Barry Rascovar is not a fan of Gov. O'Malley's proposed pension reforms. Or anything else in the governor's budget, either.

Even the governor's much-touted pension and retiree health reforms turn out to be mirages.

His changes go only part way toward wiping out the gaping unfunded liabilities. O'Malley's plan saves money for a few years, but after he's out of office the costs to taxpayers start rising again.

Maryland government retirees and retired teachers will continue to enjoy better health and pension benefits than private-sector workers. It remains a sweet deal — full retirement after 30 years service regardless of age, early retirement at 60 and a cheaper drug plan than Medicare offers.

The governor did nothing to force county governments to share in teacher pensions costs, either. The state bears the entire burden, which will soar as counties raise teacher salaries annually without worrying about the extra pension expenses being created.

Posted by Jay Hancock at 10:31 AM | Permalink | Comments (5)
        

T. Rowe Price, one of the best brands in financial services, unsullied by the sleaze that has washed around the industry for the past decade, just moved up another reputational notch. You know you've arrived as a byword for class and wealth when status-seeking imposters appropriate your name.

The customary nom de trompe for plebeians posing as aristocrats is Rockefeller. There have been too many to count. A recent one is Christian Gerhartsreiter, a German who called himself Clark Rockefeller, passed himself off as part of the Standard Oil family and married a Harvard Business School grad. ("Crockefeller," was the New York Post headline.)

Indeed, "Rockefeller" seems to have been Eric Price's preferred alias. According to Boston Globe columnist Alex Beam, Price called himself Malcolm Rockefeller before being indicted in Maine for allegedly stealing documents from real Rockefellers. Having been outed, Beam says, Price reinvented himself as "Eric Rowe-Price," implicit scion of the late Thomas Rowe Price Jr., who is credited with inventing growth investing and who founded the Baltimore mutual fund company named after him.

Writes Beam:

Eric Rowe-Price claimed to be a Harvard graduate (nah), trustee of the T. Rowe-Price Family Foundation (it doesn’t exist), a special attache for the State Department to Iraqi Ministry of Cultural Heritage (no), and so on.

He peppered his blog entries with allusions to fictional relatives such as Thomas Rowe-Price IV, a cousin Douglas Duck Forbes, married to Alexandra Minot Rockefeller, and cousin Eliot Handsyd Price. Because the fictional Rowe-Price was related to the fictional Malcolm Rockefeller, some characters from that previous charade — Gabriella Crowninshield, aunt Helen Price Saltonstall — popped up in the Rowe-Price world as well.

No Baltimore references in Rowe-Price's fictional world as described by Beam. Maybe that would have spoiled the illusion.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (1)
        

Here is BGE's latest press release on restoring power. From now until Sunday is a long, long time with no lights and no heat.

Baltimore Gas and Electric Company Expects Electric Service to the Vast Majority of Remaining Customers Affected by this Week’s Snow Storm to be Restored by Late Saturday with some Scattered Outages Extending into Sunday

Service already restored to nearly 160,000 Customers – More Than 75 Percent of All Affected Customers

Customers advised to avoid downed wires and report them immediately at 1-877-778-2222


BALTIMORE, Jan. 27, 2011 – Baltimore Gas and Electric Company (BGE), today announced that electric service to the vast majority of remaining customers affected by this week’s snow storm should be restored by late Saturday with some scattered outages extending into Sunday. The utility has already restored electric service to nearly 160,000 customers – more than 75 percent of all affected customers. Wednesday’s heavy wet snow caused trees

and large tree limbs to fall onto power lines and other electric delivery equipment, causing more outages than the back-to-back blizzards of 2010. BGE thanks its customers for their continued patience and understanding and reminds them to stay informed on restoration efforts via Twitter, Facebook and Flickr. “More than 1,800 BGE, contract and out-of-state personnel, both in the field as well as our storm center, call center and other locations, are actively engaged in storm restoration activity, and are committed to restoring electric service to our customers as safely and quickly as possible,” said A. Christopher Burton, senior vice president of gas and electric operations and planning for BGE. “This number includes more than 700 out-of-state utility personnel from Virginia, Pennsylvania, New Jersey, Ohio, North Carolina, Kentucky, Tennessee and Indiana. Although crews have been working around-the-clock under very challenging conditions, we are confident that most customers currently without power will be restored by Saturday evening. However, there may be some scattered outages extending into Sunday as many of the smaller outages are very time consuming and may only result in the restoration of a handful of customers at a time. We thank our customers for their continued patience and understanding.” Customers with special needs, such as those who may be elderly, handicapped or dependent on electricity for medical equipment, should have alternate arrangements in place should they experience an extended power outage. Customers using a generator or space heater should follow manufacturer instructions and be sure to locate generators in well-ventilated areas. BGE's restoration priorities are public safety issues and critical facilities, such as 911 centers, hospitals and pumping stations. Then restoration is generally scheduled so that the greatest number of customers can be restored as quickly and as safely as possible. However, in cases of extended power outages, consideration is also given to customers who have been without service for the longest. Just as BGE prepares for severe weather and the possibility of power outages, customers should also be prepared and take steps to ensure the safety of their families and property during electric service interruptions. Customers should keep the following items readily available: • Flashlights – not candles • Fresh batteries • Battery operated clock radio • Corded telephone • Fully charged cell phone • Non-perishable foods • Blankets Customers also should consider filling the fuel tanks of their vehicles in the event a power outage affects service to neighborhood gas stations. For customers who rely on well water, filling a bathtub with water in advance of severe weather is strongly encouraged. Customers are always reminded to stay away from downed power lines and to report them immediately by calling 1-877-778-2222. If you are experiencing a power outage and have not reported it, please report your outage by calling BGE’s automated response system at 1-877-778-2222. For more information about BGE storm preparation and how customers can protect their families and property, go to www.bge.com.

