Sen. E.J. Pipkin says, in Paul Adams's story today, that "It's the same old story with Constellation. These kinds of threats are not constructive."

But it's not the same old story. BGE parent Constellation energy has set a new mark of aggressiveness in responding to public officials questioning its policies. During the 2006 special session that created the legislation Constellation is complaining about, I was repeatedly struck by Constellation's measured tone in response to what was quite an extraordinary situation -- a legislature called into special session specifically to meddle (as Constellation perhaps saw it) in its business. Constellation officials' main worry seemed to be retail rate caps that might drive BGE into bankruptcy, and they said barely a word in protest about the issue they're suing over now. They even began giving customers the credits the legislature required -- under protest, it's true. But it took them until now to sue.

The trigger, it seems clear, is the stance taken by Public Service Commission Chairman Steve Larsen and the rest of the PSC. As directed by the legislature, they subpoenaed Constellation last fall and are trying to revisit matters that Constellation regards as having been settled years ago, especially Maryland's 1999 electricity deregulation settlement. There are many moving parts: the "stranded cost" compensation that ratepayers were forced to pay Constellation; BGE customer levies for eventually decommissioning the Calvert Cliffs nuclear plants; part of the profit BGE collects; Constellation's earnings on the non-regulated wholesale electricity market; and the 2005-2006 wholesale auction (much of which was won by Constellation) that led to the 72 percent BGE rate increase.

I bet there's one more shoe. The PSC isn't done examining the 2005-2006 auction. Don't be surprised if the PSC calls the integrity of the auction into question and tries to get a rebate for BGE customers on that basis, as well. This will prompt more brimstone from Constellation. My best guess is that, in the end, Gov. O'Malley, Larsen and Constellation will put all these issues on a negotiating table and reach a global settlement that includes a modest rebate for households that use BGE. That way Gov. O'Malley can say he redeemed his pledge to stop the BGE rate increase -- or at least did something about it. And Constellation will have obtained political peace -- at a price. Here is my recent column on one of Larsen's blasts.

Posted by Jay Hancock at 10:21 AM | Permalink | Comments (14)
                    

William Poole voted against last week's Federal Reserve interest-rate cut. So presumably he would have voted against today's. But he didn't. Apparently he wasn't there. If he had been, the vote to cut short-term rates by another half-percentage point would have been 9-2 instead of 9-1. Poole is skipper of the Federal Reserve Bank of St. Louis, a monetarist and enemy of inflation. From today's statement:

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred no change in the target for the federal funds rate at this meeting.

UPDATE: base4rip notes correctly that Bill Poole is not a voting FOMC member this year. So how come he voted on the unscheduled cut last week, along with other non-2008 members?

2ND UPDATE: Here is how the Fed explains it. Committee membership doesn't change until the first regularly scheduled FOMC meeting of the calendar year. So even though the Jan. 21 meeting took place in 2008, it was populated by 2007 members because it was unscheduled. So Bill Poole is out of the picture for the rest of the year and Richard Fisher, president of the Federal Reserve Bank of Dallas, is playing the bad cop.

Posted by Jay Hancock at 4:25 PM | Permalink | Comments (1)
                    

To hear the Public Service Commission tell it, Baltimore Gas & Electric and parent Constellation Energy have complained to everybody about the PSC's stranded-cost report except the PSC. Now the agency has called a hearing for next week for BGE to have its say.

Constellation Energy Group has made public statements indicating the reports contain inaccuracies. According to statements of the company’s CEO information has been distributed to Wall Street analysts, Maryland Legislators, and the Governor that allegedly rebuts the Commission’s reports. This information has not been provided to the PSC. In accordance with the provisions of Senate Bill 400, the PSC is initiating this proceeding to investigate further the issues identified in its report, and is holding this hearing at the outset to allow BGE to identify and explain the errors it claims the Commission has made.

The hearing is a week from today -- Feb. 6. Here is my column on the report.

Posted by Jay Hancock at 3:20 PM | Permalink | Comments (0)
                    

The scariest five sentences I read yesterday come from Michael Mandel, Business Week's chief economist and the author of the recent cover story, How Real Was the Prosperity?

