Or even social democracy? Sounds like crony capitalism to me.

seem to be in the air -- and I guess that counts as "socialism" in the eyes of some.

More surprising is that Granholm is not doing all she can to look populist, in the lead-up to November.  Of all the states that voted for Kerry in 2004, Michigan is apparently the most likely to tilt GOP this year (Pennsylvania is a close second), according to some pundits.  And economic issues are said to be more important there than anywhere.

Chickens deserve our true friendship! So do fish! So do other sentient beings! Let us learn to be kind.

You shouldn't get too excited about the first bill the Michigan legislature passes. It usually takes them two or three tries to get on that is a) constitutional, b) possible to implement or c) remotely effective in doing what was intended. Granholm has been pretty disastrous but the legislature does it's best to make her look good in comparison.

Sean,

I regularly enjoy your posts and have learned a lot from you, but I'm a bit puzzled here.  The environment aside, is there any way that one can align the interests of ratepayers and shareholder?  Don't ratepayers always want to pay less and shareholders always want to earn more?

I suppose that in an ideal market the optimal price is found that balances the ratepayer's need for service with his/her willingness to pay, and also balances the shareholder's risk and reward.  But that doesn't mean they are on the same side, does it?

Raphael Sperry

DISCLAIMER: Admittedly, I have not read the actual language of the bill, but I have been loosely following it's path through the state legislature.  Anyway...

For number 1, the 90% guarantee:
Today, independent power producers make up, what, 3% of the electricity production in Michigan?  I know it's not more than 5%, whatever it is.  So it's not like any current competitors are going to be shut out by this.
Mind you, what kind of power plants have those independent producers been building?  Peakers, not baseload plants.  This brings me to my next point, which is that we need new baseload power plants in Michigan.  The Lansing Board of Water & Light and Consumers Energy (I don't know about Detroit Thomas Edison) are both looking to retire coal plants in the next few years, because the existing fleets are very old.  The 90% guarantee is necessary to secure funding for new power plant construction (credit crunch, anyone?).

For number 2: If you are against socialism, then this one should be an absolute bonus.  The truth of the matter is, businesses have been subsidizing electric costs for the residential sector for a few decades.  Subsidizing electricity is not a good way to get people to conserve, is it?  They're not seeing the actual cost of the electricity they use, so they don't get the full benefit of conservation on the residential side.  Certainly, making businesses pay higher than the actual costs may make them want to conserve more, but in the end it's still unfair.

For number 3:  This one makes me nervous.  I don't think that anything which (in my eyes) weakens the Public Service Commission is a good thing.

For number 4:  This Renewable Portfolio Standard is part of Michigan's strategy to attract green industry jobs and manufacturers to Michigan.  I am curious to know whether or not the final version allows conservation to be counted towards the standard (some early versions did, some did not).

In the end, I personally think that this legislation is an overwhelmingly good thing for the state.  By not guaranteeing the customer base of CE and DTE it will be difficult, more likely impossible for them to secure funding for new plants.  These are going to be REPLACEMENT plants, meaning that even though they will not be environmentally squeaky-clean, they will be better for the environment than the extant plants.  The alternative is to retire the old plants anyway, and watch as electric rates go through the roof because the utilities will have to buy electricity on the open market.

Additionally, Consumers Energy alone is going to be investing billions of dollars (4 or 5, I believe) in Michigan for their proposed new coal plant.  Michigan has 8.9% unemployment, so the state can't afford to say, "No" to new energy legislation and the jobs that it will bring to the state.

Lastly, it sounds like you are in favor of fully deregulating the utility industry.  Am I correct in inferring that?
Electric deregulation hurts ratepayers.  If you do not believe me and would like me to take the time to look it up, I will gladly provide evidence to back up this claim.

As for your last point, that this will create a link between the RPS and increased rates, I disagree that that will be the outcome.  I think that if the RPS works as expected to bring green jobs to Michigan, it will make people equate green energy with job creation.  Would you prefer that the bill not include a Renewable Portfolio Standard?  Good luck trying to pass a stand-alone RPS.

I am sorry that this is not the most cogent post, but I am fully willing to discuss and clarify my points over the next few days if you would like.

It is socialist in the sense that it presumes that the solution to our ills is to bring more government regulation to bear.

Remember that a monopoly utility is a capitalist/socialist half-breed.  Capitalist in the sense that it is for-profit, but socialist in the sense that it is protected from competition and not allowed to fail.  (a la Fannie Mae, for a timely comparison).  Ergo, any action that shifts that entity away from competition towards a lower-risk enterprise is a socialist motivation and any action that injects competition into their environment is inherently capitalistic - in the purest sense of those terms.

Think of it this way: is GazProm an example of the power of competitive markets, or of the consequences of an overhanging socialist model in Russia?  That's a fairly obvious answer, and DTE has a lot more in common with GazProm than it does with Google.

Here's the issue:

In a competitive market, the managers of a business have an obligation to maximize their distributions to their shareholders.  To do that, they have to maximize the amount of free cash their business generates, which means lowering their costs of production and raising their rates as high as competitive forces will allow, and/or selling a really terrific thing that no one else sells.  WalMart does the former.  Apple does the latter.  

In a non-competitive market (e.g., our electric structure, where monopolies are guaranteed... especially if they're in Michigan), but one where we still retain for-profit businesses, the same pressures exist vis a vis shareholders, but there is no competitive pressure to limit the prices you can charge.  In steps the regulatory model which says that (a) rates are only set at levels deemed to be "appropriate" by regulators and (b) all operating costs must be passed through in rates, so that there is no way for a utility to earn more money by spending more money - unless it's money for capital investment, since rates are set to allow utilities to earn "fair" returns on capital.

In theory that's fine, but watch what this does: you can't differentiate between kilowatt-hours - every electric provider, competitive or otherwise, is selling an undistinguishable commodity.   (I'm ignoring issues of reliability and power quality here, but they are second order considerations.)

So for a competitive electric provider (admission: like me), the only way to honor my obligations to shareholders is to lower my operating costs.  And since the overwhemling majority of operating costs associated with power generation are fuel, this means burning less of it.  Ergo, competitive forces drive me to conserve.  (This is why I have personally never built a power plant that wasn't at least twice as fuel-efficient as the US power grid.)

But for a regulated monopoly, cost-control isn't a means to greater profits (recall that all operating costs are pass-throughs: when a $100 fuel savings = a $100 rate cut, there is no reason for utility employees to spend any of their time thinking about how to save fuel.)  Deploying expensive capital on the other hand does make money.  The result is that regulated monopolies spend a huge amount of time figuring out how to convince regulators that it is in the public interest to deploy expensive capital and no time trying to lower their fuel spend.  The result, unsurprisingly but dangerously is that the electric sector today is less fuel efficient than it was in 1910 and the single biggest source of CO2 emissions as a sector (40%).

Bottom line: profit-seeking behavior can engender the public good if it takes place in the context of a competitive market, thereby aligning the interests of customers and shareholders.  Apple invented the iPhone to satisfy both sets of stakeholders, after all.  But if profit-seeking behavior occurs within a regulated monopoly, it is simply a tax on service, and there is no interest of shareholders that is aligned with those of the customers.  Witness the collapse in efficiency, and the utter lack of innovation in the electric sector - not because utility managers are dumb, but because they are responding to the incentives the regulation imposes.  We get what we reward, and a for-profit monopoly rewards neither innovation nor conservation.

Make sense?