Saturday, May 01, 2010

Two propositions in June

There are two propositions on the June California ballot which are sponsored by a company.  Proposition 16 has received the vast majority of its funding from Pacific Gas and Electric Company and Proposition 17 has received almost all of its funding from Mercury Insurance.   Both have been criticized as power grabs from corporations.

Proposition 16 would require a 2/3 vote for local governments to establish a public power company.  One could argue that the idea came from PG&E to maintain their control of electricity generation in their market areas.  That indeed may be part of the rationale.  But there is another very good rationale.  Units of local government say they are strapped for cash.  It is likely that some would look to taking over the electricity business as something which could help balance their books.  That story never gets brought up in the press coverage.   Ultimately, for something as momentous as creation of a public power company, it seems like good sense to make it harder to have local governments get into this without strong support from the people in the area.  The Oakland Tribune and the Petaluma Press Democrat have editorialized against Proposition 16 - the PPD said "this corporate handout is being billed as a taxpayer protection measure" - what twaddle.  Indeed this is supported mostly by one company and indeed it may be related mostly to a fight that PG&E is having with a local Sacramento Municipal utility that wants to expand west.  But who cares.  The real question is whether voters should have a role when local governments want to set up their own power companies.  I say YES.  Thus, I am voting yes on Proposition 16.


Proposition 17 would allow insurance companies to offer persistency bonuses to their clients.  When Proposition 103 was passed it changed the way insurance companies could rate drivers.  For example, it prohibited territorial rating which allowed companies to charge more for insurance in areas where there are more cars.   It also prohibited companies for giving discounts to buyers who stay with a company.   A good part of the cost of auto insurance is based on the cost of acquiring new insureds.   But supporters of Proposition 103 argued that these kinds of bonuses lack an actuarial basis.   That is silly, having a customer for a long period of time can offer insurance companies more information about how their insureds use insurance.  Do they make a lot of claims?   Are they careful drivers?   It seems to me that is a legitimate differentiation in a company's ratings. Opponents claim that allowing persistence discounts will encourage companies to install huge surcharges for buyers who constantly shop around.  More likely, in a market as competitive as insurance, this change will encourage discounts to those who stay with the same company over time.  Both the San Francisco Comical and the LA (Not So Accurate) Times have written editorials against Proposition 17 - buying the opponents arguments that cost will go up.  But that is just nonsense if you look at how insurance is sold in the state.   Thus I am voting yes on Proposition 17, too.


In both of these ideas, the opponents argue that the proposition itself is bad because of who sponsored it. In both cases, if you look a bit more carefully, in spite of who sponsored the idea, they both make pretty good sense.

5 comments:

John Geesman, former Calif. Energy Commissioner, 2002 - 2008 said...

Ok, Dr. Tax, voters should have the final say -- that's why California law has historically required a 50% + 1 majority vote before a municipal utility is created or allowed to expand. The rationale for a two-thirds majority that we ordinarily require for new taxes or bonded indebtedness is designed to create a bias against spending more of the public's money. Very simply, those who want to spend more are required to muster a super-majority consensus.

But Prop. 16 would turn that rationale upside down by building a two-thirds majority hurdle in front of efforts to save the public's money. In the long history of California, the only times the public has approved local governments getting into the electricity business has been when substantial savings have been demonstrated. No demonstrable savings, no public approval. Are you aware of any examples to the contrary?

The only reason to build a two-thirds majority wall around the existing captive customers is to better entrench the incumbent monopoly. That's why there's been so much emphasis on PG&E, which is not only the source of "the vast majority" of funding for Prop. 16, but OF EVERY SINGLE NICKEL of the $35 million put into that campaign.

Dr. Tax in Sacramento said...

I understand the argument but do not agree. I guess you do not believe in raising fractions for important decisions. I do. That is a philosophical disagreement. Fundamentally when a public agency is going to make a commitment which binds future generations, I believe the standard of agreement should be higher than a 50% rule.

Dr. Tax in Sacramento said...

I understand the argument but do not agree. I guess you do not believe in raising fractions for important decisions. I do. That is a philosophical disagreement. Fundamentally when a public agency is going to make a commitment which binds future generations, I believe the standard of agreement should be higher than a 50% rule. I am uneasy about supporting PG&E because of their conflict here. But ultimately the principle about making future commitments is a strong one for me.

John Geesman, former Calif. Energy Commissioner, 2002 - 2008 said...

Well, Dr. Tax, are you troubled at all by the fact that the election process for making such a choice under Prop. 16 would be extremely asymmetric? PG&E (or any other investor-owned utility defending its monopoly) could spend an unlimited amount for its campaign, whereas the local government seeking authorization to provide competing electricity service would be prohibited from any advocacy expenditures. Add a two-thirds majority requirement on top of that (effectively reducing the target which monopoly retention needs to achieve to merely 33%)and it seems you've erected a pretty high barrier to efforts to save money for electricity customers. Exactly what greater good would such a distorted process be designed to accomplish?

Dr. Tax in Sacramento said...

I guess, former commissioner Geesman, this is a fundamental philosophical difference. The tax and spend process is already relatively asymmetrical against those who pay taxes. Public agencies can get into things on a notion and the majority rule does not protect the long term interests of the taxpayer. From my point of view, it is a good idea when we are committing large amounts of tax dollars a long time into the future that we would make it relatively hard to make a decision to get into a business as complex as the energy transmission and generation business. From my view there is precious little evidence that public power is superior.

In this case as I said in my original post, neither of these initiatives makes me comfortable because of how they are sponsored. But these kinds of things come about because our standard government processes don't work very well at this point.