In truth, we're at the beginning of a long, arduous process of figuring out how much of the post-tech bubble prosperity was real and how much was the result of a credit-induced frenzy... As of the third quarter of 2007, the 10-year growth rate for consumption was 3.6%, vs. GDP growth for the same period of 2.9%. This difference represents an enormous gap. If consumer spending had tracked the overall economy over the past decade as it has in the past, Americans today would be spending about $600 billion less a year. The extra spending has amounted to a total of about $3 trillion since 2001.

In other words, since the tech bubble really took off in 1997, which was followed by the credit bubble of the early 2000s, which was followed by the housing bubble, consumer spending has outpaced economic growth by $3 trillion. The implication: Such a rate of growth was based on funny stock-market and housing money and is woefully unsustainable. Over the years I have written many columns saying (correctly) that consumers still had gas in the tank and shouldn't be ruled out. Now, seeing the figures as Mandel puts them, and seeing the challenges the economy faces, I think it is probably time to stop saying that.

Posted by Jay Hancock at 10:16 AM | Permalink | Comments (1)
                    

Why does AP write ledes such as this?

NEW YORK - U.S. home prices plunged by a record 8.4 percent in November, marking two years of slowing returns, according to a key index released Tuesday.

It's simply not true. Home prices did not fall 8.4 percent in November. They fell 8.4 percent over the 12-month period that ended in November. AP does this all the time. By declining 8.4 percent in one month, home prices would have been falling at 65 percent annual rate. If you think the Fed is panicked about an 8.4 percent annual decline in home values, think what they would do about a plunge at a 65 percent annual rate.

AP's second sentence does clear things up: "The decline in the Standard & Poor's/Case-Shiller 10-city composite home price index was the biggest year-to-year drop since a 6.7 percent decrease in October." But why couldn't they say "year to year" in the lede?

Posted by Jay Hancock at 11:14 AM | Permalink | Comments (1)
                    

The latest Case-Shiller home-price numbers are out this morning. As expected, not pretty. A composite index of home prices in 20 cities fell 7.7 percent for the 12 months ended in November. A 10-city index fell 8.4 percent compared with November 2006. That's about how prices did in Washington (and presumably, Baltimore). The Washington index 7.8 percent for the period -- right with the pack. The worst performers were Miami (minus 15.1 percent), Las Vegas (minus 13.2 percent) and Detroit (minus 13 percent). The best performers were Charlotte (plus 2.9 percent) and Seattle (plus 1.8 percent).

The full Case-Shiller press release is here. The AP story is here. An easy-to-read HTML table of the results is on Calculated Risk, here.

Posted by Jay Hancock at 10:56 AM | Permalink | Comments (0)
                    

Quote of the day. From Harry Truman's diary, Dec. 25, 1947

I appointed a Secretary for Inflation. I have given him the worry of convincing the people that no matter how high the prices go, nor how low wages become, there just is not any danger to things temporal or eternal. I am of the opinion that he will take a real load off my mind-if Congress does not.

Then I have appointed a Secretary of Reaction. I want him to abolish flying machines and tell me how to restore oxcarts, oar boats and sailing ships. What a load he can take off my mind if he will put the atom back together so it cannot be broken up. What a worry that will abolish for both me and Vishinski.

I have appointed a Secretary for Columnists. His duties are to listen to all radio commentators, read all columnists in the newspapers from ivory tower to lowest gossip, coordinate them and give me the result so I can run the United States and the World as it should be. I have several able men in reserve besides the present holder of the job, because I think in a week or two the present Secretary for Columnists will need the services of a psychiatrist and will in all probability end up in St. Elizabeth's.

I have appointed a Secretary of Semantics-a most important post. He is to furnish me 40 to 50 dollar words. Tell me how to say yes and no in the same sentence without a contradiction. He is to tell me the combination of words that will put me against inflation in San Francisco and for it in New York. He is to show me how to keep silent-and say everything. You can very well see how he can save me an immense amount of worry.

