July 7, 2009, 8:50 a.m.
How is MidAmerican Like a Country Club?
They Both Have Membership Fees
(brought to you by FromDC2Iowa.blogspot.com*)
This is not a blog entry about "the high cost" of this or that. I don't disagree that monopoly and oligopoly price-setting, campaign-contribution-purchased government intervention with tariffs and price supports, and other factors unrelated to cost of production or quality of products, often result in our paying more than is justified. But that's a blog entry for another day.
What a glance at my current gas and electric bill reactivated was my irritation at what I think of as "nickel and diming" charges.
Why do businesses do it?
Is the income really enough to offset the loss of customer goodwill?
Motels. Normally I shop for cheap motel rates when traveling. But occasionally, when doing a public lecture, the sponsor insists I stay in the $200-300-a-night "conference hotel." (If they don't insist I usually still try to save money, even though it's their money, not mine.) But inevitably, these will be the hotels that want to charge as much as a dollar for every local call. (And don't get me started on the mini-bar prices.) And of course there's no free breakfast.
I will occasionally ask to speak to the manager to make my pitch. I'm not trying to reduce their cash flow, I'm just trying to rationalize it. I'll say, "Why is it you need to charge for local phone calls when I can go down the road to the Motel6, pay a fraction of your room charge, and make all the local calls I want to for free? Why don't you just charge $250 a night, instead of $200, and not charge for the incremental-cost-free-to-the-hotel local calls?"
(As a sidebar, do you know why it's called Motel 6? When I was a kid, Motel 6 charged $6.00 a night. It was "Motel $6.00." On a crowded weekend in Duluth recently the Motel 6 rates had progressed from $6.00 to $94.)
Cheap hotels offer relatively costly breakfasts for free. Expensive hotels' coffee shops and restaurants do not; it's easy to pay as much as $15 with tip, and often much more, if you want more than just coffee.
Auto mechanics. I've received bills from mechanics that include a charge for "rags." It's a pittance; I can afford it. But when anything done to a car seemingly ends up costing $200 why bother charging anything for the basic shop supplies that will be used in almost any repair job?
Gas and electric. My primary problem with public utility pricing for gas, electricity, and water has to do with the counter intuitive -- and environmentally disastrous -- formulas by which "the more you use the less you pay" (per unit of whatever). The customer is punished, not rewarded, for their efforts to reduce their impact on the planet. But, as with overpricing generally, that's also a topic for another blog entry someday.
This morning I want to focus on what MidAmerican Energy -- "obsessively relentlessly at your service" -- does when it becomes equally obsessive and relentless in coming up with tricky ways to charge you more money. (In fairness, I will acknowledge that the company is making some efforts at energy efficiency, including the offer of free home surveys which I find very helpful.)
They call it a "Basic Service Charge." And although I am only one customer I get two of them, one for electricity and one for gas. This is no "rag charge." It's substantial -- especially when compared with the cost of what I'm buying: electricity and natural gas.
The electric "basic service charge" is, at $6.00 a month, greater than a 10% add-on to my electric bill -- which, at about 9 cents per kilowatt hour, is already roughly twice what the really big users pay.
The gas bill is worse. Already I'm being charged for both the gas (calculated in "therms" rather than the "per 100 cubic feet" units the company's supplier is probably using) and a "delivery charge" that is as much as two-thirds of the price of the gas itself. But the "basic service charge" ends up being a 100% tax on top of the total of those two!
Just exactly what is this "basic service" for which I'm paying as much as the price of the gas -- and its delivery -- combined?
Again, I'm not -- in this blog entry -- suggesting that MidAmerican's cash flow is greater than it needs to be, or can appropriately be (though I'd be stunned if that were not the case). As an FCC commissioner I used to set public utility rates -- in that instance for AT&T, but the basic formulas and considerations are similar. While I see many advantages to municipal ownership (and rural electric coops), including the elimination of the cost of return on investment to shareholders, if you are going to have private ownership of public utilities executives' salaries and shareholder return are going to be a part of the cost to consumers.
Nor do I object to "transparency." Indeed, I'd like to have a lot more of it from the utilities and the Iowa Public Utilities Commission, drilling down to really explain what their costs are and why.
What I object to is what appears to be either a tax imposed by a non-governmental body or a sort of "membership fee," like Sam's Club charges, for the privilege of being a customer of MidAmerican -- a matter as to which few of us have any meaningful choice of alternatives.