Posted by Jay Hancock at 6:06 PM | Permalink | Comments (6)
Categories: BGE/electricity
        

Gil Meche is quite the anomaly in 21st-century America. His contract said the Kansas City Royals had to pay him $12 million even if he was on the DL this year, which he might have been, or if he had done a lousy job. The contract said so! But Meche is basically giving back the $12 million because he didn't feel he would be earning it. What kind of example will this set for the rest of the country? A pretty good one.

“This isn’t about being a hero — that’s not even close to what it’s about,” Meche said this week. “It’s just me getting back to a point in my life where I’m comfortable. Making that amount of money from a team that’s already given me over $40 million for my life and for my kids, it just wasn’t the right thing to do.”

Posted by Jay Hancock at 9:36 PM | Permalink | Comments (4)
        

Forget the Obama speech, the Tea Party, house sales and interest rates. The most important news is the revolution in Tunisia and its echoes in nearby countries. Is this 1848 for repressive Arab regimes? It's early, but what's happening is long-predicted and potentially powerful.

There have been acts self-immolation like the one that ignited protests in Tunisia reported in Egypt, Algeria, Mauritania and even Saudi Arabia. It's surprising that oil prices haven't breached $100 a barrel. Energy and stock-market investors assume that Egypt and other regimes will clamp down hard and end the unrest, or that in any event it won't spread to the big oil producers. That's probably the way to bet, but markets haven't discounted any risk that they're wrong.

The diplomatic cables from U.S. missions in the region must be quite interesting this month. Without them, Juan Cole is indispensible reading.

Posted by Jay Hancock at 12:28 PM | Permalink | Comments (2)
Categories: Energy
        

I thought states had learned to attach clawback provisions to economic development incentives. If the corporate welfare doesn't create so many jobs for so many years, the company has to give back the money. Apparently Massachusetts failed to do this, giving Evergreen Solar millions to open an 800-worker solar plant only to see the place shut down and move the jobs to China.

From Good Jobs First:

Of the $58 million award, $13 million was provided through an infrastructure subsidy, $21 million in the form of direct grants, and the remainder was provided in tax credits. Massachusetts officials stated that the state stands to recoup only $3 million of its $21 million grant, even though Evergreen constructed its factory just two years ago.

In its rush to bag a green trophy business, Massachusetts neglected to attach job creation requirements to the majority of the subsidy. Only $20 million of the total award contractually required that jobs be created at all.

Since the factory was only two years old, all of the tax credits may not have been reaped. So perhaps the $58 million figure is high. But it's still an amazing waste of money by Massachusetts officials.

Posted by Jay Hancock at 10:45 AM | Permalink | Comments (4)
Categories: Corporate welfare
        

State employees have urged me to point out that they make yearly contributions in return for some of the pension annuity they receive upon retirement. So some of the money retirees collect was put into the system by them in years or decades previously.

What the retirement system says is difficult to calculate is how much of the $210 million paid to retirees last year each month was money they contributed and how much came from taxpayers. Nor can it say how much of the ~ $32 billion now in the savings kitty came from which category.

 But there is substantial employee money in the pot, and it's growing. Required contributions went from 3 percent to 5 percent. Gov. O'Malley wants to make it 7 percent of your salary for new state employees. Last fiscal year employees contributed $536 million to the pension pool.

That's almost as much as the measly $600-million range the state was contributing in the mid-2000s, thanks to the loosey goosey "corridor" funding plan introduced by Gov. Parris Glendening. O'Malley boosted the state's contributions after he was elected, and they reached $1.3 billion last fiscal year. So at least for the most recent year, employees contributed about 30 percent of the new money put into the system.

Posted by Jay Hancock at 6:00 AM | Permalink | Comments (6)
        

Here is the pension chart that wouldn't paste right in the original post. It shows how many and what percent of state retirees get how much in monthly pension payments. Thanks to Abu for the help.

 05

Posted by Jay Hancock at 4:40 PM | Permalink | Comments (4)
        

He won't bug you by hanging around the house a lot. He'll probably have a cool, saltydog beard. He can help you prepare for Talk Like A Pirate Day.

His options for cheating on you with coworkers will be limited.

 Find him on seacaptaindate.com.

Posted by Jay Hancock at 12:22 PM | Permalink | Comments (0)
        

Today's column is about O'Malley's pension reform plan. One of the pieces of data I wanted was a stratification of pensions by amount -- how many people get over $100,000 a year, how many get from $80,000 to $100,000? Etc. Below is the Excel spread that the retirement system sent me. This is for all retirees for all systems.

As noted in the column, unlike some state systems (California!) Maryland is not hugely lucrative for many government retirees. Only a few dozen people get over $100K. Hence the unhappiness of state employees whose benefits will now be cut back. Maintaining the present level of benefits, however, would require tax increases or cutting back state services. Name a policymaker who advocates that.

(Sorry for the messy columns. Will try to fix them later. Don't have time now.)
UPDATE: Can't figure it out. If anybody knows now to do tables/spreadsheets on moveable type without a bunch of HTML, lemme know.
UPDATE: Couldn't get it to reproduce in this post, but a readable version of the chart below is here.

