The High Cost of Energy, Three Strikes and You’re Out?

Marissa  Gillett Credit Yehyun Kim  ctmirror.org

A Hartford paper on Wednesday led with a story titled “A grim outlook for more utilities.” The utilities in Connecticut are energy distributors, not energy producers. Their operations are overseen by PURA, the Connecticut Public Utility Regulation Authority.

 

“Overseen” certainly is too weak a word. PURA exercises life and death powers over Connecticut utilities because the oversight agency, under the direction of PURA Chairman Marisa Gillett, is able to deny energy distributers  cost increases that, like all business taxes, are passed along to its customers – virtually everyone in Connecticut.

 

Three principal rating agencies have downgraded Connecticut’s energy distributors and, as the paper headline suggests, this news is “grim” for both energy consumers and energy distributors.

 

A rating downgrade increases prices because it increases the cost of borrowing money. Companies borrow money to sustain the costs of operations and expand less costly new product development. Business costs, when they occur, are recovered by companies through price increases for goods and services delivered. All taxes on businesses and services, and all costs attributed to regulations, are passed along to customers in the form of price increases. As this writer often has pointed out, businesses are tax collectors rather than tax payers. The cost of regulations imposed by a variety of governments – federal state and municipal –also is passed along to the consumers of the business impacted by regulations.  

 

In the absence of alternate energy sources, the set price is a reflection of the iron law of supply and demand. When supply is diminished, prices increase. When demand increases and supply remains a constant, prices increase. Governor Ned Lamont, who fancies himself a business man, appears to have mastered the elemental laws of the free market system. When PURA’s mess was dropped in his lap, the Governor responded, according to a Hartford paper, “that the solution [to high energy prices] is increasing the supply of electricity in Connecticut.”

 

PURA’s Chairman Marissa Gillett has recently denied a price increase for energy distributors in the state. Rating agencies responded to the regulatory price cutback by lowering the credit rating of the industries affected, and the lower rating will increase the costs of borrowing money, which in turn will – no surprise here – increase the price of energy for, some investors believe, ten years down the road.

 

Gillett tipped her hand in a rarely read interview on a January Volts podcast with interviewer David Roberts: “A Connecticut reformer is shaking up utility regulation: A conversation with regulator Marissa Gillett.”

 

Roberts and Gillette are very much on the same page. Both make a sharp distinction between giant monopolies – the kinds of businesses PURA should regulate – and ordinary smaller businesses, always a useful distinction.

 

Non-monopolistic, smaller businesses, Roberts says, are businesses that “face actual risk of failure.”

 

“Yeah,” Gillette agrees, “and competition for their customers. Exactly. And I think that's fundamentally where folks don't understand my regulatory philosophy. Like, I see a lot of quotes from utility executives who think that my job is to balance what is fair for the utility and for the ratepayer, and I reject that characterization. I think what PURA's role is, is to serve in place of the free market [emphasis mine}.”

 

What is the point in constructing a regulatory regime that never or rarely says “no” to Big Business monopolies that can by their very weight and political influence suppress any attempt to lower increases in their price structure? What Connecticut needs, according to Gillette, is a compensating institution, PURA, that can say no to such monopolistic practices. PURA, when operating successfully, should “serve in place of the free market” that has been displaced by monopolies using the governing authority to advance monopolistic interests.

 

We know that replacing a free market architecture with a regulatory scheme is a fool’s errand. We know that capital investments in energy systems lower prices because the private capital invested ultimately improves business operations. Alternatively, a PURA intervention that artificially reduces private capital expenditures prompts rating agencies to lower ratings, and the lower ratings produce a corresponding reduction of investments that damage borrowing.

 

In “Dem Dry Bones,” a spiritual song rooted in Ezekiel 37:1–14, “The Head bone is connected from the neck bone; neck bone connected from the shoulder bone; shoulder bone connected from the back bone; back bone connected from the hip bone” and so on and on… Everything is connected to everything else. The disconnects in Gillette’s “solution” to high energy prices are disconcerting, to say the least. PURA will serve “in place of the free market?”

 

How?

 

It can’t, and won’t, and the result of PURA’s exertions ultimately will destroy both PURA and the free market in Connecticut. PURA’s “solution” to the problem it seeks to cure has become yet another false solution that will result in higher borrowing costs and increased prices to energy consumers.