Wednesday, June 29, 2005

Need a Reason to Oppose PGW Privatization? Here's One.

Ben earlier told us that John Perzel, et. al. are eyeing PGW, with the intent to take Philly’s troubled utility, and privatize it. In a way, given how mismanaged and corrupt much of PGW is, this sounds reasonably appealing to many in Philadelphia, such as Michael Nutter. And, considering that PGW is in debt to the tune of 500 million dollars, it is easy to understand why. But, if we needed a reason NOT to privatize PGW, we got it today.

In the energy bill passed today by both the House and Senate, there was a quiet repeal of PUHCA, the Public Utility Holding Company Act of 1935. What is PUHCA? Why should you care? And why must we keep PGW from being privatized? Read on....

First, what is PUHCA? Via Kos diarist Tocqueville, we turn to PUHCA for Dummies:

Q. What exactly does PUHCA do?

A. PUHCA: (1) limits the geographic spread (therefore, size) of utility holding companies, the kinds of business they may enter, the number of holding companies over a utility in a corporate hierarchy, and their capital structure; (2) controls the amount of debt (thus, cost of capital), dividends, loans and guarantees based on utility subsidiaries (so the parents can't loot or bankrupt the utility subsidiary), and the securities that parent companies may issue; (3) regulates self-dealing among affiliate companies and cross-subsidies of unregulated businesses by regulated businesses; (4) controls acquisitions of other utilities and other businesses; and, (5) limits common ownership of both electric and natural gas utilities.

Q. (Sarcastically) Is that all?

A. Actually, no. PUHCA also limits the activities (and campaign contributions) of officers and directors of holding companies, has control over their accounts, books and records, and regulates them in a number of other ways.

Should Billionaires and Huge Oil Companies Own Our Public Utilities?

Q. Why do Warren Buffet and ChevronTexaco want to get rid of PUHCA?

A. PUHCA does not allow them to own and control utilities unless they give up their other businesses. (They can passively invest in them now.)

Q. Are you kidding? ChevronTexaco would have to give up its oil business? Buffet would have to give up Berkshire/Hathaway?

A. Correct. PUHCA was enacted because huge holding companies were using secure utility revenues to finance and guarantee other, riskier business ventures around the world, and 53 utility holding companies went bankrupt from 1929 to 1936 after the banks called in their loans.

Q. So PUHCA protects the financial health of public utilities that supply our electricity and retail natural gas?

A. Yes, by controlling their parent companies. Of course, PUHCA was also designed to reduce over-concentration of economic power in just a few companies. The top five oil companies now control 50 percent of oil production in the U.S. If they also controlled public utilities, they would be too powerful for any government to regulate.

Hmmmmmm. And, if you need some proof as to the power of this law, consider that a small 1992 repeal of one part of PUHCA “created power marketers, and ultimately the electricity deregulation debacle in California, the Enron bankruptcy, and the bankruptcies and huge debt of numerous utilities all over the United States.”

Well, that does not sound too good. Many people forget that we lucked out, when Enron tried, but failed to takeover PECO. Would you like another Enron controlling your energy? Or, as the same Daily Kos authors points out, would you be comfortable with say, China, controlling the energy of Philadelphians? Or, what about Haliburton or Texaco?

And get ready to start paying your power bill to Halliburton because some of the companies best positioned to take advantage of this deregulation are oil companies: "The top five oil companies now control 50 percent of US oil production. If they also controlled public utilities, they would be too powerful for any government to regulate," said Hargis.

We must figure out how to reform PGW, how to get it out of the patronage mill, how to get people to pay their bills. We must not, however, turn our biggest public utility over to private companies, just as it becomes exponentially more dangerous to do so.

Keep Haliburton, China, Chevron or a new Enron from controlling heat in Philadelphia. Say no to PGW privatization.


At 4:25 PM, Blogger Pat Evans/Butcher/Wicks said...

Dan, I obviously agree that PGW must not be privatized. You make very clear that the stakes here are bigger than just Perzel and his local political interests.

However, when you say "We must figure out how to reform PGW, how to get it out of the patronage
mill," I get a little distracted.

Is there a specific patronage mill at PGW that is problematic?

Even if there is, would a private company eliminate said mill? It seems to me that even if the owners are national or multionational types, someone like Perzel would still pull the local strings and we know from the Parking Authority takeover that he gives out MORE jobs than Dems did when in control.