Gross Monthly Payment -- Count -- % of Count -- Total Gross Payments
< 501 24,713 19.96% $6,504,708.80
501 - 1000.99 21,736 17.56% 16,120,580.26
1001 - 1500.99 18,731 15.13% 23,333,753.03
1501 - 2000.99 15,143 12.23% 26,375,053.57
2001 - 2500.99 12,817 10.35% 28,732,593.71
2501 - 3000.99 10,276 8.30% 28,207,936.01
3001 - 3500.99 8,255 6.67% 26,748,914.75
3501 - 4000.99 5,104 4.12% 19,023,543.07
4001 - 4500.99 2,944 2.38% 12,451,377.95
4501 - 5000.99 1,744 1.41% 8,253,216.58
5001 - 5500.99 975 0.79% 5,096,010.64
5501 - 6000.99 528 0.43% 3,024,780.87
6001 - 6500.99 256 0.21% 1,594,960.26
6501 - 7000.99 158 0.13% 1,063,989.42
7001 - 7500.99 136 0.11% 975,456.74
7501 - 8000.99 160 0.13% 1,242,701.97
8001 - 8500.99 42 0.03% 346,436.84
8501 - 9000.99 22 0.02% 192,025.92
9001 - 9500.99 20 0.02% 183,822.73
9501 - 10001 16 0.01% 155,641.21
> 10001 40 0.03% 510,591.72
Totals 123,816 100.02% $210,138,096.05

Posted by Jay Hancock at 9:36 AM | Permalink | Comments (16)
        

Amazing: I found something valuable on Facebook. Check out Amanda Crawford's blog on the terrible, lethal botch-up that is war on drugs. Crawford used to work for the Sun. Now she's teaching and writing in Arizona.

Posted by Jay Hancock at 3:06 PM | Permalink | Comments (1)
        

Shanghai-based economist Andy Xie wrote this in August:

Inflation, not deflation, will dominate the global economy. The deflation scare causes the central banks in the developed economies to sustain a loose monetary policy. It will fuel inflation in emerging economies. Through trade, currency markets, and ultimately inflation expectations, inflation will hit developed economies.

Step No. 2 is now happening. No sign of Steps 3 etc. And it's hard to believe we'll see them anytime soon with so much excess economic capacity in developed countries. But Andy Xie is smart.

Posted by Jay Hancock at 1:17 PM | Permalink | Comments (2)
Categories: China
        

Gretchen Morgenson has a blockbuster at the NYT. It wasn't enough that Frank Raines abused Fannie Mae and collected millions in undeserved compensation. Now he's sticking you and me with his legal bills. It's really outrageous. What a great idea Fannie Mae was. Shareholders and executives pocketed all the profits; taxpayers bore all the risk. ALL the risk.

Since the government took over Fannie Mae and Freddie Mac, taxpayers have spent more than $160 million defending the mortgage finance companies and their former top executives in civil lawsuits accusing them of fraud. The cost was a closely guarded secret until last week, when the companies and their regulator produced an accounting at the request of Congress.

The bulk of those expenditures — $132 million — went to defend Fannie Mae and its officials in various securities suits and government investigations into accounting irregularities that occurred years before the subprime lending crisis erupted. The legal payments show no sign of abating.

Documents reviewed by The New York Times indicate that taxpayers have paid $24.2 million to law firms defending three of Fannie’s former top executives: Franklin D. Raines, its former chief executive; Timothy Howard, its former chief financial officer; and Leanne Spencer, the former controller.

Posted by Jay Hancock at 12:40 PM | Permalink | Comments (1)
        

It's getting to be a well-repeated pattern. Auctioneers take out ads in the paper touting a 'Bernie Madoff Liquidation." Editors see the ad, figure it would be a good story, send a reporter to cover it. Reporter gets there, sees no confirmation that any of the stuff belonged to the reviled Ponzi-schemer. Reporter starts asking questions. Auctioneers refuse to answer, kick reporter out of auction.

Here's my story on the auction I covered yesterday at Grey Rock Mansion:

But the Madoff merchandise at auction venue Grey Rock Mansion turned out to be just as elusive as the profits that the Ponzi-scheme crook promised investors.

Auction personnel were unable to identify Madoff items for people who stood in line at the historic home. Dozens of would-be bidders took one look at the costume jewelry and purported Picasso prints up for sale and headed back to their cars.

Here's the Philadelphia Inquirer's story from an auction yesterday on the Main Line:

But how many of those items actually once belonged to Madoff? There was no list or catalogue, none of the items was so identified during the preauction viewing, and the event organizers (also a mystery) wouldn't specify. In fact, they asked this reporter and a photographer to leave. Auction organizers on-site declined to be interviewed. No one responded to multiple calls Friday at a phone number listed in the ad.

Here's a piece from a week ago in the Toronto Star:

Ads placed in the Toronto Star touted a court auction for the Bernie Madoff collection including expensive jewellery, tapestries and fine art by famous painters like Picasso, Cezanne and Dali.

But inside a ballroom at the Oakville Conference and Banquet Centre on Sunday, there was no mention of the financier whose Ponzi scheme defrauded investors of billions. Madoff is now serving a 150-year sentence in a North Carolina prison.

At the jewellery table, as people asked to see diamond rings, emerald necklaces and men’s and women’s Rolex watches, a staffer, when asked by a reporter, said about 50 per cent of the jewellery was Madoff’s, though she couldn’t specify what.

Posted by Jay Hancock at 9:00 AM | Permalink | Comments (2)
        

Gov. O'Malley's proposed reform to pensions and retiree health care for state employees looks pretty modest at first glance. Details are here and here.

While some states are talking about throwing out traditional, "defined benefit" pensions altogether for state employees, O'Malley would preserve the bulk of the present setup. While some talk about switching state employees entirely to a 401(k)-like, "defined contribution" plan -- the kind that is common in the private sector, that doesn't guarantee a specific benefit -- I see no indication from the online material that O'Malley is talking about beefing up these supplemental programs -- which already exist for state employees -- to take the place of a traditional pension.

More on this next week, but here are a few thoughts. (Your mileage may vary, depending on exactly which plan you're in. These proposals appear to apply to "teachers/employees" generally, but there will be a lot of fine print.)

