Dotard vs. Little Rocket Man

I have been trying not to write about anything Trumpian.  I feel like he has already received more attention than he deserves, and yet everyone keeps piling it on.

But a Nobel Peace Prize?  Seriously?

Let’s recap.

The little rocket man, Kim Jong-Un, and the rich kid from Queens, aka the “dotard”, are not the best of buds.   They should be, I suppose.  They both built their power on the basis of what they got from their daddys.  They are both nuttier than fruitcakes.  They are both narcissistic and not very bright.  In some senses, it could be a friendship made in heaven.

Somehow, though, I doubt their upcoming meeting in Singapore on June 12th is going to be just two soulmates, kicking back and sharing fake news stories.

For Kim, his agenda is to trade his failed (destroyed, apparently) nuclear program for something of actual value, in this case access to goods and markets of countries other than China, particularly South Korea.  He also wants to show everyone that he is important enough to meet with the President of the United States.  In fact, to make POTUS come to him, rather than the other way around.  How good is that?

For Trump, he thinks his agenda is world-wide respect, and thus success at the mid-term elections and in his own re-election bid a couple of years from now.  As per usual, he doesn’t actually care whether he delivers peace on the Korean peninsula.  He just wants any result that makes him look better than Obama, and Bush, and Clinton, and the other Bush, and everyone else that couldn’t achieve Korean peace.  Even everyone’s hero, Ronald Reagan, couldn’t deliver that.

To GOP governors and congressmen, fearful of decimation in the mid-terms, getting the little rocket man to agree to meet at all is reason enough for Trump to get the Nobel Peace Prize.  He has, in their minds, taken a key step in the direction of peace, one step further than anyone else.

Clearly, he has finally shown his inherent brilliance, that light he has so successfully hidden under a bushel for far too long.

On the other hand, we may have slid inadvertently into an alternate universe, and any moment there will be unicorns dancing on the head of a pin singing Kumbaya.

So perhaps it is worthwhile to step back from the breathless abyss, and think about the motives of the only person in this drama that really matters.

Xi Jinping, the President of China.

Forbes recently named Xi the most powerful person in the world, and there is not much doubt they are correct.  As President of China, and General Secretary of the Communist Party (and too many other titles to name), he is effectively the controlling leader in China.  Nothing happens without his approval.

Now, what Xi wants is to build the Chinese economy and power on the strength of its dominance in the Asian and African economies.  He knows that the ten ASEAN countries, as well as Japan, are afraid of Chinese economic hegemony, but if he is going to continue the growth of the Chinese economy he needs markets and allies (or client states, more precisely).

The only country really standing in his way is America.  Europe cannot get their act together to challenge China, and Russia, for all its bluster, doesn’t really hold a candle to China when it comes to economic power.  India, the only other potential pretender, is thirty years behind China.  Their day may come, but right now they are markets, not competitors.

The biggest threat to China would have been the Trans-Pacific Partnership, or TPP, which as originally conceived would have been a trading bloc, led by the U.S., and including some Asian countries (notably Japan, Malaysia and Vietnam), as well as Canada, Australia, New Zealand and some South American countries.  Thanks to Xi’s buddy Vlad over in Moscow, there is a new sheriff in the White House, and in January 2017 he withdrew the U.S. from the TPP.  While the remaining signatories are trying to move forward, a TPP without the U.S. is much less of a threat.

Xi is now in a position where he can push his trade links with other Asian countries, with scant resistance.  While Japan is still in TPP, Korea is not, nor are the Philippines, Thailand or Indonesia.

If you exclude Japan, Korea is the big prize there.  It is far and away the most developed economy in Asia, outside of Japan.  It has advanced technology, and strong links to the U.S., but is also China’s biggest trading partner.  Between the north and south, there are more than 75 million people, and particularly in the north there is both an available workforce, and huge demand for Chinese products.

It is not accidental that Kim’s willingness to meet with Trump (and with Moon Jae-In, the President of South Korea) sprang seemingly out of nowhere after Kim met with Xi.  North Korea has only two land borders:  with South Korea, and with China (except for a tiny bit with Russia).  The South Korean is currently closed to most trade.  The Chinese connection is the main source of any goods North Korea has right now.  China represents 83% of North Korea’s international trade.

What China wants, North Korea must do.

All of this talk about U.S. sanctions against North Korea entirely misses the point.  North Korea is not going to be trading with the U.S., sanctions or no sanctions.  North Korea has no money, and they don’t produce anything that the U.S. wants to buy.  The same is true of most other countries.  Trade with China, on the other hand, is critical to North Korea’s very survival.

Meanwhile, back in Washington, Trump is picking fights with Xi, imposing high tariffs directed at Chinese goods, and increasingly accusing China of being the enemy of U.S. prosperity.  Fueled by his MAGA rhetoric, Trump’s xenophobic approach to trade has his supporters happy.

For Xi, this is not a bad thing.

Tariffs on Chinese aluminum and steel?  China’s recent sales of aluminum to the U.S. amounted to a rounding error (0.019%) in China’s $2 trillion of exports in 2016China’s steel exports have been dropping overall, because they need more steel domestically as their economy grows.  Trump’s actions are not hurting China.

But Trump’s actions will hurt the U.S., as Xi well knows.  Making inexpensive imported aluminum and steel more expensive will increase overall steel and aluminum prices in the U.S., increasing the cost of American manufactured goods.  This will allow China to move some of its production to higher value-added products, in which it will now have a greater price advantage over U.S. products.

Further, higher domestic prices for goods in the U.S. will slow the American economy, and weaken the U.S. further.  If Xi can goad Trump into further protective trade actions (cancelling NAFTA, for example, or continuing his war on the WTO), the costs to Americans, and the benefits for its trade competitors, will increase.

In short, right now Xi is winning when it comes to dealing with the U.S., and Trump is a big reason for that.

All of which says that Xi likes having Trump around.  Xi knows that he can manipulate Trump, who is not as smart – and certainly not as strategic – as Xi.  Having a puppet president to do his bidding is great for Xi.

What Xi doesn’t want is two things.

First, he doesn’t want a shift in the balance of power in Congress at the mid-term elections.  That might result in Trump being prevented from doing the bone-headed things that Xi wants him to do.