Posted by Jay Hancock at 8:06 AM | Permalink | Comments (0)
                    

Bill and Melinda Gates are donating $300 million to help Third World farmers improve productivity. This is great. Too bad, however, that the developed nations have all but stalled attempts to cut trade barriers so the world's rich people can actually buy what the poor people grow, which would lift them from poverty. Three-hundred million will go a long way, but an agreement by the World Trade Organization to outlaw subsidies to developed-nation farmers and end agricultural import quotas would multiply the good a thousandfold.

Posted by Jay Hancock at 11:31 AM | Permalink | Comments (2)
                    

You heard it here first. The (almost always) optimistic economist Ed Yardeni suggests that the government has overstimulated the economy and that we'll be off to the races soon. (He seems to be a little facetious. 3/4 serious, I would say.) (Jerome Kerviel is the alleged rogue trader at a French bank who perhaps caused Monday's overseas stock meltdown, which prompted the Fed to cut interest rates by a huge amount.)

The recession is almost over thanks to Jerome Kerviel in Paris and the Policy Panic in Washington! I don’t recall so much policy stimulus and so many bailout plans thrown at the economy so fast before there was compelling evidence of a recession. It is all a bit reminiscent of the monetary and fiscal response to 9/11 when our policymakers feared that the terrorist attacks would cause a financial and economic meltdown. That didn’t happen, perhaps because of the policy response, or perhaps because the recession of 2001 ended in November, having started in March.

Posted by Jay Hancock at 10:05 AM | Permalink | Comments (1)
                    

Société Générale: Allfirst Financial, Sumitomo Copper and Barings Bank feel your pain.  Good one, pulled from comments: "How ironic that the rogue trader from France looks rather like Charlie Sheen's character Bud Fox in the 1980s movie, Wall Street."

Posted by Jay Hancock at 9:42 PM | Permalink | Comments (1)
                    

Now this is fantasy baseball. Randy Newsom is a 6-foot-2, 200-pound, submarining, relief-pitcher prospect for the Cleveland Indians. He is selling 4 percent of his future, major-league earnings -- if there are any -- for $50,000. You don't have to put up the whole 50K, however. You can buy shares in Randy at $20 per pop, as brokered by Real Sports Investments, his company. Each share is worth 0.0016 percent of his future, major-league earnings. So say he turns into something like Dan Quisenberry, earns an average of $4 million a year and works for 10 years. The 4 percent stake held by investors would be worth $1.6 million, and your little, $20 venture would pay $640 over the course of his career.

Last year Newsom played for the Akron Aeros, Cleveland's AA farm team, and had four wins, one loss, 18 saves and a 3.12 ERA, according to Real Sports Investments.

"The key now for him is to become more consistent and show he can continue to pitch in pressure situations," says the Cleveland Indians Minor League Insider blog. "Newsom does not have a blazing fastball, wipeout slider, or a knee-buckling curveball, but he is extremely intelligent, has moxie, commands his pitches well, has great makeup, and goes right after hitters. He should start the season in the Buffalo bullpen and could make his professional debut with the Indians sometime in 2008."

And if he does, the Randy Newsom intial public offering will start paying off. He needs to make $1.25 million for investors to break even. Newsom shares are similar to the David Bowie bonds sold a decade ago. The rock singer got $55 million up front from Prudential Insurance, and the bonds were secured and funded by royalty streams from Bowie albums up to 1990. But Bowie bonds weren't available to the public. And rather than just loaning money to Newsom, as with a bond, you would become his equity partner, sharing in all of his upside. If he washes out and never makes the bigs, however, he keeps the $50,000. And you've struck out. I think I’d rather invest in his Real Sports Investments company, which is trying to sell pieces of other minor leaguers, than his pitching career.
HT: Marginal Revolution

Posted by Jay Hancock at 9:37 AM | Permalink | Comments (0)
                    

Until now, Mark Gorton and his companies, which left Mid-Atlantic electricity players holding an $80 million bag recently when they defaulted on a contract, have kept silent. I called Gorton's Tower Research Capital a couple weeks ago, and they said they weren't commenting. The $80 million estimated loss, generated by Tower affiliate Power Edge, has to be borne by PJM's members -- including Baltimore Gas & Electric. Today, however, Gorton has sent a five-page, single-space letter to the members of PJM Interconnection, which manages the Mid-Atlantic grid. In it, he explains what happened, apologizes and argues against new, tougher collateral rules proposed by PJM to keep this from happening again. I can't find it on PJM's Web site yet. Thanks to the alert PJM member who sent it to me.