-- Participants in the system -- retired and current -- should get ready to pay more for prescription drugs.
-- The pension system would keep benefits for current retirees. For vested employees (with at least 5 years service) the compensation on which pension would be based would stay at the highest three years. For unvested employees and new hires it would rise to 5 years.
-- Current employees would retain benefits earned to date. For for future service they would have to choose between higher contributions or a lower multiplier.
-- O'Malley's goal is to achieve 80 percent funding for pensions (it's now in the 60% range) by 2023. This is a modest goal, perhaps too modest. It could be achieved more easily with a stock market rebound, but that's a crapshoot. The proposed changes to retiree health care would cut unfunded liability about in half, to $9 billion. But that's still $9 billion of unfunded commitments for state taxpayers.
-- This could be an important change for the Teachers' & Employees' Pension System, but it applies only to new hires: "Retiree compounded COLA capped at 3% if system achieves or exceeds its investment return target in prior year; 1% for years when rate of return is not achieved." COLA is the cost-of-living adjustment for inflation. If inflation takes off in coming decades, state retirees could see pensions fall behind the cost of living.
-- What about the governor's pension plan and that of the General Assembly? The governor's handouts say that, for these elected officials, "compensation commissions to review pensions." Will they share the pain?

Posted by Jay Hancock at 4:02 PM | Permalink | Comments (10)
Categories: Slo-mo fiscal train crash
        

Annie Linskey reports on Gov. O'Malley's budget, including efforts to fill big holes in pension and health-care obligations for state employees. Details are supposed to emerge later today, but she says O'Malley will propose raising the retirement age for new employees and increased contributions from existing employees. He'll also propose "deep cuts to health care," which possibly includes retiree health care since retirees basically get the same plan as active employees.

Unclear what "raising the retirement age" means. Under current rules for the teachers and employees retirement system, you can retire at 55 if you have at least 15 years of service, and you can retire anytime if you have 30 years of service. Or you can retire at 62 with five years of service. Of course the size of the pension depends on the years of service.

Of course states and localities across the country are paring pension benefits. Here is HuffPost's summary of what Illinois did. See how O'Malley's plan stacks up against this:

The bill enacts many major changes to 13 of the state's pension systems that reformers have long sought. It creates what has been called a "two-tier" system, where current employees keep their existing pension plans, but new hires will join a tighter new system. They will not be able to retire with full benefits until age 67. The maximum salary on which their pension can be based is capped at $106,800. Their payout will be based on their highest salary during eight consecutive years of the last ten.

"Double-dipping," where a government employee retires, is re-hired by the government elsewhere, retires again, and collects two pensions, is officially ended as well.

Posted by Jay Hancock at 9:06 AM | Permalink | Comments (19)
Categories: Slo-mo fiscal train crash
        

Those who forget the lessons of history, etc etc. There are many intelligent arguments to be had in economics. Whether to return to the gold standard is not one of them. Gold as a monetary anchor is arbitrary, capricious and dangerous. Gold was largely responsible for the Great Depression. When countries went off the gold standard in the 1930s their economies almost immediately improved. It's amazing that Ron Paul's calls to return to a gold standard are getting a hearing.

Fortunately, there are smart people like Scott Sumner and (libertarian) Tyler Cowen to shoot it down.

Sumner:

There has been a recent upswing in conservative articles discussing the idea of going back to some sort of gold standard. I don’t think people realize how dangerous this idea is. You can’t just “give it a shot” and see how it works out. It’s like marrying the daughter of a Mafia chieftain–you need to be very sure you are willing to commit.

Posted by Jay Hancock at 8:54 AM | Permalink | Comments (9)
        

As the NYT points out, the U.S. corporate establishment has on balance been supportive of the status quo in U.S.-Chinese relations. The steel companies complained about dumping, but Walmart and multinationals were quite happy with the cheap labor China provided and the huge potential of its market. Now, with continued intransigence by China with regard to Western access to its internal consumption market, corporate America is putting more pressure on Washington to put more pressure on China. NYT:

American multinational corporations, experts said, are hurt by Chinese regulations that openly favor Chinese companies over foreign ones for government contracts. These rules, which are intended to stimulate technological innovation in China, have the effect of cutting American and other non-Chinese companies out of many of the big contracts there.

Posted by Jay Hancock at 8:37 AM | Permalink | Comments (2)
Categories: China
        

Readers of The Sun, or maybe just Baltimoreans generally, are highly, highly interested in the store formerly known as C-Mart. Any C-Mart story we do gets huge readership. This morning's story on the former C-Mart moving to Cockeysville is the No. 2 most-read story on the paper's Web page, outranking every Ravens story and column and even the weather stories.

So the store is popular, and its move to North York Road should bring consumers to that neighborhood and help antique row and other nearby stores. Antique row could use an anchor store to bring in traffic. Perhaps C-Mart (What's it called now? Does it matter?) can serve as that draw.

Posted by Jay Hancock at 10:18 AM | Permalink | Comments (4)
        

Sunday's column was about Hosea and Bernice Anderson of Columbia, who figured in an important court case a few weeks ago. When Deutsche Bank tried to foreclose on the Andersons' house, they challenged it on the basis of inadequate paperwork, that it couldn't prove it owned their mortgage and had the right to foreclose.

As noted in the column, there was also an interesting recent case in Massachusetts, in which a court drew the opposite conclusion. For further reading and extra credit, Megan McArdle had a series of good posts on this last week.

Why shouldn't banks be able to foreclose without adequate paperwork?

Given that Massachusetts courts have reversed foreclosures, is it safe to buy a foreclosed house from a bank?

The Democratic solution to the foreclosure mess: Give everybody their house for free?

The libertarian solution to the foreclosure mess.