Second, he doesn’t want Trump to be a one-term President.  If he has Trump to deal with for another six years or more, he is confident he can, through Trump, do enough damage to the U.S. economy that Chinese dominance – at least in Asia and Africa – will be sustainable.  If Trump is not strong enough to withstand a re-election challenge in 2020, then from Xi’s perspective there is a good chance he will be dealing with a much smarter White House come January 20, 2021.

All of which brings us to Singapore in June.

What Xi wants is to prop up Trump, and the little rocket man is his instrument to do that.  If Xi can orchestrate some kind of deal between Kim and Trump, in which Kim gives up as little as possible (a nuclear program that has already collapsed), while Trump gives up something meaningful (some of South Korea’s military protection, and all of the North Korean sanctions), but Trump comes out of it looking presidential (wouldn’t that be something), then Xi strengthens Trump.

In the best of all possible worlds, what is looking like a shift in power at the mid-terms ends up being a razor-thin GOP Congress (both House and Senate).  Trump will not be able to anything completely crazy (no all-out wars allowed), but he will be given leeway to make whatever mistakes Xi wants him to make.

It would also enhance Trump’s re-election prospects.  Americans like to re-elect their presidents, unless they are really bad.  A Trump diplomatic victory in Korea may be just enough to make him electable again.

Of course, that is the primary plan:  save Trump, but at low cost.  There is also a backup plan.  If it is not possible to get Kim and Trump to make a deal, then at the very least increasing the destabilization of American politics continues to be a worthwhile goal.  The lack of a deal may have the beneficial effect of hardening the pro- and anti-Trump positions of Americans.  And, if there is further disarray in the U.S., Asian and African countries that would otherwise look to the U.S. as a strong ally may be more amenable to Chinese overtures.

Oh, and one other thing.  What about Korea?  Is it still possible to achieve détente between North and South Korea, even without a deal?

The answer is yes.  China is the biggest purchaser of South Korean goods in the world ($158 billion in 2016, more than twice as much as South Korea sells to the U.S.), and South Korea is the fourth biggest purchaser of Chinese goods in the world ($94 billion in 2016).  If Trump fails to make a deal, Xi has ample leverage on both North and South Korea to make a deal happen.

That step has always been available to China, of course, but there was never a compelling reason for China to make it happen.  A Trump failure in Singapore could be such a reason.

Maybe Trump should get the Nobel Peace Prize after all.  If after 65 years there is finally peace in Korea, and the main reason for it is that Trump is Xi’s perfect puppet, then he is still playing a key role, just as Charlie McCarthy did for Edgar Bergen years ago.

Shouldn’t that count for something?

   –  Jay Shepherd, May 20, 2018

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Energy #23 – What’s Up With Orillia?

The City of Orillia has apparently decided to appeal the OEB decision refusing to approve the purchase of Orillia Distribution by Hydro One.

What’s up with that?

How We Got Here – the Transaction

Let’s start with some background.  On August 15, 2016, the City of Orillia and Orillia Power Corporation agreed to sell all of the shares of Orillia Power Distribution Corporation (the licensed electricity distributor) to Hydro One for about $41.3 million.  This was made up of a cash payment of $26.4 million, and assumption of debt of $14.9 million (of which about $10 million was debt owing to the City).

At the time, the price was a premium of $13.6 million over book value, but only maybe $3 or $4 million above fair market value.  Hydro One, as it often does, offered more for Orillia’s distributor than any other buyer could offer.  Money talks.

To look after the customers, Hydro One promised small rate decreases for a ten year period.  Then, all bets were off.

How We Got Here – the Approval Process

By law any purchase of a monopoly distributor has to be approved by the Ontario Energy Board, which essentially determines whether the transaction is in the public interest.  The OEB uses the “no harm test” to make that determination.

Under the “no harm test”, every acquisition is approved unless the OEB finds that the transaction will result in harm to the customers.  It is a very gentle approach.  There doesn’t need to be a net benefit.  Basically, the OEB says it will not interfere with private transactions as long as they are at least neutral with respect to the customers.

Hydro One and Orillia Power duly filed for approval in September, 2016.

But, there was opposition.

You see, this is not the first time Hydro One has acquired a small distributor.  In the 70+ past acquisitions, most of which had a similar initial structure, the customers of the acquired distributor eventually had a big increase in their bills (with a few exceptions).  Hydro One has a lot higher cost structure than other distributors.  (Ask your neighbours served by Hydro One about their bills, compared to yours.)

So, in this case the transaction was opposed by groups representing seniors, tenants, residential customers, and my client, the schools.  (Disclosure:  I represented the School Energy Coalition throughout this process.)

In the early years of Hydro One buying up small distributors, there was little opposition, so they were all approved easily.  The last three acquisitions, though, in 2011-2013, were opposed.  Customers saw the results of the first batch of consolidations (big rate increases), and wanted to stop Hydro One from doing the same thing to the residents of their town or city.

Customers in the Norfolk, Haldimand, and Woodstock purchases, however, were not able to convince the OEB that rates would go up substantially.  The best customers could achieve was a warning from the OEB to Hydro One that the acquired customers were expected to benefit over the long term from the purchases.  With that caveat, the transactions were approved.

The application to approve the Orillia transaction was different.

Before the OEB could approve the Orillia purchase, Hydro One filed a rate application to the OEB, on March 31, 2017, asking for new rates for all of its customers, including the customers in Norfolk, Haldimand and Woodstock.  Those newly-acquired customers, who had benefitted from five years of frozen rates after their purchases, would have increases in the costs for which they were responsible of 32% to 107%.

On average, the cost to serve those customers would go up in real dollars more than 20%.  That is, take the rates they paid prior to the purchases, plus inflation, and it was still going to cost Hydro One 20% more to distribute their electricity.

This was not because the actual local costs were going up.  Oh, no.  It was because the acquired customers were now going to have to cover some of the costs that had previously been paid by Hydro One’s other customers.  Those old customers would benefit, but those in the acquired areas?  Not so much.  After being promised big savings, it turned out they were getting nothing.  They were going to pay more.

Customer groups in the case estimated that the customers in Orillia would, if treated the same way, eventually have increases of 52% to 87% (or more).

When the customers opposing the transaction pointed this out, Hydro One did their best impression of the Wizard of Oz: “Pay no attention to the man behind the curtain”.  Their position was that the OEB adjudicators deciding their purchase case were not allowed to look at Hydro One’s evidence in the other case, which was also before the OEB.

