Sunday, May 9, 2010

Prop. 16 Limits on Competition Would Erect "a Constitutional Iron Curtain" to Lock in Customers

Leave it to the Bakersfield Californian, hometown newspaper of blue collar philosophers Merle Haggard and the late Buck Owens, to find the phrase which succinctly captures the full scope of Prop. 16's sinister rewrite of the rules governing for-profit utilities in California:

"... a yes vote will establish a constitutional iron curtain ..."

The Bay Area Center for Voting Research in 2005 ranked Bakersfield the eighth most conservative city in America (and number one in California), and it has been the epicenter of Northern California's ratepayer revolt against PG&E in 2009-10Local residents have been pushed into a combative stance by two separate and sustained utility disinformation campaigns -- both premised on assuming that customers are idiots -- which recently imploded.

The first was the fiasco surrounding so-called "smart meters" which prompted sudden exponential increases in monthly bills for some customers.  Initially the utility insisted the customers didn't know what they were talking about.  Then it said that the old, "dumb meters" had run slow and produced bills that were too low.  Two weeks ago it acknowledged that some 43,000 of the new meters are malfunctioning and generating erroneous bills.

The second was the continuously shifting explanation of local rates.  After prolonged complaints, the utility's spokesman admitted to County Supervisors that Bakersfield rates are unfairly high and subsidize more politically influential parts of the state -- prompting the Board to immediately vote to put a municipalization measure on the ballot.  Then PG&E took out full-page newspaper ads and sent a SVP from headquarters to deny the previous admission, saying it was all just a big misunderstanding and that Kern County customers actually benefit from a lower average rate (and nearly twice the proportion of CARE program recipients) than the rest of the PG&E service territory.  Now the utility has decided it wants to raise everybody else's rates by an average of 14% in order to reduce the top tier rates common in Bakersfield by 40%.

In the words of the Bakersfield Californian editorial eviscerating Prop. 16:
Pacific Gas & Electric Co. is looking for a few million suckers, betting a fortune that we're too thick-headed to know a rip-off when we see it.
Even though every nickel for the $35 million Prop. 16 propaganda effort has come from PG&E, the impact of hardwiring draconian restrictions on competition into the State Constitution -- where they can only be changed by another ballot measure -- will be felt by every user of electricity in California whether currently served by PG&E or not.

Prop. 16 tries to erect an insurmountable barrier to customer choice in every for-profit electric utility service territory in the State.  While the 24/7saturation advertising emphasizes the "taxpayers right to vote,"  the measure has nothing to do with taxes and is focused much more on altering existing voting rights than creating any new ones.  Claiming to treat customer choice of an electricity provider the same as bonded indebtedness -- the measure has nothing to do with bonds, either -- Prop. 16 would establish a 2/3's majority vote requirement before any community could entertain a competitive provider.

And the Prop. 16 proponents are even deceptive about the 2/3's requirement -- the real significance of the rule change is to reduce the threshold a for-profit utility needs to achieve to fend off competition.  If Prop. 16 wins, the magic number will be 33% of the voters, considerably below the 50% + 1 required by existing voting requirements. 

For utility companies which have always displayed a spend-whatever-it-takes philosophy in previous customer choice elections, arrayed against local governments prohibited by law from spending anything on campaigning, this reduction of the "win" target to 33% would be an historic windfall.  For those trying to use competition to bring downward pressure on electricity rates, the message would be equally clear:  why bother?

As PG&E's $10.6 million CEO Peter Darbee has acknowledged, sponsoring Prop. 16 "... was really a decision about could we greatly diminish this activity for all going forward ..."

A preference for private enterprise over government agencies strikes many as a cornerstone of America's economic success.  It would be a serious mistake, however, to confuse regulated for-profit electric utilities with private enterprise.  Like FNMA and FHLMC, they are effectively arms of the government -- arguably even more so, with their captive customers and guaranteed 11.35 - 11.45% returns on invested capital.  Their top executives get to dress up and pretend to be real businessmen (few women ascend), and compensate themselves richly as part of the charade, but in truth they are lobbyists and fixers whose primary task is to manipulate the regulatory environment.

And one doesn't have to feast at the Karl Marx feedbag to recognize the deterrent effect that even the threat of municipal utilities (or any other competition) can have on the endless cycle of cost overruns and rate increases that surrounds California's regulated utilities.   As Franklin Delano Roosevelt himself said in 1932,
I might call the right of the people to own and operate their own utility something like this:  a 'birch rod' in the cupboard to be taken out and used only when the 'child' gets beyond the point where a mere scolding does no good.
If the mere threat of turning to a competitor carries the benefit of restraining the for-profit utility's rate increases, by what warped logic would customers agree to make that threat less credible?  Why impose the super-majority requirement traditionally used to discourage higher taxes for efforts designed to encourage lower rates?  How stupid do they think we are?

Pretty stupid.  On May 12,  Peter Darbee will slither out of his San Francisco lair in the Spear Tower at One Market (an actual address, surpassing the literary imaginations of either Tom Wolfe or Charles Dickens), climb into his limo and head across the Bay Bridge to the annual PG&E shareholders meeting in San Ramon.  Uppermost in his mind will be whether he has snookered enough shareholder votes to avoid embarrassment over his bloated 2009 compensation -- 74% above the Wall Street Journal's median for large energy utility CEOs, and 8% more than Goldman Sachs paid its CEO, fercrineoutloud. 

But uncertainty about the outcome of Prop. 16 -- an even bigger hoodwinking, with much more at stake -- will be hard for Darbee to keep from his thoughts.  As he recites to himself the customers-are-morons catechism he learned during his 5-year apprenticeship at Goldman Sachs,  he just might ask his driver to play an old Buck Owens song on the car stereo system, an anthem to the kind of people Darbee once vowed to never denigrate as simply "ratepayers:"

Hey you don't know me, but you don't like me
You say you care less how I feel
But how many of you that sit and judge me
Have ever walked the streets of Bakersfield? 

(Photo credit:  Darbee, Genesis Photo Agency)