The moral and policy case against walking away from your mortgage.

Posted by Jay Hancock at 10:05 AM | Permalink | Comments (3)
Categories: Real estate
        

Today's column calls for Maryland to partially re-regulate electricity. Like "health-care reform," electricity re-regulation has a million different meanings. I'm suggesting re-regulation lite. Some have been calling for Maryland to seize generation plants by eminent domain and force them to adopt new pricing plans. That would be complicated, hugely expensive and reinforce Maryland's "People's Republic" reputation.

Instead, the state should look at forcing BGE and Pepco to buy electricity from a new gas-fired power plant. Although BGE/Pepco customers would pay for the plant's electricity, it would be built with private dollars. And the extra megawatts brought to the table would bring down PJM Interconnection's exorbitant "capacity" prices, for which everybody has to pay through the nose and which have given Maryland little in return. I love the idea, being floated in New Jersey and here, of bidding new plants' capacity at "zero" into PJM's capacity auction, thereby using PJM's own artificial rules against the incumbent power companies.

Competitive Power Ventures has been proposing a gas-fired plant in Charles County for some time now, with some interesting features. The CPV plant could be bid into the capacity auction at zero, which would bring down Maryland capacity prices. The extra supply of energy would also bring down the energy component of the PJM auction prices. CPV pledges to open its books and build the plant along the lines of the old, "cost-plus" deals under regulation.

The Public Service Commission has the power now to order BGE and Pepco to buy power from CPV or some other plant. Yes, the plant's capital costs would be built into BGE and Pepco prices. But CPV argues that it would actually save consumers money because of the effect on overall wholesale prices. That's something the PSC should verify, but it's an intriguing proposition. To ensure Maryland new electricity supplies and to start replacing the dirty coal plants now creating our megawatts, the deal may be worth doing even if it doesn't absolutely lower prices.

Posted by Jay Hancock at 9:33 AM | Permalink | Comments (4)
Categories: BGE/electricity
        

Tomorrow's column calls on Maryland authorities to stop totally relying on the deregulated wholesale electricity markets and look closely at ordering BGE and other utilities to buy megawatts directly from private companies that will build new generation plants. We've been abused by deregulation for 10 years; it's time for the state to start determining its own fate. The column grew out of a symposium last week in Washington sponsored by the American Public Power Association, trade group for government-owned utilities, which has been very good about identifying and criticizing deregulation problems.

I kicked off the day by summarizing the woes of Maryland and BGE customers under deregulation. (As usual in these situations I got no compensation from APPA for the talk.) Here are my notes from the speech:

"Improving RTO markets." That’s an optimistic title for this symposium. I can’t tell you so much how to improve them, but I can tell you how screwed up they are from the perspective of Maryland.

For a decade Maryland residential and commercial ratepayers have been dealing with botched deregulation and a wholesale market that is sharply tilted in favor of incumbent generation companies and speculators. Between them deregulation and the flawed PJM market have cost Maryland tens of billions of dollars in excess electricity charges.

Like other states we had the Enron lobbyists, we had the blue-sky portrayals of falling prices and surging investments. But of all the states that deregulated, Maryland had about the lowest electricity prices. So it had the most to lose. My memory could be bad but I think BGE residential prices were about 7 cents/kWH, bundled.

We had a decent fleet of regulated coal and nuclear plants that were sold to Mirant, in the case of Pepco, and transferred at book value to an unregulated affiliate in the cast of BGE. Instantly Marylanders became much more exposed to the vagaries o the PJM wholesale market, subject to price caps that expired after a few years.

The BGE case was particularly galling because parent Constellation Energy collected $1 billion in stranded costs for the Calvert Cliffs nuclear plants, then saw the fair value of the plants double or triple as the decade progressed. In the latter part of the decade, thanks to PJM’s single clearing price and the energy bubble, natural gas was setting the marginal price for megawatts much of the time in PJM.

As a result, Constellation was selling nuclear-generated electricity that cost perhaps 3 cents kwh to produce for 9 or 10 cents. In the days of regulation that low cost would have been passed on to ratepayers. In the days of deregulation and RTOs Constellation shareholders raked off huge economic benefits. And of course the stranded cost-charge, the argument that nuclear plants would prove to be uneconomical in a deregulated environment, was proven one of the biggest crocks ever foisted on the public. But it was too late to do anything about it.

But this so-called “dark spread” between nuclear generation costs and the RTO clearing price was only one way Maryland electricity customers have been getting abused.

Marylanders are paying billions extra in what to my mind are unwarranted capacity charges to incumbent generation companies. Some of you may be familiar with PJM’s adoption of a forward capacity market a few years ago. In a highly stylized, artificial auction process, capacity prices soared after the new regime was adopted, especially for central Maryland, where there are generation shortfalls and transmission constraints.

I figure PJM capacity charges are costing a typical BGE residential customer $175 a year, again, enriching incumbent generators while doing little to solve central Maryland’s capacity problem. The promised new generation hasn’t appeared. Capacity prices haven’t come down. We’re paying through the nose.

Total, all-in prices for residences went over 12 cents per kilowatt-hour in 2008.

I guess it’s hard to blame the generation companies. Why should they build new capacity when it would mess up the present system in which they get paid for merely existing? But it demonstrates a highly flawed wholesale system -- I won’t call it a wholesale market because, as Robert McCullough keeps pointing out to me, real markets don’t require 400 PJM bureaucrats to set the rules.

We need to talk about PJM volatility and risk affecting innocent civilian ratepaying bystanders. A few years ago a New York hedge fund had a trade blow up that ended up sticking PJM members with $80 million in extra costs. In this instance the fault wasn’t PJM’s. It had been pleading with FERC for enhanced capital requirements for these highly leveraged trading vehicles, to no avail. I assume FERC has tightened up the requirements, but it wouldn’t surprise me to hear that they haven’t.