How We Got Here – the First Appeal

The adjudicative panel, being careful, responded on July 27, 2017 by suspending the purchase application, but not refusing it.  In effect, the OEB said “Let’s see what happens to those Norfolk, Haldimand and Woodstock customers after the Hydro One rate application is decided.  Maybe it won’t be so bad.”

This was a problem for Hydro One and the City because, anticipating approval, they had allowed some Orillia Distribution staff to leave, and Hydro One was assisting with its management.  They really needed to get on with the transition to new ownership.  It is hard to operate a utility in limbo.

So, on August 14, 2017, they appealed.  (No, not this appeal.  The first appeal.)

That appeal, called a Motion for Review, is to a separate appeal panel of the OEB.  Basically, Hydro One and Orillia asked that the decision on their purchase application be made as soon as possible, not waiting for the decision in the rate application.  In support, in August and November 2017 they filed written evidence claiming that the Orillia customers would benefit from the purchase, and that there were terrible operational problems because of the delay.

After some back and forth, on January 4, 2018 the appeal panel of the OEB decided to allow the Hydro One/Orillia appeal.  They sent the case back to the adjudicative panel with instructions to make a decision on the purchase application without any further delay.

How We Got Here – The Final Decision

In the meantime, however, in December 2017 Hydro One suddenly “discovered” changes to the Norfolk, Haldimand and Woodstock costs as presented in their rate application.  The 20% real increase was reduced to 11%.

Still bad.  Just not AS bad.

Recognizing this new development, the adjudicative panel on the purchase application invited Hydro One and Orillia to file new evidence showing that the Orillia customers would not eventually get whacked.  Instead of doing so, Hydro One and Orillia simply reiterated their previous arguments.  No new evidence.

In their April 12, 2018 final decision, the adjudicative panel, after noting that they had given Hydro One the chance to file more evidence (and there was none), said that on the evidence before them there was a likelihood that the Orillia customers would be harmed by the transaction.  They therefore denied approval for the purchase (the first time Hydro One has ever been denied, as it turns out).

The OEB’s exact words are pretty clear:

“One of the key considerations in the no harm test is protecting customers with respect to the prices they pay for electricity service. …[T]he OEB will…consider the costs that acquired customers will have to pay following an acquisition (both in the short term and the long term).

[T]he OEB does not consider temporary rate decreases to be on their own demonstrative of no harm as they are not supported by, or reflective of the underlying cost structures of the entities involved and may not be sustainable or beneficial in the long term.  

The experience of the three acquired utilities in Hydro One’s current distribution rates case is informative. In the…proceedings in which Hydro One acquired these utilities, Hydro One pointed to savings that would be realized through the acquisition. Although these savings may well have occurred, they do not appear to have resulted in [lower] overall cost structures (and therefore rates) for customers of the acquired utilities. Material filed in the Hydro One current distribution rates case shows that some rate classes are expected to experience significant and material increases.”

In cases like this, the OEB has a straightforward (if often difficult) task:  protect the customers from harm.  They looked at the evidence before them, and did just that.

So What Now?

Under the OEB Act, there are two avenues of appeal available to Hydro One and the City.

They can appeal to an appeal panel of the OEB, if they can show that the adjudicative panel’s decision made an obvious error or is contrary to law.  This is what they did with the original appeal, and they won.  This kind of appeal is called a Motion for Review, and it must be filed no later than May 2nd.

Alternatively, they can appeal to Divisional Court, where they face the task of showing that the OEB decision was unreasonable.  This is very difficult to do, particularly when the decision hinges on the specialized expertise of the OEB.  Few appeals to Divisional Court are successful.  This kind of appeal must be filed no later than May 12th.

From the public statements of the Mayor, it appears that the City and Hydro One have chosen the Motion for Review approach, and will file by Wednesday of this week.

This is expected be a hotly contested appeal.

On the one hand, Hydro One doesn’t take kindly to losing cases at the OEB.  (How dare they!)

On the other hand, the decision of the adjudicative panel was pretty blunt, and it is hard to overturn a decision that is clear, and is driven by the evidence.  Given that, customer representatives will want to ensure that the benefits of this refusal decision, both for Orillia customers and for customers affected by future purchases, are not lost.

It is reasonable to expect that, based on past experience (and given that it is happening over the summer), the new OEB appeal panel will make its decision on the appeal within five to eight months, i.e. by the end of 2018.  Unless the OEB once more allows the appeal, this would leave the City again having to figure out what to do with its utility.

In the meantime, there will be a provincial election (in June), and perhaps by then a municipal election (in October).  There is certainly the potential that the regulatory process could affect the political process, and the political process could affect the City’s business decisions, and so on.

Of course, the City has other options, either instead of or in addition to an appeal.

The City could continue to own and operate Orillia Distribution, but right now that is not really a viable option.  The City has made clear that it wants to sell, and the utility has lost some key people.  It will lose more people before this is resolved.  How are you going to lure top people to work for a company that the shareholder doesn’t want to own?

That leaves two other choices.

First, the City could offer it for sale again, and there will clearly be interest.

EPCOR, for example, a large utility based in Edmonton, has agreed to buy COLLUS, the distributor that serves Collingwood and some other smaller communities, and has just been awarded the new gas distributorship for the South Bruce communities.  They are actively looking for other acquisitions, and they have bags of money.

Enbridge has for decades wanted to be in the electricity distribution business.  Now that they own Union Gas too, there are obvious cost savings available if they can distribute both electricity and gas in the same places (like Orillia).   They are also motivated to find businesses that are not carbon-driven, because they see the writing on the wall for fossil fuels.  They are not the lowest cost utility, but they are certainly more cost-effective than Hydro One.  (Everyone is cheaper than Hydro One.)

And, could Hydro One come back with a new, restructured bid?  Don’t rule it out completely.

Second, the City could make itself open to merger offers.  That will generate even more interest.

Alectra, for example, already serves Barrie, and is the second-largest distributor in the province.  They could offer the City a small percentage, but would take over the responsibility for the debt, and provide reliable long-term dividends.  (They might even be willing to buy for cash, but that is not as clear.)

Veridian serves Gravenhurst, as well as many other small and medium-sized communities in Ontario (like Beaverton, Sunderland, Ajax and Belleville).  They are also noted for their relatively low rates and strong connection to the communities they serve.  The City would have a larger percentage of Veridian, but would still have reliable long-term dividends.

Newmarket-Tay Power is in the process of acquiring Midland Power, and might be a good fit for Orillia if they can handle another merger right away.  The result would be similar to a Veridian merger, with a larger ownership percentage but perhaps with a little more risk.