The highlights: Gorton is "sorry" about the default but makes no offer to cure it. Power Edge put up only $3 million in collateral to control the huge, money-losing trade. Power Edge acquired the position from another investor, according to Gorton. And PJM seems to have allowed an exception to its own, already lightweight collateral requirements, to let Power Edge acquire the position. Gorton blames the default on "a rare failure of a large transformer and schedule changes that caused overlapping of transmission outages each capable of handling 15-20% of the electrical load in Jersey City..." The changes, he says "radically transformed the make-up of the New Jersey electrical grid."

Some excerpts:

As manager of Power Edge, I am extremely sorry that a default associated with a fund I run has damaged PJM and its members. The current market structure and poor oversight of PJM created a situation where there was no institutional support to prevent a default. As manager of Power Edge, I depended more upon the collateral requirements of PJM as a risk management tool than was wise. My experience with other markets around the world led me to take false comfort in the collateral requirements of PJM.

The behavior of the Power Edge FTR portfolio these past few months has been a great lesson to me of the unpredictable nature of FTR values... I feel very badly about the default of Power Edge. I intend to work diligently to help rectify the structural problems at PJM that have allowed a situation like the Power Edge default to occur.

No offer to actually pay back the money that Power Edge owes. According to Gorton, Power Edge acquired its (eventually losing) position in "financial transmission rights" from another entity called Exel Power Sources LLC.

Despite being thinly capitalized, Exel was allowed to bid for a large number of FTR positions, and in Round 2, in particular. Exel won an unusually large amount of FTRs. Even before the term of the FTRs started, Exel was unable to meet its initial collateral requirements, and PJM knew it had a significant problem on its hands...

So in order to help Power Edge to take the entire Exel portfolio, PJM reduced the collateral requirements of taking the portfolio from $14.7 million to $3 million and allowed this $3 million to also be used to support bids in upcoming auctions. Power Edge would never have acquired the Exel portfolio if PJM had enforced its own collateral requirements.

And more:

Upon hearing of the default, the [PJM] Membership was understandably outraged that poor market regulation and oversight could have left them facing such a large socialization. Even after the default, Power Edge has continued to work with PJM in an attempt to mitigate this bad situation. Power Edge has always kept a low profile, and after the default, Power Edge did not come forward to explain the history behind the default. This silence is partially because Power Edge received assurances from PJM that PJM would engage in dialogue with us to resolve the issues at hand.

Posted by Jay Hancock at 4:54 PM | Permalink | Comments (0)
                    

Another front-page, clear-as-a-bell story by Paul Adams describing developments in the Maryland electricity market. This one is about how BGE customers will pay $100 more per year to send price incentives to companies that might be thinking of building new generation capacity. The ordinary, sky-high price of electricity wasn't enough of an incentive to generators, reasoned PJM Interconnection, the grid manager for the Mid-Atlantic. So they padded the bill with an extra "capacity" charge that is nothing but pure profit for generation companies such as Constellation Energy, BGE's parent. And still hardly anybody is building new generation.

No wonder Pittsburgh's Duquesne Light is quitting the PJM grid and joining the Midwestern grid, which it can do because it's right on the border. The Midwestern grid doesn't have "capacity" charges that pay generators for merely existing. BGE can't secede because it's stuck in the heart of PJM territory.

Posted by Jay Hancock at 11:05 AM | Permalink | Comments (1)
                    

Merrill Lynch published a very gloomy forecast today, revising earlier estimates downward. Read the whole report here.

-- We now expect an outright contraction in economic activity in the first three quarters of 2008. This downturn should be led by consumer spending.

-- We anticipate job losses in the range of 2.5 million, close to what we saw in the last recession. This in turn is expected to push the unemployment rate up, to 5.75% by the end of 2008 and to 6% by early 2009.