During the financial meltdown in 2008, one of Maryland’s premier corporate citizens came within an inch of bankruptcy thanks to leveraged wholesale energy bets. Constellation Energy, which had hired many of the trading pros from Enron, had to be rescued by Warren Buffett and then by the French, at huge expense to its shareholders. It remains a very open question whether Maryland’s inadequate ring-fencing at the time would have protected Constellation’s BGE subsidiary and its customers from bankruptcy trauma.

These are just the risks and abuses that we know about. Given the opacity of PJM’s black box, the meager participation in its auctions and the shenanigans that we know energy traders are capable of, it would be very surprising if there weren’t abuses of bid rigging, market power, dispatching irregularities and other problems. The Enron abuses came to light largely because of the company’s bankruptcy and legal discovery in subsequent lawsuits. In the absence of such an extraordinary situation in PJM and the other RTOs, similar outrages -- if indeed they’re going on -- are unlikely to be exposed.

So good luck in improving the RTOs, and pardon me if I’m skeptical. The markets aren’t just, they aren’t reasonable, and FERC seems as intransigent as ever on fixing this.

Sorry for the negativity. Let me close on a more positive note. Amid the turmoil and change in electricity markets the past two decades, the American Public Power Association has been a beacon of intelligence and an inspiring advocate, not just for its members but for ordinary ratepayers everywhere. Given the vested interests of the investor-owned utilities and generation companies, APPA is one of the few honest information brokers for journalists like me and activists trying to shed light.

The questions being asked here today are relevant to electricity buyers everywhere, not just publicly owned utilities, and its great that APPA is asking them. I'm going to stick around to hear what all the smart people gathered here today think the answers might be. Thanks for listening. It should be an interesting day.

Posted by Jay Hancock at 11:58 AM | Permalink | Comments (6)
Categories: BGE/electricity
        

The U.S. war industry has been quite good for Maryland. Not so great for places such as Vietnam and Iraq. Fifty years ago today Dwight Eisenhower made his prescient warning about the military industry, one that resonates today. Read Melvin A. Goodman's piece on Eisenhower's speech on today's op-ed page of The Sun. Goodman:

Eisenhower warned in his Farewell Address in 1961 that the United States should not become a "garrison state," but 50 years later we have developed a garrison mentality with unprecedented military spending; continuous military deployments; exaggerated fears with regard to "Islamo-terrorism" and now cyberwars; and exaggerated aspirations with regard to counterinsurgency and nation-building. Eisenhower understood that the military-industrial complex fostered an inordinate belief in the omnipotence of American military power.

Posted by Jay Hancock at 11:50 AM | Permalink | Comments (1)
        

More broadcast content. Maryland Public Television's Jeff Salkin and I talk about the failure of plans to start building another nuclear reactor at Calvert Cliffs.

Posted by Jay Hancock at 1:15 PM | Permalink | Comments (0)
Categories: BGE/electricity
        

This State Center redevelopment deal has been moving way too fast with far too little review and oversight. So it's good that MEDCO yanked the bond sale that was an early step in launching the project.

Here are WBAL's Bill Vanko and me yacking about that this morning and about the (probably in vain) attempt to sweeten the pot for would-be slots bidders at Rocky Gap.

UPDATE: Bad WBAL link fixed.

Posted by Jay Hancock at 12:12 PM | Permalink | Comments (4)
        

Here's T. Rowe Price economist Alan Levenson on the December consumer price index report. Is this the signal for inflation to come roaring back? Don't count on it. Levenson:

December Consumer Price Index: all items +0.5%, excluding food & energy 0.5% (November: +0.1% and +0.1%, respectively) Bottom line: Core disinflation easing

A 4.6% rise in energy prices drove the headline gain.

The second consecutive 0.1% advance in the core CPI, after three unchanged readings, has stabilized the year-to-year inflation trend at 0.6% over the last three months. Core services have led the way, with recovering housing costs bolstering steady trends in other categories. A turn in core goods -- which we expect to emerge in response to rising utilization rates and firming import price trends --

Posted by Jay Hancock at 11:09 AM | Permalink | Comments (0)
Categories: The Great Recession
        

In a personal note, Krugman notes how even accomplished people in secure, interesting jobs with decent lives can manage to make themselves unhappy by comparing themselves to their peers. The same can be said about the species as a whole. Very few of us have to forage food for a living. We don't live in caves anymore. We have antibiotics. We don't have to worry about freelance bands of warriors looting our villages and raping the women and killing the men. What we can expect from life has been raised from 10 on a scale of 100 to, say, 85. But even if we only hit 80, or 65, we can still make ourselves very unhappy when we measure ourselves against neighbors or Bill Gates or whoever.

Krugman:

To be honest, I also felt underappreciated. At one level, this was petty: I had a very pleasant job that paid quite well and received lots of invitations to conferences around the world. Compared with 99.9 percent of humanity, I had nothing to complain about. But of course that isn’t the way the human animal is constructed. My emotional reference group consisted of the most successful economists of my generation, and I was not generally counted among their number.

And in another post:

What Rampell has in mind is a vision of society as being something like a long street running up a hill, in which rising altitude goes along with rising income. And each person along that street evaluates himself or herself relative to the neighbors on either side, rather than the whole street.Now, there are two slightly different interpretations of this story. What Rampell seems to suggest is that people compare themselves only to their uphill neighbors — and since the hill gets steeper as you move up the street, the rich feel worse because the guy to the right is increasingly different from themselves.