Entegrus, based in Chatham, is always looking for merger or acquisition targets.  While they don’t serve any customers in the Orillia area yet, they may be interested in expanding their geographic footprint.

The bottom line is that the City of Orillia doesn’t need to own Orillia Distribution any more, if it doesn’t want to.  There will be suitors as soon as the City seeks offers.

In any case, probably in the long term the City will have to sell or merge.  As the sector evolves, it is increasingly difficult for smaller utilities to keep up with new technologies, and with the expectations of the customers, the government and the regulator.  The changes in the electricity markets in Ontario will present long term challenges, sufficient that most or all smaller utilities will eventually be sold or merged.

Conclusion

It is an interesting time for Orillia Distribution, and for the City of Orillia.

We can’t predict with certainty the result of an appeal, and we can’t predict who else will be ready to make offers.  What we can predict is that the next year will be a period of continued uncertainty for the City and its utility.

  –  Jay Shepherd, April 29, 2018

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Critical Thinking

In the news this week, a grade 8 teacher in Texas was suspended for asking his students to list the positives and negatives in the lives of slaves.  Outrage filled the land (and the parents), resulting in much flapping about.

When I looked at the story, and saw that this took place at a charter school, I was a little suspicious.  Is it possible that this school was a front for white supremacists intent on destroying America?

Apparently not.  Great Hearts Academy has 28 schools in Arizona and Texas with 15,000 students.  Its philosophy is to give a classical liberal arts education, coupled with high academic rigour.  They don’t appear to have any history of Nazi leanings, and their Boards of Directors, while largely white males, are much respected community and business leaders.  No obvious nutbars on the boards.

Well, if the easy explanation – insidious racism – is not the likely one, then what was going on here?  As one of the parents is quoted as saying “What’s next?  The pros and cons of human trafficking?”

The answer is:  of course.

And the potential benefits of letting the homeless starve.

And why ghettoes have, throughout history, helped marginalized groups.

And the advantages and disadvantages of refusing medical care to drug addicts.

Should I go on?

This is not really a story about slavery, despite all the hype.  It’s not even a story about political correctness, at least not entirely.  It is certainly not a story about free speech.  (Teachers, in the classroom, don’t have free speech.  We give them responsibility for our kids.  That comes with expectations.)

The issue here is critical thinking.  The issue here is whether we want the next generation – those 12 and 13 year olds in this teacher’s class – to grow up believing things by rote, or to instead develop the ability to look at the nuances of every issue.  It is about whether kids should learn to face uncomfortable truths directly, or to hide from them.  It is about whether the next generation will tackle hard issues confidently, considering all the angles and finding the best path forward.

Yes, yes, I know.  Slavery was a bad thing.  (Actually, IS a bad thing.  You think it doesn’t still go on?  Of course it does.)  Anyone who has read my writing knows where I stand about racism, and about the subordination of people different from yourself, and about abuses of power, and so on.  You can accuse me of being too liberal, perhaps, but you certainly know what side I’m on.  (I am sometimes a bit…what’s the word?…forceful.)

But we don’t deal with the problems in society by being too offended to face them.  We don’t stop slavery by saying “Slavery?  Ewwww! Gross!”

One of the things our society is losing, perhaps, is our ability to look at things with a critical eye.  How many times recently have you heard people say that the solution to “fake news” or the influence of social media is a more discerning public?  How many complaints have you heard about the gullible believing Sean Hannity, or even Alex Jones (or Donald Trump, for that matter)?

If you don’t want the next generation to be gullible, you can’t wrap them in a protective blanket of political correctness, forcing them to believe the “right” answers by blind faith.  That’s how you raise robots (also sometimes referred to as “consumers”).  If you want them to be able to face life with their eyes open, and to handle the problems of the world, they have to learn how to look at all aspects of an issue, not just the pretty ones.

Let’s take slavery, for example.  Was it 100% bad?  Were all of the millions of people in the USA that owned slaves, or condoned slavery, evil incarnate?  Further – and a propos the teacher’s assignment – were the lives of the slaves 100% terrible?  Were there no redeeming features for those enslaved?

For some of my readers, their hearts are starting to race with anger and indignation.  How can you even ask those questions?  Don’t you understand?

My answer is, you can only “understand” if you ask exactly those questions.

Let’s take the two aspects of slavery I’ve questioned above.

First, if slavery was so completely bad, that implies that millions of people were terrible people.  We know that is not likely to be true, human nature being what it is.  So, we should be asking the question, how did slavery come to be accepted throughout a large part of the US (and Caribbean, and elsewhere), by people who believed themselves to be good people, and probably were?  What were the causes of that acceptance?  What were the good things that they thought were happening because of slavery?  How could intelligent people argue in favour of slavery?

Why do you have to ask those questions?

On the simplest level, it’s because slavery still exists.  Understanding why it happens is essential to eliminating slavery around the world.

On a higher level, though, understanding why millions of people accepted slavery will help us to understand why millions of people oppose the Paris climate accord, and why millions of people support a border wall, and why millions of people stand by while a genocide occurs (whether in Europe in the Second World War, or in Rwanda and Myanmar more recently).  How can we face those problems – and many others – if we never learn how to look at major issues from all sides?

Second, what about the slaves?  The teacher was preparing students to read accounts of their lives by former slaves.  He wanted them to open up their minds to what the writers were talking about, to understand what they were saying in a nuanced way.  Presumably (although I don’t actually know the teacher’s thinking), he wanted the students to face questions like: Why didn’t the slaves use their superior numbers, fitness and strength to rebel?  How was it possible for them to accept their lack of freedom, even form relationships and live their lives?  What did they think was good in their lives?

As those students get older, they will have to face the reality that some people fight against things they don’t like.  Others – many others – accept what life presents to them.  This is not simply because people are naturally more active or more passive.  It is also because of the subtleties of power, and how it is used by the powerful.

When you read about a cult, don’t you sometimes wonder just how stupid the cult followers must be?  Yet, throughout our society most people, at some point or another, accept things that are unfair, unjust, or offensive.  In fact, someone who fights every battle rather than letting things go is seen to be immature and perhaps even a little crazy.  A key part of growing up is learning the judgment necessary to choose your battles, and accept the rest.  (“Change what you can’t accept, and accept what you can’t change”, as they say.)

Understanding how the slaves lived their lives, and coped with their challenges, helps us understand how we all live our lives.

