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What happens when populist politicians try to micromanage public utilities? Venezuelans found out recently when President Hugo Chavez unveiled his blueprint for dealing with water and electricity shortages: No singing in the shower, the comandante ordered. The firebrand strongman used a live broadcast earlier this month to insist that his countrymen cut their showers short. “Three minutes is more than enough,” Chavez lectured. “I’ve counted—three minutes—and I don’t stink.”
Well, as an economic manager, Chavez is all wet. He tried to blame the lack of rain for depleting the nation’s hydroelectric dams. The truth is that Venezuela’s infrastructure is crumbling under the weight of an incompetent, interventionist regime run by cronies picked for their loyalty to the president rather than their technical know-how.
Not to put too fine a point on it, Floridians may wonder if they are getting a taste of this caudillo management style from Governor Charlie Crist’s campaign against a rate hike that the state’s energy companies say they need to make a $1.5 billion investment in power generation.
It appears that Governor Crist intends to pack the state’s regulatory board with people he thinks will vote his way on proposed rate hikes.
In most market economies, private power companies amass capital to make timely investments in the infrastructure that is required to generate sufficient power to meet ever-growing demand. Before making costly improvements, they must be able to reassure potential investors who are putting up these massive sums that they will be able to recover their costs and turn a fair profit by charging equitable fees. In most jurisdictions in the United States, those fees are set by public utility regulators, who are called upon to strike a balance between fairness to the consumer and to the power company. If politicians disrupt that delicate balance, they undermine the market forces and may have the rest of us taking cold showers.
It is one thing for the chief executive to jawbone against price increases. Other prominent politicians have opposed pending rate hikes for their impact on the Sunshine State’s beleaguered consumers, and populist attacks on public utilities is something of a tradition in Florida. However, it appears that Crist intends to pack the state’s regulatory board with people he is convinced will vote his way on proposed rate hikes. One of his nominees is a former editorial writer (who was given a one-sentence interview by the governor’s staff), and the other runs a nightclub. Skeptics are wondering if Crist really expects these newcomers to master the arcane issues and make independent judgments.
Here’s the mark of a caudillo (Spanish for “strongman”): In 2003, Chavez sacked more than 5,000 able technocrats at the nation’s once mighty petroleum company and turned it over to inexperienced political loyalists who have since run the company into the ground—forfeiting about a third of the country’s oil production to gross incompetence and underinvestment. Because of Chavez’s unpredictable, populist policies, from 2007 to 2008, Venezuela attracted about one-fifth the foreign investment it garnered in the two years just before the leftist president took office in 1999. Investment in oil production, power plants, and other basic infrastructure is in steep decline.
No one is served—least of all consumers or their governor—if Florida’s reputation as a good place to do business is tarred by populist politics.
No one is saying that Governor Crist is Florida’s Hugo Chavez. However, by attempting to intervene so transparently in a regulatory case, he risks crossing a line. The delicate balance between the interests of the state’s power companies and consumers requires a bona fide process where regulators—in this case, the appointed members of Florida’s Public Services Commission—are able to make decisions based on a fair consideration of the complicated facts presented by all sides. Devouring reams of data and economic modeling in a pending rate case is the job of duly-sworn commissioners, not the governor.
Industry analysts have noted that replacing experienced regulators and stalling consideration of rate cases until new commissioners take office has further undermined confidence in the process, which could drive up the cost that Florida’s power companies pay to borrow money. Last month, Moody’s Investors Service cited what it called “political intervention in the utility regulatory process” and noted the lack of experience of new commissioners. In a report to investors issued in mid-October, Barclays Capital reported the threats to replace commissioners.
If the state’s regulatory board is under a cloud, Governor Crist should work with the legislature to make systemic changes to improve transparency and accountability. He is not alone in demanding reform of the panel and its procedures.
But no one is served—least of all consumers or their governor—if Florida’s reputation as a good place to do business is tarred by populist politics.
Roger F. Noriega, a senior State Department official from 2001 to 2005, is a visiting fellow at the American Enterprise Institute and managing director of Vision Americas LLC, which represents U.S. and foreign companies.
Image by Darren Wamboldt/Bergman Group.
What happens when populist politicians try to micromanage public utilities?
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