Posted by Jay Hancock at 9:10 AM | Permalink | Comments (1)
        

I can't reproduce the Zillow graph, apparently because it's a flash chart. But it says my house is worth $491,000, which is about $5,000 more than we paid for it in late 2003. I know Zillow values aren't gospel, but they're a rough and interesting indicator of where house values have been and are going. We paid $485,000 for the Howard County house in November 2003. According to Zillow it was worth $670,000 by 2006, and as recently as last summer it was worth $540,000, according to the Web site.

Jamie Smith Hopkins quotes Metrostudy as saying that the tax credit hangover is over for home sales -- that the slump in activity that occurred after the tax credit expired has ended. Perhaps, but it doesn't seem to be having much effect on values in my neighborhood, at least according to Zillow. Nor is all the hiring at nearby Fort Meade. The expiration of the homebuyer tax credit pretty much marked a new leg down in the house's Zillow value. Not complaining. Just saying what's going on in my neighborhood may cast light on the big picture.

Posted by Jay Hancock at 9:05 AM | Permalink | Comments (6)
Categories: The Great Recession
        

The Fed is out with the latest Beige Book, which reports every six weeks on regional economic activity. Here is the summary for the Fifth District, which runs from Maryland down to South Carolina.

Overview. Economic activity improved in the District over the last four to six weeks. The manufacturing sector posted solid gains in December, with many firms citing strength in both orders and shipments. Retailers in the District reported a spike in December sales, along with a marked increase in foot traffic. Modest revenue growth continued at most services firms. Tourism in the District benefited from an early start to the skiing season. The banking sector reported moderate improvements in business loan demand, particularly for industrial equipment. Contacts at temporary employment agencies stated that demand was flat to up slightly. While residential real estate activity was mixed, several commercial Realtors cited a pickup in sales activity, but commercial construction continued to be weak.

The book includes this snippet, which seems kind of weird considering it's winter:

A market analyst reported that the Baltimore area was experiencing its best tourist activity in at least three years.

And this:

Residential real estate activity around the District was mixed over the last six weeks. A Maryland contact reported that sales were down compared to a year ago, but also noted an increase in permits (mostly multi-family). However, a contact in the Charlotte, North Carolina area stated that real estate was flat across the board.

Posted by Jay Hancock at 2:38 PM | Permalink | Comments (0)
        

The Washington Post's Steve Pearlstein says government-employee unions need to get real.

To preserve health benefits for retirees, active workers will need to accept greater cost sharing on their health insurance policies, which will not only reduce the cost to government in the short run but slow the growth in premiums for everyone over the long haul.

And on pensions, the unions ought to get real about the dismal state of their defined-benefit plans and use their assets to finance a new arrangement. Start with enrolling government workers in Social Security. Supplement that with a defined-contribution plan that could be taken to a new job, would give workers some flexibility in how their pension money was invested and would automatically be converted into a fixed-benefit annuity upon retirement.

Posted by Jay Hancock at 11:49 AM | Permalink | Comments (1)
Categories: Slo-mo fiscal train crash
        

Paper Economy reprises a Wall Street Journal story on Charles Kindleberger, the author of Manias, Panics & Crashes; A History of Financial Crises, who died a few years ago. The WSJ piece seems to have been published in 2002.

The object of his greatest fascination today is the real-estate market. For weeks, Mr. Kindleberger has been cutting out newspaper clippings that hint at a bubble in the housing market, most notably on the West Coast. Nationwide, median home prices are up about 7% from a year ago, even though the stock market has tanked and the economy has floundered. Over the long term, economists agree, housing prices can't continue to outpace growth in household incomes. Mr. Kindleberger says he isn't certain there is a housing bubble yet, "but I suspect it is."

Housing probably wasn't a bubble in 2002, but Kindleberger knew the signs. Here is an appreciation of him that I wrote in July 2003, after he died.

CHARLES P. Kindleberger was born in 1910, during a mild recession, and died at 92 on July 7, during a period history will probably label a feeble recovery.

He witnessed 18 recessions, one Depression, five investment bubbles and five major financial crises - and that was just in the United States. He watched the 1990s stock psychosis with a mixture of glee and foreboding and with all his money in a Neuberger Berman short-term bond fund, one of the most conservative investments possible outside a mattress.Last summer Federal Reserve Chairman Alan Greenspan, in excusing the Fed's lack of action during the 1990s stock mania, declared that "it was very difficult to definitively identify a bubble until after the fact - that is, when its bursting confirmed its existence."

He should have called Kindleberger.

The author of Manias, Panics and Crashes: A History of Financial Crises, Kindleberger was the foremost U.S. authority on the zigzag nature of asset markets and the attendant extremes of psychology and economics.

An emeritus professor of economics at MIT, Kindleberger wasn't 100 percent sure that the Internet, telecom, biotech, blue-chip craziness of the late 1990s was a bubble, but he had a pretty good idea.

I wrote a column on him in April 1998, when the Dow Jones industrial average was about 9,000 and the Nasdaq composite index was about 1,800 - both far below their subsequent peaks. Kindleberger was equally baffled by a stock market that had blown past reasonable levels and a U.S. president who retained popularity despite having been plausibly accused of having sex with an intern.

"I've been saying the market's too high for three years," he said at the time. "It's like Clinton. Everybody thinks he's a jerk, but they keep voting for him."

The notion that human history is inevitable or predictable goes in and out of fashion and has faded recently. But Kindleberger's book shows beautifully that, for human investors at least, certain events are as sure as the shine on a bar of gold. In studying Britain's 1720 South Sea bubble, the 1873 German railroad panic, the 1929 U.S. stock market crash and two dozen other crises, Kindleberger discerned a common pattern, a set of steps as predictable as a seppuku ceremony.

To read Manias, published in 1978, is to read a description of the 1990s before they happened. All the hallmarks of a Kindleberger mania showed up last decade. It was as if he and the late economist Hyman P. Minsky, whom he cites, had choreographed the whole thing.

