Senator Linthicum Newsletter

One of my bills, The Ratepayer Protection Act (SB 1552) will be heard on Wednesday, Feb. 14th. This bill has several sections designed to cap costs for Oregon energy users and establish strong, consistent policies to keep electric rates as low as possible.

Specifically, it prohibits a public utility from exceeding a 4.5 percent rate of return. It also prohibits a utility’s Public Purpose Charge from exceeding 1.5 percent of utility customers’ costs and prohibits the gross collections, from Public Purpose Charges, from exceeding the 2016 total. It also limits salaries for Energy Trust of Oregon employees, essentially keeping them from being greater than the Governor’s salary.

The final section of the bill would stop the collection of the Klamath Dam removal surcharge from ratepayers’ utility bills. The devil is always in the details, so here is some background information.

For nearly two decades, disparate factions struggled to implement their respective irrigation, power and water-related interests with regard to the Klamath River Basin. Their efforts resulted in the Klamath Basin Restoration Agreement (KBRA) and the Klamath Hydroelectric Settlement Agreement (KHSA). These agreements were part of a major push to remove the four PacifiCorp dams on the Klamath River.

The stage was set via a 2008, Agreement in Principle, which compelled the Federal Government:

“to scientifically assess the costs and benefits of dam removal.”

“to make a final determination by March 31, 2012, whether the benefits of dam removal will justify the costs– informed by scientific and engineering studies conducted in the interim, and in consultation with state, local, and tribal governments and other stakeholders, as appropriate.”

“to designate a non-federal dam removal entity (DRE) to remove the dams, or”

decline to remove the dams at which point PacifiCorp will return to the Federal Energy Regulatory Commission (FERC) for relicensing.

The KBRA and KHSA agreements have expired due to congressional inaction and a third agreement, the Upper Klamath Basin Comprehensive Agreement (UKBCA) has also been terminated by the DOI.

The time has come for Oregon’s legislature to call the dam removal effort, whether good or bad, a failure. The agreements have little chance of being resurrected and it is time to exercise the last clause (above) where PacifiCorp declines dam removal and returns to FERC for relicensing.

Common-sense, science and economics tells us that Oregon’s hydro-electric power generation facilities are the most cost-effective base-load power source of our electricity.

The RatePayer Protection Act would require PacificCorp to discontinue the assessment of dam removal surcharges that appear on ratepayers’ electric bills.  Specifically, if the Klamath Dam removal has not started by Jan. 1, 2019, the dam removal surcharge will be discontinued, and funds collected by PacifiCorp would be returned pro-rata to ratepayers with a 4 percent interest on the monies which have been held in trust.

Central planning distorts honest price discovery and causes the systematic falsification of resource prices. These market meddlings are destructive to the normal operation of market economies. The government’s intrusions in agriculture have struck at the very nerve of agricultural capitalism and have led to a cascading contagion of capital misallocation, mal-investment and economic turmoil.

As an example, agricultural water users throughout the Western States are always being encouraged to preserve water. No doubt, the wise use of any limited resource demands practices that yield long-term benefits with sustainable economic conditions.

All resources are limited and therefore, all deserve careful consideration. We all agree–this is a very good thing. Water in the West, is of particular importance because of its inherent scarcity.

This line of thinking deals with the emotional justifications for interventions in agriculture but does not deal with the concept of “necessity” for these political interventions. Emotional sentiment, empathy and genuine concern for preserving limited water resources is valid, but government intervention brings unintended consequences.

This is particularly true due to the unbridled power of the bureaucratic machinery. There is a pervasive, yet unwarranted, supposition that government action is always promoted by disinterested parties. These supposedly benevolent parties are only trying to relieve the hardships facing farmers, while doing great things for the community, and maintaining their acute respect for neutrality.

However, this is not how political power is used.

The market economy maintains its market-driven, self-interested neutrality through open, free and voluntary exchanges. We all eat food, but carnivore can choose to buy more meat than veggies, while vegans can skip the meat-counter and omnivores get the whole grocery store as their playground. Farming occupies a unique place of importance in all of our lives and the free-market allows for the diversity and specialization that has fed the world.

My contention is that government intervention will distort markets to the same extent as any selfish monopolistic corporate interest. Government, after all, is a monopoly.

The sustainable farm requires a diligent adherence to sound economic action. Everyone who dreams of gaining a livelihood through farming must do so by engaging in the raw math of the market economy. A young “ag-dreamer” must work with three basic ingredients to produce his or her products: land, labor, and capital. Indeed, each “ag-dreamer” will be confronted with his or her own peculiar land, labor, and capital “mix.”

These parts of the economic puzzle must be thoughtfully and economically applied. Government interventions are designed to remove some of the economic burdens and this distorts the remaining economic allocations. This means the operation becomes, necessarily, uneconomic.

Government policy simply cannot promote sound economics by using uneconomic interventions. The intervention violates the balanced mathematical dynamic. Market insight gets distorted because economic decision making has been struck dumb by political decisions, not economic decisions.

Economic decisions should rule the roost because all of our resources are scarce. They must be used effectively and efficiently. Any artificial input circumvents sound decision making focused on long-term economic success. Policies are subject to change over time and what once seemed economically feasible becomes no longer feasible–it becomes uneconomic.

The Klamath Basin’s 50-year license agreement for low-cost electricity with California Oregon Power Company (Copco) is a classic example. That agreement no longer exists, and electric rates are no longer affordable.

With affordable power, water could be preserved by using pressurized water delivery systems. Incentives enticed the installation of pressurized systems for pivots, wheel-lines and water cannons. Yet, these are becoming more untenable because of the ever-increasing cost of electricity. The economic decision to preserve water can only be successfully accomplished with economically feasible tradeoffs for affordable electricity.

Eventually these economic misallocations will impact the entire woof and warp of the agricultural economy, our family farms and the future of our commodity markets.