(And of course I also object to the amount of the membership fee, and the fact that it disproportionately impacts the poor -- and those making an affirmative effort to conserve natural resources and reduce pollution -- in the same way the rate structure does. But for now I'm just focusing on the nickel and diming issue.)
Ideological itemization. The phone and cable bills itemize the various charges various governments require they collect. OK, I guess that's a kind of transparency. But I'm not unmindful that it's also a useful bit of anti-government ideology disguised as a monthly bill; a reminder of those "tax and spend" (or "borrow and spend now, tax later") folks in Washington and Des Moines. But I won't dwell on that.
Nickel and Diming. Can you imagine what this nickel and diming would look like on your grocery bill receipt?
"Can of peas, 22 cents (includes manufacturer's, wholesaler's and retailer's profit).
"Packaging charge, 11 cents.
"Delivery charge, 8 cents.
"Stocking charge, 6 cents.
"Check out charge, 3 cents.
"Basic service charge, 19 cents.
"Total, 69 cents."
It would be laughable.
Why is it not equally laughable when it comes to local phone calls from motels, mechanics' rags, and MidAmerican's membership fee "basic service charge"?
____________
* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson
# # #
May 27, 2007, 8:15 a.m.
Poll: Tax Policy Number One With Voters
Yesterday I took a first stab at trying to get my mind around the range of categories of issues it seems to me one needs to identify before talking about "taxes." Nicholas Johnson, "Taxes: Categories of Inquiry" in "UI Held Hostage Day 490 - Search & Taxes," May 26, 2007. I didn't necessarily think it would be a blog entry of much interest to great numbers of readers; it was just something I'd been thinking about recently, and I find it helps me to think through issues if I try to write about them.
But this morning's Des Moines Register reports,
Caucus-bound Iowans have a message for the presidential candidates and the news media: Tell us more about tax policy, . . ..
The Des Moines Register's latest Iowa Poll shows many Republican and Democratic caucusgoers want more information about those issues, which are more complicated than some campaign topics and may seem less clear-cut than, say, the war in Iraq and abortion.
Although tax policy is not quite a top-tier issue in choosing a candidate, it is the leading campaign topic about which more information is sought, according to the poll of likely caucus participants that was taken May 12 to 16.
"Iowa Poll: On some topics, race is too quiet, voters say; Tax policy and health care are two top issues that Iowans feel are being neglected, a poll suggests," Des Moines Register, May 27, 2007, p. 1A.
So maybe my instinct was more on the mark than I gave myself credit for yesterday. Moreover, there's another story in this morning's Register that illustrates some of the points I was making. Jeff Eckhoff, "Resources few for 'unfair' tax's foes; Battling well-funded advocates of 'Destiny,' they urge 'no' votes," Des Moines Register, May 27, 2007, p. 1B. It involves a sales tax proposal that is (a) an unabashed effort to shift a major portion of the total tax bill (property taxes) from those who own homes to those who don't (two-thirds of the sales tax revenues will be used to reduce property taxes), (b) the tax increase is preceding any effort to think through and prioritize public funded programs (there are suggestions for how a portion of the sales tax might be spent, but little evidence that those "needs" were the driving force behind the tax increase), and (c) the very same folks who fight "tax increases" (in income, or property taxes) are the ones who are funding the campaign to increase sales taxes in three counties (I am assuming -- from 5% to 6% ) by 20% -- all points I was making yesterday.
Meanwhile, on a much less significant topic:
Nickled and Dimed
It started when I was just a kid. My attitude about corporations, I mean. Initially I was somewhere between enthusiastic and unconcerned about them. They came in threes: Chrysler, Ford and General Motors; ABC, CBS and NBC (originally with the Red and Blue networks, before the latter became ABC) -- except for the phone company, AT&T (there was only one of them). And there was only one President, Franklin D. Roosevelt, "FDR."
The FBI chased criminals, the bad guys. But corporations were at worst benign. They made stuff for us, even if we couldn't afford all of it we'd like. It seemed to last forever -- which was fortunate in an age when our parents passed along the advice they had received when our age: "Use it up, wear it out, make it do, or do without." We didn't suspect we were being gauged by the prices, and all transactions were for cash or check. AT&T management took seriously its responsibility to those dependent on its stock dividends -- "widows and orphans" as they were thought to be -- and its employees and retirees. So did the "Big Three" auto manufacturers.
