to be "targeted" to stage aggressive utility restructure.
I'm going to reread Energize America again. There's a lot of industry knowledge and operational applications in it. It's entirely likely that I missed or misinterpreted the staging piece of the program: when to distribute, how to monetize industry transformation.