-- Home prices are expected to decline by 15% in 2008 and by a further 10% in 2009, with more depreciation likely beyond the forecast period.

Posted by Jay Hancock at 2:24 PM | Permalink | Comments (1)
                    

Unreconstructed monetarist William Poole was the lone "No" vote in today's announced decision by the Federal Reserve to whack short-term interest rates by the biggest amount since 1994. It was also the first emergency rate cut since right after the 9/11 terrorist attacks. Poole has made no public statement, but through his history and his writings we can take a pretty good guess at what he's thinking: He's worried about the integrity of the dollar and what may be the most threatening resurgence of inflation since the 1980s.

Posted by Jay Hancock at 11:19 AM | Permalink | Comments (0)
                    

If you owned a business, would you be expanding?

Argy, Wiltse & Robinson, P.C. (AWR), a rapidly-growing certified public accounting and business advisory firm, is pleased to announce the opening of a fourth office in Bethesda, MD. The office will accommodate many current AWR clients and employees and serve to attract more clients and professionals who are located in Maryland.

“We have been looking for the right time and place to open an office in Maryland,” said Paul Argy, AWR’s President & CEO. “With over 18% growth in 2007 and expecting even more rapid growth in 2008, we are outgrowing our Virginia space and have always seen Bethesda as an area of natural expansion. The Bethesda location will allow us to better serve existing and new clients in Maryland, as well as improve the work-life balance of our Maryland-based employees.” AWR currently has approximately 218 employees, about 185 of whom are located in the Washington area.

Posted by Jay Hancock at 10:25 AM | Permalink | Comments (0)
                    

Martin Luther King Jr., Aug. 28, 1963, the Lincoln Memorial, Washington D.C.

I am happy to join with you today in what will go down in history as the greatest demonstration for freedom in the history of our nation.

Five score years ago, a great American, in whose symbolic shadow we stand today, signed the Emancipation Proclamation. This momentous decree came as a great beacon light of hope to millions of Negro slaves who had been seared in the flames of withering injustice. It came as a joyous daybreak to end the long night of their captivity.

But one hundred years later, the Negro still is not free. One hundred years later, the life of the Negro is still sadly crippled by the manacles of segregation and the chains of discrimination. One hundred years later, the Negro lives on a lonely island of poverty in the midst of a vast ocean of material prosperity. One hundred years later, the Negro is still languishing in the corners of American society and finds himself an exile in his own land. So we have come here today to dramatize a shameful condition.

In a sense we have come to our nation's capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness.

It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked "insufficient funds."

But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. So we have come to cash this check — a check that will give us upon demand the riches of freedom and the security of justice. We have also come to this hallowed spot to remind America of the fierce urgency of now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism. Now is the time to make real the promises of democracy. Now is the time to rise from the dark and desolate valley of segregation to the sunlit path of racial justice. Now is the time to lift our nation from the quick sands of racial injustice to the solid rock of brotherhood. Now is the time to make justice a reality for all of God's children.

It would be fatal for the nation to overlook the urgency of the moment. This sweltering summer of the Negro's legitimate discontent will not pass until there is an invigorating autumn of freedom and equality. Nineteen sixty-three is not an end, but a beginning. Those who hope that the Negro needed to blow off steam and will now be content will have a rude awakening if the nation returns to business as usual. There will be neither rest nor tranquility in America until the Negro is granted his citizenship rights. The whirlwinds of revolt will continue to shake the foundations of our nation until the bright day of justice emerges.

But there is something that I must say to my people who stand on the warm threshold which leads into the palace of justice. In the process of gaining our rightful place we must not be guilty of wrongful deeds. Let us not seek to satisfy our thirst for freedom by drinking from the cup of bitterness and hatred.

We must forever conduct our struggle on the high plane of dignity and discipline. We must not allow our creative protest to degenerate into physical violence. Again and again we must rise to the majestic heights of meeting physical force with soul force. The marvelous new militancy which has engulfed the Negro community must not lead us to a distrust of all white people, for many of our white brothers, as evidenced by their presence here today, have come to realize that their destiny is tied up with our destiny. They have come to realize that their freedom is inextricably bound to our freedom. We cannot walk alone.