Taking candy from babies. Like most kids, I liked candy. A pretty hefty candy bar could be purchased for a nickle; my preference was called Butterfinger. Nickles were hard to come by, but the big candy bars seemed a fair exchange for a nickle.
And then it happened. Candy bars went from a nickle to a dime. As if that was not bad enough, at the same time the price doubled the candy bar was reduced in size. It was a dramatic moment in my life, one that shaped my future view of corporations.
The revelation made me feel like the Mavin Johnson character played by Steve Martin in the movie "The Jerk," when the owner of the weight guessing stand where Mavin worked explained to him that his failure to guess weight accurately was causing the owner an excessive loss of prizes. The Steve Martin character finally grasps the point and exclaims, "Oh, I get it. This is a profit deal."
Corporations were not my friend, I suddenly realized; they are not benign; they are operating "a profit deal;" and if they can increase profits by simultaneously giving you less while charging you more, well they'll just do it.
I was reminded of that boyhood insight tonight at the movie theater. I guess it's changed ownership. Anyhow, our standard medium soft drink and popcorn has gone up in price -- while declining in volume. (The movie incidentally, "Waitress," is well worth seeing -- even if the profit on that one goes to Rupert Murdoch.) Bear in mind, they buy this popcorn in 50-pound bags for about $20 a bag or less. They sell it at about 1/3 of a cup a time for over $4.00. I figure that's about $1200 at retail for $20 worth of popcorn. And with those profit margins they have to reduce the amount of popcorn you get?
It's not the only example.
MidAmerican Energy's membership scam. I've complained about MidAmerican's scam to the Iowa Utilities Board, but to no avail. In an age of concern about global warming, and need for energy conservation, the more you use the less you pay (per kilowatt hour, or per "therm"). Obviously, that's bad enough and as a matter of public policy really needs to be changed, regardless of how much the company's lobbyists give Iowa legislators..
But what I'm complaining about now is the charge the company imposes on you just for being a customer. That's right. Regardless of how much electricity or gas you use -- even if you use none -- you will still be charged $6.00 a month for being an electricity customer and $10.00 a month for being a gas customer. It's kind of a membership fee, or something.
Sixteen dollars doesn't sound like all that much, but over 10 years we're talking nearly $2000. For what? Just being a customer?
Obviously, those whose utility bills run into the hundreds of dollars from heating swimming pools and hot tubs, and leaving lights and appliances on in a 6000 square foot house, probably don't even know they're paying this additional $16 a month, and wouldn't miss the money if they did. But for the poor, those who are trying to cut their living expenses, turning down the thermostat and turning off the lights, it is a significant percentage of their bill.
A regulated utility needs whatever the Iowa Utility Board decides it needs. If it truly needs the revenue this $16 creates, OK, let it charge us. But why not embed that $16 in their total costs, and price the electricity and natural gas accordingly? Not incidentally, that would remove what is now a disproportionate burden on the poor.
From rags to riches. Another nickle and dime charge that's always irritated me is when an auto repair operation makes a standard separate charge for "rags" and other "shop supplies." As with the utility bill, I'm not talking about the total charge. Rags cost money. Repair bills have to cover that cost along with others. But aren't these costs just a normal part of doing business? Can't they be embedded in the hourly charge for labor?
Imagine what our grocery bills would look like if they followed the MidAmerican and auto mechanic model. Instead of paying $1.00 for a can of tuna, there would be a 35 cent charge for the tuna, a 30 cent charge for the canning, 15 cents for transportation (I'm charged an extra 20-cent transportation charge for each therm of gas), 10 cents for stocking, and 5 cents for checkout (leaving 5 cents for profit).
Hold the phone -- charges. I've never understood why there seems to be an inverse relationship between the price of the hotel room and the charge for local calls. At Motel 6 all local calls are free. When someone I'm lecturing for puts me up in a $200 or $300 a night hotel room the hotel wants to charge an additional $1.00 for every local call. What's that about? Wouldn't it be worth it to them to embed those phone bills in the nightly rate -- even raising it to $225 or $325 if necessary to cover the expense -- rather than look so grasping?
My "interest" in late fees. Fortunately, I have a sufficient bank balance to pay my bills. But I don't pay them the day they arrive, and am sometimes out of town.