One of the reasons that I want PGW to remain publically controlled is because I believe in public employment.

The City of philadlephia is the #1 employer of workers in this city and that meansthat other companies have to compete with the wages and benefits set by the city's jobs. to get workers.

Public employers set industry standards in treatment of workers because the moral obligation of government to provide good wages, health care etc is easier to exploit than it is for corporations.

At 4:45 PM, Blogger Dumplingeater said...

I think it may be a bit of a jump to connect PUHCA and the Chinese with privitization of PGW, and perhaps counter-productive (By the way, thanks for pointing to that VERY interesting information on the energy bill). If PGW were to be privatized, it wouldn't NECESSARILY mean that it would be run by Oil companies or Halliburton. Similarly, it feels a bit racist and xenophobic to me to talk about not wanting China to control heat in Philadelphia. Such rhetoric might only serve to marginalize more cogent arguments, such as those Ray suggests. I seems to me this should be a local and very specific issue. Maybe the larger issue of privatization should be fought on other battlefields, fight privatization of PGW on economic terms of what is really best for Philadelphians.

On the other hand, Ray, I don't quite understand your comments about patronage. In my dealings with PGW, the lack of accountability has been outrageous, to say the least. I agree that offering privatization as insurance against a lack of accountability is bullshit (see Enron). Are you saying it's too much of a jump to attribute the lack of accountability at PGW to patronage? But the patronage issue does seem to me like a good place to start. Do you have some insight into other causes for PGWs problems?

At 5:03 PM, Blogger Pat Evans/Butcher/Wicks said...

well dumpling eater, (can i call you "de" for short? ;) you raise some good points.

I have never had a problem with PGW. That doesn't mean there isn't one, but I don't have any first hand experience with it. So in terms of accountability, I am not sure what the issues are. I hope someone else enlightens me.

However, yes, I would argue that patronage does not have to come with a lack of accountability. For instance, the head of PGW and his/her top admin people should not be political appointees. They should be people who know how to run a utility company.

However, every ward leader in the city likely has constitents who need quality jobs and are qualified to work the service counter, read the meter etc. As long as there is a managment team in place that holds those workers accountable, and as long as there is a union to represent those workers, I don't see a problem.

Patronage is a term that is tossed around in a negative way but isn't always clearly defined.

At 5:46 PM, Blogger DanielUA said...

Where to start...

Dumplingeater- No, the repeal of PUHCA does not make it certain that PGW will be bought by Halliburton, et al, but, the reality is that every indication is that the repeal of this law is going to set off huge consolidation, with big oil companies leading the way. If you are selling PGW, debt free, you are talking about something with a lot of value, and you can sure expect the Warren Buffets, and the Haliburtons of the world will include PGW in an ever consolidating field.

As for China controlling Philly energy, I don't know if it xenophobic to say that it seems inherently wrong, and frankly a little unsafe, to give a foreign country that much control of the energy of Philadelphia.

Ray- where to start....

First of all, PGW is generally thought to be an incredibly inefficient, pooorly run organization that is running a debt in the hundreds of millions.

But, forgetting that for a minute, I really, really, really have a problem with this:

However, every ward leader in the city likely has constitents who need quality jobs and are qualified to work the service counter, read the meter etc. As long as there is a managment team in place that holds those workers accountable, and as long as there is a union to represent those workers, I don't see a problem.

You dont see a problem with the ability to be hired based on whether your ward leader can get you a job!?!?! You are opposed to say, a civil service commission instead? Why the hell in the world should a ward leader decide who in Philly gets jobs? So, I guess people better fall in line with the City party, eh?

Of course there are people in all Philly neighborhooSo, why in the hell would we make that dependent on whether a party official gives you the nod?

Patronage, in the context of giving connected people jobs, is wrong. Having the party have that much control over our lives is precisely what we need to change in Philadelphia.

At 5:52 PM, Blogger Dumplingeater said...

Thanks for the clarification. What you say makes sense, and leads me to examine my own assumptions a bit. At some level it might make sense for a city institution to have the ability to hand out good jobs to deserving citizens. And so while I think patronage is an important issue with respect to PGW, I agree that there could be a model where a form of "patronage" could co-exist alongside accountability.