One of the things schools have taught for years is debating, although in many places it has fallen out of favour.

In formal debating – one of my favourite activities in high school – two teams are selected, and each is assigned the job of arguing for or against a proposition.  It doesn’t matter what you think personally.   If you are arguing against the issue, your job is to find the best arguments supporting that side.  If you are arguing for, it is the opposite.

Some of the best debates are those that require teams to argue for and against a controversial or difficult proposition, like the death penalty, or abortion, or apartheid, or even – wait for it – the existence of God.

Debating forces the student to understand not just the arguments on the side they personally favour, but also the arguments on the other side.  If I am opposed to the death penalty (I am), I should be able to argue in its favour just as vigorously as against it.  That way, I end up truly understanding the issue.  It also trains me to reach my own, rational, independent conclusions about difficult issues.

The legal system uses the same concept – the adversarial approach – to get to the truth in disputes.  Lawyers who do that kind of work take great pride in being able to argue cogently and persuasively for either side in a case.  The system relies on the tension between the arguments on both sides to force the truth – the right answer, in theory – to emerge.

While the adversarial approach is for sure not perfect – oh, my goodness, no – most of the time it works pretty well to achieve a just result.

Slavery is bad.  Yes, yes, I do agree.

A closed mind is also bad.  Preventing a child from learning how to think critically is also bad.  Raising a generation of consumers, blind to the issues and cynical about democracy, is also bad.

Slavery is bad.  But, the more we understand it, the more we understand why it happens, the more we understand how people accept things that are bad… the better we understand why slavery is bad, and how to prevent it from happening.

And, the better we understand how to deal with other difficult issues in our society.

  –  Jay Shepherd, April 22, 2018

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Regulating Facebook

Almost four years ago I wrote an article entitled “Fixing Facebook:  The Common Carrier Option”.  Since that time, the Facebook issue has become even more of a concern, with allegations that misuse of Facebook information influenced both the U.S. Presidential election, and the Brexit vote in Britain.

Mark Zuckerberg is now finding out what it takes to get paid the big bucks (and it isn’t a sweet smile).

Shameless self-promoter that I am, I reminded people of my earlier article, and to my surprise I got some follow-up questions.  In essence, people asked:  How would making Facebook a common carrier solve the data misuse problems we are now seeing?

This article is my attempt to answer those questions.

What Is the Problem?

Right now, people see the problem with Facebook (and Google, Twitter and others) as a privacy issue.  The push we are now seeing is toward regulating how those companies use the personal data of their customers.

But here’s the problem:  That’s their entire business model.  The primary reason Facebook is the most valuable company in the world is that it can sell targeted user information to advertisers, and it has a monopoly on that data (well, except for Cambridge Analytika, but that’s just a screw-up on Facebook’s part).

What Facebook says to advertisers is:  instead of throwing your ten million dollars in advertising “seeds” on random ground, hoping some of it will germinate, come to us.  Give us that ten million dollars.  We will plant your seeds on fertile ground, i.e. direct your advertising only to people who want to buy, not the world at large.  And, we can tell you who will want to buy.

Not only that, but we are the only ones who have that detailed user information about who will want to buy what, because we have a world-wide social media monopoly.

So, if you want to limit how Facebook uses their information, you want to basically destroy them as a company (and the pension funds and everyone else that are heavily invested in Facebook).  For following the rules, as they are currently written.  Even if that makes sense in the public interest, there is going to be resistance.

Finding another way to solve the problem might be worth a few minutes.

The obvious problem here is that one company has access to information that is valuable, but only by trampling on the privacy of the subjects of that information.  The most important aspect of the problem, though, is that the company with the information owns the market.  It has no real competitors, and any potential competitors have almost insurmountable barriers to entry.  Thus, it can do anything it likes.  Anyone who wants access to social media services has to accept whatever terms Facebook stipulates.

Past Monopolies

This is not a new problem.

Whenever someone has a practical monopoly, society steps in and regulates the monopoly component of their business.  Otherwise, as the economists tell us, those with the monopoly can charge “monopoly rents” for their product.  When there are no market forces at work, the company providing the monopoly service has free rein to choose the prices that people must pay for their service, and the terms on which it is provided.  (In the case of Facebook, of course, the “price’ is paid in access to information, but the concept is the same.)

Only one company delivers electricity to your house.  There is a logic to that.  It is not in society’s interest to have more than one company stringing wires all over the place.  In the early days of electricity, that happened.  Governments quickly understood that there was a natural monopoly.  One company should do it in each geographic area, and that company should be regulated.

Of course, it was only the wires that were the natural monopoly.  It took a while, but eventually society understood that many services relating to electricity, including generation, were not natural monopolies.  Companies could compete for those non-monopoly services, and when done properly that actually protects consumers better than regulation.

Another example was telephone service.  Competing companies could provide telephone service, but at a certain point customers wanted to be able to talk to everyone, not just the other customers of their particular communications provider.  Imagine if you were a Bell customer, and your telephone service only allowed you to talk to other Bell customers, but not to the customers of other service providers (wait, didn’t that actually happen at some point?).  Everyone had to be on the same system, which meant that telephone communications was divided into the function of access to the system (sales of phones, access services, etc.), and the function of physical communications between users (the “common carrier” function).  Most companies offered both.

Eventually, again, governments stepped in and said that companies that owned the communications infrastructure had to offer non-discriminatory access to any company that wanted to allow their customers to communicate with other people.  The “wires” became common to all.  Anyone could pay for access to the infrastructure system, and allow their customers to communicate with anyone else.

Opening up telecommunications revolutionized the ways people communicate with each other.  Many companies got involved.  It was no longer necessary to own infrastructure in order to offer phones, or communications packages, or even access to the system.  Any company that wanted access to the system for its customers paid a regulated fee to the owners of the wires (or fibre optics, or whatever), and their customers had full access.  (OK, OK, I’m oversimplifying.  It was a bloody battle, because the “ILECs”, the Incumbent Local Exchange Companies, didn’t want to give up their advantage.  Once the dust settled, they did give it up, and we all benefitted:  better phones, more comprehensive systems, more choice, broader access.)

How Do You Actually Achieve This Kind of Solution?

You could – as many are suggesting – solve the Facebook problem by regulating how they use data.  Basically, destroy their business model.  That treats the current problem as a privacy issue, and would – with a bludgeon – solve the problem, probably destroying Facebook and others in the process.  It would also hurt the many people whose lives are better because of their social media experiences.