First came the "displacement" - an unexpected development that alters the outlook "by changing profit opportunities in at least one important sector of the economy," Kindleberger wrote. The 1990s brought several displacements - the Internet, the human genome project, fiber-optic cable, financial derivatives.

Then came a brimming money supply, thanks to Greenspan, who believed productivity gains had quashed the risk of recession and who unscrewed the monetary spigots as a result.

"Speculative manias gather speed through expansion of money and credit," Kindleberger wrote.

Then came the delirium.

As monetary-fueled spending booms, "positive feedback develops, as new investment leads to increases in income that stimulate further investment and further income increases," Kindleberger wrote. "When the number of firms and households indulging in these practices grows large, bringing in segments of the population that are normally aloof from such ventures, speculation for profit leads away from normal, rational behavior. ... "

Then came the fraud, courtesy of Enron, etc.

"Commercial and financial crises are intimately bound up with transactions that overstep the confines of law and morality," Kindleberger wrote. "The propensities to swindle and be swindled run parallel to the propensity to speculate during a boom."

Then, of course, came the crash.

It is fitting that Kindleberger outlasted the boom and lived to see its certain denouement. Unfortunately, he was equivocal about what to do now.

He discounted the possibility that central bankers can harmlessly nip bubbles in mid-tumescence, which should please Greenspan, who has been criticized for not doing so. But the timing and calibration of a post-crash monetary rescue, Kindleberger said, "is an art."

This, however, he knew for certain: We will forget the lessons of his book again someday, to the detriment of our wallets.

Posted by Jay Hancock at 11:11 AM | Permalink | Comments (1)
Categories: The Great Recession
        

Marginal Revolution's Alex Tabarrok has a piece on the bounty-hunting industry in the latest Wilson Quarterly. As part of his research, he accompanies a bounty hunter on his rounds in Baltimore.

Nevertheless, I was apprehensive as I drove to Baltimore early one morning to try my hand at bounty hunting.

When Dennis and I meet, he hands me a photo showing our first fugitive of the day. I’ll be honest. I was expecting to see a young African-American male. What can I say? It’s Baltimore and I’ve seen every episode of The Wire. But I’m surprised. Taken a few years ago in better times, the picture shows an attractive young woman, perhaps at her prom. She has long blond hair and bright eyes. She is smiling.

Posted by Jay Hancock at 9:57 AM | Permalink | Comments (1)
        

Pepsi is closing its Baltimore bottling plant because it can save money by making soft drinks elsewhere. I suppose we should have expected the company to complain about Baltimore's 2-cent bottled-beverage tax, which affected mainly retailers and consumers and which expires in a couple years. Pepsi's Frito-Lay division, which has a snack plant in Harford County, got Maryland's snack tax abolished in the 1990s and helped fend off a snack-tax comeback in 2004.

But the Baltimore closure seems like a streamlining move, pure and simple. Complaints about the bottle tax are just theater. Like Coke, Pepsi is putting more effort into juices and other noncarbonated drinks. In 2009 it agreed to take over Pepsi Bottling, which, as the company noted in the press release, set the stage for manufacturing consolidation and cost cutting. Pepsi is also closing a bottling operation in Maine.

Posted by Jay Hancock at 9:50 AM | Permalink | Comments (3)
        

This morning's jobs report is another in a string of disappointing monthly dispatches. Markets had hoped for a report of 200,000 or more payroll jobs added in December. Instead, the Labor Department said, non-farm employment rose only 103,000. The good news is that the Labor Department has pretty consistently underestimated job growth in its initial reports in recent months. In later revisions, that department has revised the monthly reports to show a substantially healthier economy than it initially indicated. If the pattern holds, December job growth was better than today's report says.

Here are the initial national employment reports from six months prior to December, followed by the latest revision from the Bureau of Labor Statistics.

June initial: minus 125,000. June actual: minus 175,000
July initial: minus 131,000. July actual: minus 66,000.
August initial: minus 54,000. August actual: minus 1,000.
September initial: minus 95,000. September actual: minus 24,000.
October initial: gain of 151,000. October actual: gain of 210,000.
November initial: gain of 39,000. November latest: gain of 71,000.
December initial: gain of 103,000. December actual: ?????

Employers have created more than a million jobs since December 2009. Now they have to pick up the pace.

Posted by Jay Hancock at 10:08 AM | Permalink | Comments (1)
Categories: The Great Recession
        

My holiday got extended a bit by some viruses/bacteria. Sorry for the scarce posts and comment moderation. Happy to see that the neverending slots/horse racing story has never ended. I liked this bit of blue skying by The Sun's editorial page. Sell Rosecroft to Angelos and start holding throuroughbred meets there, thus rescuing the thoroghbred trade from the Maryland Jockey Club. The Sun:

Another tantalizing possibility is that Mr. Angelos could try to bring thoroughbred racing to the track. Mr. Angelos himself is a breeder of thoroughbreds, and the thoroughbred industry, despite a recent deal brokered by Gov. Martin O'Malley to keep the tracks open this year, faces an uncertain future. The feuding between Penn National and MI Developments, the joint owners of the Maryland Jockey Club, makes it difficult to see how the industry could develop and execute a viable plan for resurrecting its business. While Rosecroft couldn't fully take the place of the two existing thoroughbred tracks, it could at least offer a refuge for the state's horsemen and keep the industry alive while the ownership of the Maryland Jockey Club is straightened out.

The editorial gives a good overview of what has happened and what is likely to happen with Angelos and Rosecroft, and the whole thing is worth reading.

Posted by Jay Hancock at 12:01 PM | Permalink | Comments (3)
Categories: Slots