Hurricane Sandy destroyed much of the North East power infrastructure. Customers wonder "Why weren't the utilities ready". Angry customers want all infrastructure underground. Governors want answers. Why are the utilities so bad? And how does this relate to the affordable care act?
Utilities develop investment plans looking at a range of issues from carbon emission, growth, efficiency, and resilience. Utility infrastructure is capital intensive. It often takes 30-40 years to pay back on their capital investment in generation, distribution, and other infrastructure. In most businesses, a company would look at profit/loss, access to capital, and customer needs to determine the best course of investment. Utilities however take this plan to a government run Rate Commission. The Rate Commission has its own opinion on what a utility could charge a customer for energy. That Rate is of course how utilities pay the capital cost of their infrastructure investment. The Rate Commission often is concerned about the near term rates of voters. So, it works hard to push rates as low as possible, forcing the utility to reduce investment in long term plans like outage management system, distribution and generation.
Rate commissions are political in nature. After the 2008 economic down turn, many municipalities pushed for a Green Energy agenda. The Department of Energy created several large incentives/stimulus programs designed to shift utility focus on wind/solar power, energy efficiency, and smart meters. Rate commissions collaborated with the department of energy to drive utility investment in the direction of these Green strategies. Rate Commissions, through a complex political process, in the end control the strategy for infrastructure investment. These strategies often bias towards the near term.
Ironically, once a big storm like Sandy hits, Governors, Senators, Congressman, Commissioners, etc. all point their fingers at utility executives and set blame on the utilities. In fact if you review rate case materials you will likely find extensive documentation explaining the need for new infrastructure, over turned and rejected by the Rate Commissions. But rate payers and the news rarely look at these filings. Its easier to demigod the utility.
Post Sandy power failures, and the inability to quickly recover, are a window into a potential future of healthcare. The Affordable Care Act is less a takeover of health care, and more a takeover of the systems processes and rules. Some might consider that the same, but its actually worse. In many ways, the best analogy for ACA is how we regulate utilities across several dimensions including the price, the means of delivery, the investment by providers, etc. In a "Utility" model, there is a disincentive to invest in innovation. Price of the service is often driven below is real long term cost, which may or may not increase availability, but certainly constrains quality. With low investment, regulatory constraints and restrictions on profits, innovators will seek other markets.
Like utility customers harmed by Sandy, when health care starts to fail us the source of failure will be elusive. Politicians will use hearings and their media pulpits to vilify the providers. Some will suggest single payer or some other sort of further regulatory action. As is true with Sandy utility customers, and other regulated markets like mortgages, few will turn back the clock and recall a time when other better options existed.
Some believe the expansion of services to those without health care outweighs the loss of innovation. Its sad that they think that is the only trade-off. Companies like Whole Foods provide low cost high quality care using means like heath savings accounts. There are strategies that lower cost, drive innovation and expand availability. Utility models are a century old solution to monopolies. After more than 100 years of this old business model, we know that competition beats out monopolies. If we truly wanted to provide universal health care, the competitive market will be the incubator of that plan.
- A Layman's Plan for Healthcare
- Obamacare: Competition just like Expedia.com....
- Evil rich guy who does not care, apparently.....
- Perpetual Majority Hidden as Health Care
- A Doctors View: Government healthcare already rations
- How Health Care is Killing Us
- How American Health Care Killed My Father - The Atlantic (September 2009)
- WSJ oped article from Whole Foods CEO
- Safeway - WSJ article
- What is more important personal freedom or universal care?
- Do you know your cost of Health Care? A reality test for congress