A better approach may be to split the problem up into its two components:  monopoly and privacy.  Once we isolate the monopoly component, we have pure social media left.  If we can create real competition between social media providers, then the privacy issue can be dealt with in the marketplace.

How do you achieve that?

Step 1 is to split Facebook up into two companies, just as many telephone companies had to split up in the 80s and 90s.

SM Technology Inc. would be a company that owns the Facebook social media platform, including all of the connections with players on the internet.  It would be the technology company, in the old sense of the term.  It would be in the business of providing access to its technology to others, and continually adding functionality to that platform.

Facebook Advertising Inc. would be a pure social media company.  It would have a base of two billion users, and advertising clients that include most of the Fortune 500.  What it would not have is its own technology platform to offer to those customers or advertisers.  It would have to pay SM Technology Inc., the common carrier, to get access to that platform.

How is this different, you say?

The answer is that SM Technology Inc. is a monopoly entity that offers a social media platform at regulated rates to anyone who wants to use it.  It doesn’t sell advertising, and it doesn’t use the data it sees.  It has a platform, and it charges a fee to use it.  Full stop.

Facebook Advertising Inc. is a competitive social media company that only keeps its users if it offers them the services they want.  If LinkedIn, for example, wants to compete, it has equal access to the SM Technology communications infrastructure, and to succeed it has to differentiate itself based on the user experience it sells.  So does Facebook Advertising.  GoodReads, TripAdvisor, etc., can all offer a service that is specific to them, and compete with Facebook without discrimination.

Further, each social media provider will now have to compete not just on price, but also on user experience.  Every user, with any provider, will have full access to all other users of the common system, but not everyone will acquire their access under the same business model.  Are you willing to pay $20 per month for your social media access?  In that case, you get generic advertising, as on TV, but the advertisers will not be able to use your personal data to target you.  Are you willing to pay $50 per month for your social media access?  In that case, you are subjected to no advertising at all.  You just connect with other people on your own terms.

What will happen in the real world is that, once companies can provide custom-tailored social media experiences, all sharing the same platform and communicating with everyone else on the system, competitive offerings will become more finely focused.  Goodreads will offer a full and free social media experience to booklovers, and will disclose to users that the advertisers will have access to the reading histories of their users.  Their advertisers will not have access to any other user history information.  Many Goodreads users will say that is fine, thinking it is a fair trade-off to get a free social media experience.  They love their books, and they’re happy to share that information with advertisers.

The same will happen for travellers.  Some will say that their travel history is a fair trade for free social media, while others – particularly after getting a lot of travel-related advertising – will say I would rather pay the twenty bucks a month.

The point is that the customers will make individual choices.  What are you willing to give up for free social media access? Customers will find that you never have to give up 100% of your privacy, just some of it.  That question – $20 a month vs. limited information access – will be a key aspect of user decisions.  What part of my information am I willing to use as payment for access?  What social media community suits me, and is one that gives me access on terms I like?  Or, do I want to pay $50 a month and have complete protection?

No-one will have to give up all of their privacy in order to participate in social media.  That is one of the benefits of competition:  prices go down.  The amount of privacy you give up – the price of the service, in this context – will go down as well.

The competitive markets will unleash this level of choice, but only if we facilitate it by dividing the social media business between the natural monopoly function – the platform – and the services function, which is competitive.  As long as the common carrier is not one of the competitors, users can have full social media contact with everyone they know (or want to know), but choose who provides that service, and on what terms.

Other Implications

An interesting sidebar to this is the likely responses of the Facebook investors.  If you split up Facebook into regulated and unregulated components, all shareholders will get shares in both new companies.  Some will want the long term security of the common carrier. They will sell their Facebook Advertising shares to buy more SM Technology shares.  Some shareholders will want to participate in the upside of the social media offering.  They will sell the common carrier shares to buy more Facebook Advertising shares.

Of course, with the social media offering no longer protected by its monopoly status, Facebook Advertising will have to be creative and nimble in evolving its offerings to meet the needs of the users.  There will no longer be a single offering.  Facebook Advertising will offer several unique packages, with varying levels of cost and privacy, and probably branding them individually.  Each of those packages will be competing with other social media providers.

For the individual user, the current stark decision implied by the #DeleteFacebook hashtag – accept the evil Facebook rules, or give up all social media access forever – is gone.  If Facebook Advertising doesn’t offer information protection levels that satisfy you, someone else will.  Maybe you will have to pay something, or maybe you will have generic advertising, or maybe you will accede to limited information sharing.  In no case will you have to accept the use of your information, without your knowledge, to swing an election.

One other thing.  What about Twitter, or Google, or Instagram, or Pinterest (or WhatsApp, or Line, and so on)?

The answer is this.  For all but Google, they are variations on the social media experience.  Once the platform is opened up to all, they will each have competitors with access to the same platform that everyone uses for social media communications.  They will have to compete with those competitors, who will offer privacy protections of various types.  How long will Twitter last if a more protected version is offered through the (former) Facebook platform?  Not long, unless Twitter adopts the common platform and competes to protect their users effectively.

Google is the exception because they are mostly not a social media provider.  To the extent that they are (YouTube, for example), they will have to compete.  Their search function – until now the best in the world – will not be affected by social media competition, and will still dominate the market.  However, once users start to protect their information through greater social media choice, Google may find that its search competitors – DuckDuckGo and others – will start to gain more traction through increased user awareness.

Of course, if that doesn’t happen, then we have a further monopoly issue to solve.  Let’s cross that bridge when we come to it.

  –  Jay Shepherd, March 30, 2018

Posted in Politics, Social Change, Technology | Tagged , , , , , , | 3 Comments

Energy #22 – Electricity Distribution: A Radical Proposal

This is a proposal to alter, in a fairly radical way, how electricity distribution rates are set in the province of Ontario.

The proposal is to shift to postage-stamp rates, i.e. everyone in the province with similar distribution requirements pays the same for their electricity distribution.  We essentially socialize the costs of electricity distribution, the same as we socialize many other costs that have a broad societal benefit (including electricity transmission and generation).

Benefits.  The goals are three-fold.

First, postage-stamp rates will change the equation for consolidation within the industry.  A merger or acquisition will not affect local rates.  Improvements in cost-effectiveness will benefit everyone in the province, whether directly involved or not.  Acquirors with high rates (hello, Hydro One) will no longer face a rate harmonization barrier, because no-one will have high rates.  Everyone will have the same rates.  Acquirors will have to demonstrate that they can control costs going forward, so that everyone benefits.

