Friday, July 31, 2009

The Power to Coerce

Electric companies are popular targets for politicians who seek to score points with voters. Nobody likes high electric bills or power outages, and politicians can use all manner of threats, arm twisting, and explicit force to compel utilities to act as the politicians desire. Houston mayor Bill White is no exception.

On Wednesday White threatened to sue CenterPoint Energy for charges related to the Hurricane Ike recovery. According to the Chronicle:
The dispute, which will be considered Friday at a hearing before the Public Utility Commission of Texas, is not likely to change the $1.83 monthly increase on Houston-area bills to pay for the $677 million cost of restoring power after Ike.

But White said the city has taken on CenterPoint out of principle because the company is attempting to be repaid for paying employees who would have been working even if Ike hadn't hit. [emphasis added]

While most Houstonians will likely applaud White for "standing on principle", I am not one of them. The nature of White's "principles" is neither admirable nor principled.

Principles are, as Ayn Rand identified, “a fundamental, primary, or general truth, on which other truths depend.” They are man's means of evaluating the concrete alternatives he faces in life and of projecting the consequences of his choices and actions.

Men have only two means of dealing with one another--by rational persuasion or by force. They can appeal to the facts of reality or the threat of a club. They can use reason or they can use a gun.

Mayor White has made it clear which he prefers. Whether it is jamming "green" initiatives down our throat, or fighting the Ashby High Rise, or bullying a power company, he is quick to wield the coercive power of government to achieve his ends.

In the short term, both White and CenterPoint customers might "benefit" from these strong-arm tactics. White will score political points and customers will save money. But what of the long-term? What are the implications of White's methods for the future?

In principle, White advocates using force against the power companies. He believes that force is a legitimate and proper means for dealing with others. He believes that the government should determine what electric providers can charge customers. Indeed, he believes that those who do not abide by his desires should be forced to do so. That is the "principle" that is guiding Bill White.

Many states--including Texas--have "deregulated" electricity; however, those states have not created a true free market. They have retained some level of controls and regulations, and in the process continue to strangle the industry. The results have been predictable, at least to those who hold rational principles.

While keeping power companies in chains, White and his ilk complain that the market has failed. In response, many are now seeking to re-regulate electric companies. Maryland for example, has considered a bill that would arbitrarily reduce electric rates by 10% to 18%.

Having abandoned principles--that is, their conceptual faculty--power hungry politicians can only resort to the brute force of animals. Unable to project the consequences of their proposals, they tinker and tweak, issue mandates and decrees, and demand that others abide by their whims.

Building and operating a power plant is a complex undertaking. An animal cannot do it. Neither can men who are treated like animals.


Rational Education said...

As you point out -there isn't really a free market for electricity. Utility companies are guaranteed territories by govt. fiat to be provided with the ultimate "captive market" -the statist's chimerical, mystic interpretation of efficient, well run companies, that increase market share steadily and get accused of being a "monopoly". It is obvious that other than the guns of the govt., in a free market, it would be impossible for any company to think that they have a "captive market". Every company would have to adhere to the reality that their customers have other choices and have the freedom and liberty to exercise those choices. The perfect example in this case would be the internet providers or the various choices in satellite dish networks, cable, etc -where I live, I sure have a lot of choices. Of course at the time of signing a contract with a new provider of a service I try to understand certain details of what I am liable for and the services the company will provide at no extra cost in different extentuating circumstances etc. (Case in point: recently my barely month old set-up dish get messed up in a bad thunderstorm -my satellite provider sent their men out in about 4 days to correct the problem at no extra cost to me, as part of the contract). I make myself a savvy customer based on my own experiences, doing my research and talking to friends, associates, family, etc. Of course there are no guarantees that there will be no disagreements at times about services, billing etc -in those cases I take it up with the company if it is important and worth my time.
On the other hand in the case of the utility company, except in the rare case of glaring gross over billing, there is nothing much I can do about changes in rates etc. It is a communal contract and I just have to go with it since my choice to fire my utility company and choose another has been abrogated by the govt. guns. The reason the utility company does not have a moral case is because it itself lives by the power of the govt. guns. After some posturing on both sides they will stand for a photo-op claiming how both are champions of "principles"(!). The only principle that both sides espouse is their faith in the power of force and its practicality as a means to achieving ends.

Brian Phillips said...


Today's paper announced that CenterPoint and the city reached an "agreement". The power company will reduce the amount it wants to recover by $15 million. It orginally was going to ask for $677 million.

Interestingly, the article in the paper states that CenterPoin--the company that owns the poles and wires--is regulated by the state, but retail electric providers are not regulated.

Your examples regarding television and internet demonstrate that a free market can exist (though cable is often regulated)for services that are often considered a "natural monopoly".

Mr. Moderate said...

Until gas, water and electricity can be delivered without physical infrastructure, we have to deal with providing those services communally. That means either the infrastructure is owned by all of us, ie via the City, County or MUD, or we regulate the provision of infrastructure by a private entity, as with Center Point.

There are certain tensions that come with having regulated private entities provide infrastructure. The entities will occasionally claim they are entitled to additional compensation for activities outside the norm, such as storm repairs. The first step is to engage in rational discussion over the appropriate amount to recover. Sadly, not all such discussions end in a mutual agreement. At that point, the regulatory process kicks in, and a third party makes the decision, whether it be a regulatory agency or the courts. This is not coercion by government, it's part of the agreed process for resolving disagreements, which will occur, as humans do not always act rationally.

Brian Phillips said...

Mr. Moderate,

Your comments evade at least three facts.

1. The same argument was used to award monopolies to telephone and cable providers. Today, we have multiple options in both industries despite the investment required in infrastructure.
2. Regulation is a form of coercion. Regulated businesses must secure government permission to operate, and that permission is enforced at the point of a gun.
3. Competition is prohibited, which is also a form of coercion. It is illegal to enter certain industries.

The argument for “natural monopolies” is founded on economic fallacies and moral perversions. I will have more to say on this next week.

Mr. Moderate said...

The telephone monopolies were broken by forcing the existing companies to share their infrastructure. That's how I was able to get DSL from Covad a number of years back, and it's how wired telephony providers have been able to provide services. Verizon is choosing to run fiber all over the place to provide additional competition, but that wasn't economically feasible until recently.

Cable television's biggest competitors, and the major competitors in telephony, provide their services without wires, which means the infrastructure has a small footprint and doesn't intrude on anyone's property. That is not technically feasible for electricity or water. Once we come up with delivery methods that don't require physical infrastructure to run to every customer, we can talk about true competition.

I would love to hear how you would propose allowing more companies to run power lines. Are you going to force me, at the point of a gun, to allow your new power company to run lines to your house?

Brian Phillips said...

The initiation of force to promote competition is a contradiction. No, I do not, never have, and never will, endorse the initiation of force to run power lines. Those wishing to run more lines will need to secure the voluntary agreement of property owners.

My proposal for allowing power companies to run more lines is just that--allow them to run more lines. Remove the artificial and arbitrary restrictions imposed by government.

Armil@satellite providers in my area said...

I agree with this one: Principles are, as Ayn Rand identified, “a fundamental, primary, or general truth, on which other truths depend.” They are man's means of evaluating the concrete alternatives he faces in life and of projecting the consequences of his choices and actions. Thanks for posting!