Morons For Electrons
So I'm sat here at, um, the day job, writing this in a t-shirt. I guess you'd call it an ironic t-shirt, since it sports one of the most witless messages ever committed to fabric. The maker is the Edison Electrical Institute, and the t-shirt was produced for its annual financial conference. It features a cartoon crystal ball with a generic line graph inside, and the slogan "Inside The Crystal Ball: Growth In The Industry's Future"
There's something faintly endearing about this inept carcrash of mindless business cliches. You'd be tempted to ignore it as the droolings of some of half-bright PR monkey toiling away in the basement of some power coompany because their uncle in HR couldn't be bothered to pay for daycare. And I'm sure that there was much worse on display elsewhere at the conference.
But the investor-owned electrical utilities, the membership of the EEI, have a combined capitalisation of $550 billion, and are responsible for keeping the lights on. They produce roughly $27 billion a year in earnings. And are probably the least exciting part of the US economy.
Now of course it wasn't always thus. Some of the most glorious early failures of the US capitalist model concerned its nascent electrical industry. The US electrical industry sprang up in large part due to Thomas Edison's entrepreneurial urges, but Samuel Insull both expanded and perfected large scale electrical provision, and almost destroyed the industry with his rampant financial speculation.
Insull's legacy was the Public Utility Holding Company Act and a system of regulation that allows electrical infrastructure to remain in private hands (although in much of the US it is still publicly-owned). So you're left with an industry whose returns are at least scrutinised and often dictated by local regulators.
An industry with this sort of profile hardly attracts the keenest minds out of business school. Utility managers have a few ways of increasing returns for their shareholders in the face of regulation;
1) Lie about their costs to regulators in a bid to increase the about of return they can earn
2) Skimp on investment in infrastructure
3) Cut back on labour
4) Invest in businesses which are much riskier than selling power
5) Operate in areas with a rapidly increasing population
The results of these have been:
1) Civil penalties for companies caught playing withthe accounts
2) Queens turning into a hell-hole
3) Job losses
4) Large losses at PG&E, Xcel Energy and, um Enron
5) Should be foolproof, although Nevada Power seems to be consistently capable of getting into financial difficulty.
Enron's contempt for utility executives was one of their few genial traits, although I refer, it should be noted, only to those drawing massive salaries as the leaders of public companies for doing engineers' jobs - badly.
I quite understand that electrical companies need to raise capital, and should be able to that as cheaply as possible. I just happen to believe that stock markets are an utterly stupid place to find this capital.
And no, I don't think that waving competition at the industry has the ability to change it. Nicole Gelinas, while a capable writer about infrastructure, and an acute commenter on the Bloomberg administration's priorities in this regard, does not convince when positing a solution.
Competition in electricity provision results in the creation of a market so artificial that the market for electricity production looks sensible by comparison. And it leads to the sales fiascos of IDT Energy and its ilk. Electricity is not a commodity, and even if it were no-one wants to go comparison shopping for it. Cell phone service and doctors take up enough of my time.
That's all from Citizen Smith for now. By a 4200-1 chance, this song came up on shuffle while I was writing this, so I will share its luminous topicality with you.
Spiritualized - "Electricity (Live)"
Buy "Royal Albert Hall October 10 1997" here. It's red. Literally red, that is
[UPDATE: Gelinas emails to say that she does not advocate the introduction of competition in electricity distribution. This is true, and the coment was a lazy misreading of her remarks. She's calling for the mayor to lobby for rate increases for ConEd, and to make sure they actually spend them on upgrading infrastructure. I'm sceptical that such regulatory solutions can work when a firm's primary loyalty is to its shareholders, and think that some kind of municipal or not-for-profit owner of electricity infrastructure would be much neater and cheaper. But I should have made trhat point more clearly, and not characterised Ms. Gelinas' vieews the way I did. Apologies]