Second, this approach will change how individual distributors approach requests for budget increases.  Under this new paradigm, individual distributors will be asking for a bigger piece of a common pie.  The focus of their applications will have to be how they are improving outcomes for customers, relative not just to their own past history, but also to the rest of the industry.  Cost-benefit analysis will become more important, as will benchmarking to peers.  The available funds are no longer open-ended.  You get more only if you deserve more relative to your peers.

Third, the risk of the death spiral would be spread across the industry, instead of being borne by individual distributors.  Not only does this manage the risk, but it also strongly promotes joint action between distributions to counter this risk.  There is a lot to be said for a feeling of “we’re all in this together”.

In all respects, this is a fundamentally more customer-focused paradigm than the current system, although it is also intended to protect the utilities.

But how do you actually achieve this result?

My plan is to deal with this proposal in two steps, i.e. two articles.  This article sets out the basic approach being proposed.  Then, assuming there is feedback (I can only hope!), the second article a couple of months later will talk about how to overcome the many barriers to this kind of change.

The New System

There are two basic parts to this:  where do we want to end up, and what transitional steps are required to get there?

Let’s start with where we want to end up.

Under this proposal, the rates for each electricity distributor are the same.  That doesn’t mean that their net revenue is the same.  There are legitimate reasons why some distributors need more money than others to provide the same service.  We can’t just ignore that reality.

The postage-stamp system of ratemaking shifts the paradigm.  What individual distributors seek from the Ontario Energy Board is no longer rate approval.  Their rates will be the same as everyone else.  A “rate” application will become a revenue requirement application.

Standardized, Industry-Wide Rate Increase.  To get to this state, it is proposed that the OEB start each year (probably several months prior) by determining a percentage increase in distribution rates, and determining the industry-wide revenue requirement that results from that percentage increase.

The OEB would therefore have to figure out a reasonable increase in overall industry costs, and the changes in load that can be expected.  These two results would then determine the industry-wide revenue requirement.

Done properly, this comes about through a joint/generic hearing process each year, in which evidence is led by utilities and customer groups as to inflation and other cost pressures common across the sector, and special needs that may need to be addressed (a common cause problem with a particular kind of wire, for example). Load forecasts must also be debated, presumably with utilities going low and others forecasting much higher.

The first time this all happens, it will be a zoo.  After the second time, it will be less controversial.  Everyone will understand the parameters, and the Board will have little patience with those who want to re-argue the same points every year.  In the long run, dealing with these issues in a common proceeding is almost certainly a saving in regulatory costs, and an improvement in the quality of the results.

If I had to guess, I would say that the result will be a distribution-specific inflation/productivity (I minus X, for the cognoscenti) factor that is adjusted annually based on known external parameters, and becomes the expected increase in rates each year.  Similarly, a load forecast methodology will be agreed (or imposed), and applied by independent experts that the utilities and customer groups oppose at their peril.

Individual Distributor Applications – Cost of Service.  Suppose that the Board establishes a rate increase across the province of 2%, and determines that based on the expected load that means $3.5 billion is available for distributors.  Who gets that money?

My proposal is that we continue with a kind of IRM, but using revenue requirement rather than price cap.  Every five years, a distributor will come in for cost of service, with their share of the total pie based on their costs, and their performance.  For other years, they will have their share of the total pie determined based on a revenue cap IRM, either based on a formula (e.g. 70% of the approved annual increase) or based on a type of Custom IR approach.

Thus, Distributor A, in their cost of service year, will file an application saying that their share of the overall pie should not increase by 2% – the overall increase – but by 6%, because they have special cost pressures blah blah blah.

The Board will then look at their application, and ask the question:  “What are you doing for your customers that justifies more than 2%?”

In this environment, Distributor A understands that, to get more than 2%, they have to show that they are delivering more for their customers than their peers.  They have to show that their customer service is above average, and/or their reliability is above average, etc.  This is not about costs.  The Board will have already determined the reasonable cost increases across the industry.  Unless Distributor A can show that the cost pressures affect them differently than their peers (an uphill battle in most cases), or they are delivering better outcomes, they get 2%.

Let’s say Distributor A proves they are above average, so they get 4%.  Someone else has to be below average, and get less than 2% to balance out that extra money for Distributor A.  It is a zero-sum process, in which distributors are constantly vying to be the best (or not the worst) performers relative to their peers.

Revenues Do Not Equal Revenue Requirement.  Distributor A then has authority to get $100 million a year, but the standard rates for customers will produce revenue in their service territory of $120 million.  Distributor A has to pay $20 million (to be paid monthly) into the common pool so that the distributor nets $100 million after collecting rates and paying to the pool.  Conversely, Distributor B has authority to get $100 million a year in revenue requirement, but will recover from customers only $80 million.  Distributor B gets recovery of that shortfall from the pool, also monthly.

IRM Distributors.  For most distributors, of course, this year will not be a cost of service year.  For those distributors, their share of the common distribution rates pool will be their last approved revenue requirement, increased by a revenue cap percentage, and by that distributor’s share of the increase or decrease in load.

Distributor C, for example, is in an IRM year.  Their load (billing determinants) is expected to increase by a weighted average of 1% (which has been factored into the industry-wide load forecast by the Board), and their previously approved revenue requirement is $100 million.  Their share of the pool this year will be $102.4 million (1% increase for load, plus 70% of 2% for cost pressures).

Regulator Responsible for Total Approved Revenue Requirement.  For the regulator, this all means that there is a target total of revenue requirement increases across the industry.  As the applications come in, the Board will have to keep a running count of how much of the pool it is “spending” by authorizing revenue requirement applications.  If it allows too many distributors to get more than the amount of the rate increase plus load increase, it will find that it overspends the pool, and the industry-wide rates will not recover all of the costs.  While this can be adjusted in a subsequent year, there will be constant pressure on the regulator to keep cumulative revenue requirement increases in line with the objectively-determined overall increase.

If the OEB says that $3.5 billion of distribution rates is the right number, it will look bad if it authorizes $3.8 billion of actual distribution spending through the combined total of individual applications.

Impacts.  What are the effects of this equalized system?