On the other hand..... I could relay some longish anecdotes about my experiences, but let it suffice to say that in virtually every interaction I've had with PGW (waiting in lines and dealing with employees at PGW offices, dealing with technicians to have services added for my house during renovations, etc.), I've been appalled by the lack of competence. I am by no means pro-Capitalism, but I couldn't help having the impression that no one who I encountered seemed to be worried about any connection between their productivity and job security. Those kinds of encounters are troubling, and they leave labor and progressive economics with a bad odor. And I think that it might be important to deal directly with the ways that "patronage," as it is implemented at PGW, might be a huge contributor to PGW's problems.

At 5:57 PM, Blogger DanielUA said...

My sentence that was cut off was "of course there are people in in Philly who need jobs."

At 5:59 PM, Blogger Pat Evans/Butcher/Wicks said...

Dan, your outrage seems disproportionate to the problem. Is there a problem with people who do not know ward leaders getting jobs at PGW?

Beyond that, is anyone ever hired for a job, public or private, purely based on their resume? Don't we all get connections to jobs from friends, family and neighbors?

Black ward and divisions leaders in particular operate as a sort of affirmative action gang giving access to jobs to their constituents that they wouldn't otherwise get. I don't see that as a bad thing. White people get a ton of privellege just from the color of their skin.

At 6:09 PM, Blogger DanielUA said...

I guess I would say that most civil service jobs are generally not based on who you knew. They were incfedibly important, crucial reforms to take some of the power away from politcal parties, so that they stopped being able to control people's lives.

Ray- if there is a need for afirmative action, as there is in much of the employment world, why wouldn't we simply use affirmative action? In fact, who is to say PGW does not use it now? Why the hell do I need to be friendly with a ward leader to get that job? Why should we have a system where the Democratic party controls that much of anyone's lives?

A system where quasi elected ward leaders dole out jobs for loyalty is plain wrong, and it leads to inefficient government, and poorly run agencies. And, lets be clear that a poorly run agency such as PGW is not some abstract issue: it makes people's rates higher who can ill afford it, and it leads to disenchantment with the City.

At 6:13 PM, Blogger Dumplingeater said...

DanielUA. Please understand. I'm not saying that the potential for consolidation, as pointed out in the original post, isn't a hugely concerning issue. However, I don't know that it makes sense to have that be the focus of evaluating the privitization of PGW. Sure, PGW could be snatched up by energy giants, but it is certainly be possible that PGW could be privatized by another sort of enterprise. Stressing that issue as a basis for opposition has a tinge of fear-mongering for me. And I think that such a position could easily be marginalized as "there those conspiracy spreading liberals go again." I'd rather see the PGW issue being framed in terms of real consquences for my neighbors. And let's attack the consolidation issue with a lot of energy also.

In terms of the China aspect, again, to me it's a matter of tone. I certainly wouldn't be more concerned having a Chinese company providing my energy than I would a company with connections to Dick Chaney? Is it inherantly wrong and less safe that a Chinese company owns our energy provider than Halliburton? Hmmm. I really don't se that one. A Chinese company might have to work harder at providing a reasonable service at a reasonable price than a company that has the Vice-President in its pocket.

Additionally, I am very leary of the China-bashing that has become more popular since the Chinese have stepped up to acquire energy rights. I am not saying that YOU are racist, but that we need to be careful about fanning those xenophic flames.

At 6:17 PM, Blogger DanielUA said...

Well, I see what you are saying. But, I guess fundamentally I believe it is dangerous to have someone who is completely unaccountable, whether they be Halliburton or China or Australia or whomever, controlling heat in Philadelphia. That is why I lumped them in with Chevron, et. al.

But, I generally agree with you that there are other reasons not to get rid of public utilities. I am just trying to point out that we are going to do so when it is every more dangerous a preposition.

At 6:23 PM, Blogger Dumplingeater said...

DanUA, agreed. And I need to think more about your debate with Ray about patronage. You both make good points.

At 6:52 PM, Blogger rox_publius said...

Black ward and divisions leaders in particular operate as a sort of affirmative action gang giving access to jobs to their constituents that they wouldn't otherwise get. I don't see that as a bad thing. White people get a ton of privellege just from the color of their skin.

so let's institutionalize that status quo by doing nothing about it?



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