As we walk, we must make the pledge that we shall always march ahead. We cannot turn back. There are those who are asking the devotees of civil rights, "When will you be satisfied?" We can never be satisfied as long as the Negro is the victim of the unspeakable horrors of police brutality. We can never be satisfied, as long as our bodies, heavy with the fatigue of travel, cannot gain lodging in the motels of the highways and the hotels of the cities. We cannot be satisfied as long as the Negro's basic mobility is from a smaller ghetto to a larger one. We can never be satisfied as long as our children are stripped of their selfhood and robbed of their dignity by signs stating "For Whites Only". We cannot be satisfied as long as a Negro in Mississippi cannot vote and a Negro in New York believes he has nothing for which to vote. No, no, we are not satisfied, and we will not be satisfied until justice rolls down like waters and righteousness like a mighty stream.

I am not unmindful that some of you have come here out of great trials and tribulations. Some of you have come fresh from narrow jail cells. Some of you have come from areas where your quest for freedom left you battered by the storms of persecution and staggered by the winds of police brutality. You have been the veterans of creative suffering. Continue to work with the faith that unearned suffering is redemptive.

Go back to Mississippi, go back to Alabama, go back to South Carolina, go back to Georgia, go back to Louisiana, go back to the slums and ghettos of our northern cities, knowing that somehow this situation can and will be changed. Let us not wallow in the valley of despair.

I say to you today, my friends, so even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream.

I have a dream that one day this nation will rise up and live out the true meaning of its creed: "We hold these truths to be self-evident: that all men are created equal."

I have a dream that one day on the red hills of Georgia the sons of former slaves and the sons of former slave owners will be able to sit down together at the table of brotherhood.

I have a dream that one day even the state of Mississippi, a state sweltering with the heat of injustice, sweltering with the heat of oppression, will be transformed into an oasis of freedom and justice.

I have a dream that my four little children will one day live in a nation where they will not be judged by the color of their skin but by the content of their character.

I have a dream today.

I have a dream that one day, down in Alabama, with its vicious racists, with its governor having his lips dripping with the words of interposition and nullification; one day right there in Alabama, little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers.

I have a dream today.

I have a dream that one day every valley shall be exalted, every hill and mountain shall be made low, the rough places will be made plain, and the crooked places will be made straight, and the glory of the Lord shall be revealed, and all flesh shall see it together.

This is our hope. This is the faith that I go back to the South with. With this faith we will be able to hew out of the mountain of despair a stone of hope. With this faith we will be able to transform the jangling discords of our nation into a beautiful symphony of brotherhood. With this faith we will be able to work together, to pray together, to struggle together, to go to jail together, to stand up for freedom together, knowing that we will be free one day.

This will be the day when all of God's children will be able to sing with a new meaning, "My country, 'tis of thee, sweet land of liberty, of thee I sing. Land where my fathers died, land of the pilgrim's pride, from every mountainside, let freedom ring."

And if America is to be a great nation this must become true. So let freedom ring from the prodigious hilltops of New Hampshire. Let freedom ring from the mighty mountains of New York. Let freedom ring from the heightening Alleghenies of Pennsylvania!

Let freedom ring from the snowcapped Rockies of Colorado!

Let freedom ring from the curvaceous slopes of California!

But not only that; let freedom ring from Stone Mountain of Georgia!

Let freedom ring from Lookout Mountain of Tennessee!

Let freedom ring from every hill and molehill of Mississippi. From every mountainside, let freedom ring.

And when this happens, when we allow freedom to ring, when we let it ring from every village and every hamlet, from every state and every city, we will be able to speed up that day when all of God's children, black men and white men, Jews and Gentiles, Protestants and Catholics, will be able to join hands and sing in the words of the old Negro spiritual, "Free at last! free at last! thank God Almighty, we are free at last!"

Posted by Jay Hancock at 8:52 AM | Permalink | Comments (0)
                    

Posted by Jay Hancock at 4:50 PM | Permalink | Comments (1)