Now I want to make very clear that I think companies are entitled to charge interest when bills aren't timely paid. Money has value only in relation to time. If I pay you the $100 I owe you today, a year from now (if you invest it at 10%) you will have $110. If I pay you the $100 a year from now, you will only have $100. Who should bear the loss of that $10? I should; I owed you the $100 today.
But that's not the way late fees work.
Take the City of Iowa City's water bills as one of the worst examples. Here's an actual bill for 495 cubic feet of water, due January 4, 2007, for $45.47 (incidentally, roughly twice what that much water used to cost). If, however, it is paid one week or more later the bill will be $47.70 -- $2.23 more. The City was due the money on January 4; if I don't get it to them on time they are due some interest. But $2.23 for one week!
Since there are 52 weeks in a year, that would be $115.96 in annual "interest" on a $45.47 bill -- or 255% interest! That sounds more like a usurious payday loan operation than what one would expect from a municipal government governed by a democratically elected City Council. (And, of course, if you let it go for more than a week or two the threats start sounding more like a true Mafia operation: "You think you have knee problems now; you fail to pay us and we'll show you some real knee problems.")
My solution to that one finally became my practice of simply keeping a balance on account with the City, in order not to have to pay these usurious interest rates when I'm a week or two beyond their drop dead date. I figure, so I lose some interest I would have otherwise earned on my $60 balance over the course of a year if I'd invested it. It's far less than what the City would be charging me in late fees over the course of the average year. But I shouldn't have to use this option to avoid being ripped off by my own City government.
Note to American business: You can gouge us, flim-flam us, nickle and dime us, and try to manipulate us with your high-priced advertising, but don't think we don't know it. We're paying attention. We don't like what you're doing, and we vote. _____________
UICCU and "Optiva"
The UICCU-Optiva story is essentially behind us. There may be occasional additions "for the record," but for the most part the last major entry, with links to the prior material from October 2006 through March 2007, is "UICCU and 'Optiva'" in Nicholas Johnson, "UI Held Hostage Day 406 - March 3 - Optiva," March 3, 2007. Since then there have been two major additions: Nicholas Johnson, "Open Letter to UICCU Board" in "UI Held Hostage Day 423 - March 20 - UICCU," March 20, 2007, and "'Open Letter': Confirmation from World Council of Credit Unions" in "UI Held Hostage Day 424 - March 21 UICCU," March 21, 2007.
# # #
[Note: If you're new to this blog, and interested in the whole UI President Search story . . .
These blog entries begin with Nicholas Johnson, "UI President Search I," November 18, 2006.
Wondering where the "UI Held Hostage" came from? Click here. (As of January 25 the count has run from January 21, 2006, rather than last November.)
For any given entry, links to the prior 10 will be found in the left-most column. Going directly to FromDC2Iowa.Blogspot.com will take you to the latest. Each contains links to the full text of virtually all known media stories and commentary, including mine, since the last blog entry. Together they represent what The Chronicle of Higher Education has called "one of the most comprehensive analyses of the controversy." The last time there was an entry containing the summary of prior entries' commentary (with the heading "This Blog's Focus on Regents' Presidential Search") is Nicholas Johnson, "UI President Search XIII -- Last Week," December 11, 2006.
My early proposed solution to the conflict is provided in Nicholas Johnson, "UI President Search VII: The Answer," November 26, 2006.
Searching: the fullest collection of basic documents related to the search is contained in Nicholas Johnson, "UI President Search - Dec. 21-25," December 21, 2006 (and updated thereafter), at the bottom of that blog entry under "References." A Blog Index of entries on all subjects since June 2006 is also available. And note that if you know (or can guess at) a word to search on, the "Blogger" bar near the top of your browser has a blank, followed by "SEARCH THIS BLOG," that enables you to search all entries in this Blog since June 2006.]
# # #
Media Stories and Commentary
See above.
_______________
Technorati tags: football, athletics, academics, high school, college, University of Iowa, education, K-12, leadership, university president, Michael Gartner, Iowa Board of Regents, UI president search, Nicholas Johnson, FromDC2Iowa
_______________
Nicholas Johnson's Main Web Site http://www.nicholasjohnson.org/
Nicholas Johnson's Iowa Rain Forest ("Earthpark") Web Site
Nicholas Johnson's Blog, FromDC2Iowa
Nicholas Johnson's Blog Index
_______________