One obvious result is that people and businesses are no longer penalized in distribution rates because of where they are located.  That high school in Ancaster that I have been going on about for more than a decade (some people say too much) will pay the same as the high school down the road in Hamilton.  More important, customers in low density areas like Innisfil will pay the same as those in Kingston, and when Innisfil density improves due to their known demographic trends, that will affect not just Innisfil rates.  Everyone will benefit.  Innisfil will effectively be subsidized, but over time that subsidy will decline.

Electricity will be treated, in this model, as a public service for which everyone has the same right, and the same cost.  The cost of the commodity, and the cost of transmission, are already the same.  Why not distribution?  In many respects, this follows on the Fair Hydro plan, although it takes it a step further.

Another result is that the biggest barrier to consolidation – rate disparities – is removed.  “No harm” will no longer include rates.  Customers in a local area cannot be harmed by the higher rates of an acquiror, because there will be no need for a future rate harmonization.  They already pay the same rates.

Costs will matter, of course, but only the net improvement as a result of a transaction.  This is consistent with the Board’s policy.  It has just never been able to get there, because rates are different around the province.

In this system, the costs and benefits of a merger are not a customer problem.  They are a shareholder problem…and opportunity.  What is important on consolidation will be whether the new entity will be more efficient relative to its peers.  Consolidation is a shareholder activity, so it is a shareholder result as well.  Good consolidations will result in more ability to get increased budgets, and thus grow the business.  Bad consolidations will diminish available funds.  In each case, it will be the shareholders that are impacted.

Of most importance, though, every cost of service rate application will be about why this particular distributor should get a disproportionate share of the common pool.  Today, a rate application is about how much the local customers should pay.  The available funds are largely open-ended, despite the Board’s attempts to keep them under control.

Under this new system, the available funds are not open-ended.  There is a fixed pool.  If a distributor asks for more than their proportionate share, someone has to get less.  Which distributor is more deserving?  That is a new question, never asked before.

(Is there a role in this system for variable ROE based on outcomes, as I have speculated previously?  I think that in this system, allowed ROE can be variable around a predetermined standard, depending on what is delivered to customers.  However, that may not be implementable in the first phase.  It is, however, probably worth considering as the system evolves.)

Conclusion.  This new system is therefore at its roots a customer-centric system.  What the customer across the province pays is determined objectively.  What any given distributor receives is based on their performance relative to their peers.  Their revenue is not driven by what their customers pay, but by how well they perform.

How To Transition to This System?

Let’s not fool ourselves.  Moving from geographically-derived distribution rates to postage stamp (socialized) rates means there will be winners and losers.

Who Benefits?  Objectively, for residential customers it would mean that 3.4 million customers get a rate increase, and 1.2 million customers get a rate decrease.  However, this is largely because of the move to all fixed charges.  When that impact is removed, the distribution of increases and decreases is more balanced, and the impacts on individual customers are small.

The imbalance is also true for small business customers, where 55% would have a decrease, and 45% would have an increase.  Again, the impacts on most individual customers are small.

What is perhaps more worrisome is that the main beneficiaries of this new system are the customers of Toronto Hydro and Hydro One (at least, some of them), because they have high rates today relative to their peers.  For the most part, the customers of utilities that have been able to distribute electricity at lower costs – small and medium sized municipalities – will be the ones that have rate increases.

Impacts of Harmonization.  On the other hand, in the longer term the effect of the system should be to reduce rates across the province by inter-utility competition for the rate pool.  Further, by making consolidation easier, this effect should be enhanced.

The OEB has had to deal with harmonization in the past.  As long as the differences are not too substantial (and they aren’t here, except in some unusual cases), this is something that can be phased in over a few years with no noticeable impact.

One thing that is worth noting is that the Fair Hydro Plan makes this an opportune time to implement such a system.  Fair Hydro mutes the differences in rates between distributors for many customers.  A transition in that context has less impact.

The Common Pool

The one thing that is left is the structure of the common pool.  Transmission has postage-stamp rates, but transmission charges are collected by IESO and distributed to the transmission companies.  There is a built-in mechanism to collect and distribute between the claimants on the pool.

Not so with distribution.  They are in the front lines, so they have in the past collected money on their own behalf, then kept it.

Obviously one way to create a common pool is to have distribution revenues go through IESO, as with transmission.  This has the advantage of simplicity, but it would require changes to the legislation.

Another option is to create deferral accounts for approved revenue greater or lesser than the revenue generated from rates (this probably has to be done in any case).  The balances in the deferral accounts could then be paid to or received from a common pool established by the OEB.  Would this require changes to the legislation?  Most likely, but it is less certain than if IESO is the intermediary.

Having said that, in my view this is not a change that the OEB should implement without government approval and legislative guidance.

There is a lot to be said for the OEB coming up with a policy alternative like this, and presenting it to government.  That is different from implementing this approach without government approval.  The role of the OEB is to implement its government-approved mandate.  That mandate does not include postage-stamp distribution rates.

If “just and reasonable rates”, and other policy goals, are best achieved by postage-stamp rates, the government should be told, even convinced, but in the end it is a legislative decision, not a regulatory decision.

Conclusion

In Ontario we have issues with barriers to consolidation of the distribution sector, and we have challenges getting electricity distributors to adopt a customer-focused, outcomes-based relationship with their customers.  We also have social and economic problems because of the large differences between distribution rates from one location to another.

If distributors all had the same rates, the last problem would be moot; consolidation would have one less barrier; and the customer-focused approach would be enhanced and encouraged.

This is therefore a proposal to implement postage-stamp distribution rates in the province of Ontario.

  –  Jay Shepherd, February 20, 2018

Posted in Energy | Tagged , , , , | Leave a comment

Bully

I’m thirty years removed from being the smallest guy on my varsity hockey team.  My teenagers call me “old man”.

The kid was more like a linebacker.  He was maybe seventeen, too young to be in the bar, drunk and belligerent.

He towered over me, screaming in my face.  When I tried to stand up, he jammed me back down.  Typical bully.

I put not just anger, but also all of my frustrations and fears, into that one vicious uppercut to his balls.

As he lay on the ground, writhing in pain, he looked smaller, more like a kid.

     –   Jay Shepherd, February 11, 2018

Posted in Short Stories | Tagged , , , | 1 Comment

Lives #13 – #MeToo?

[This is the thirteenth in a series of stories about interesting people I’ve known, called “Lives”.  I don’t know whether you would call it non-fiction, or fiction.  I’ve changed the names, and some of the details, so that the individuals are not identifiable.  However, I think I’ve stayed true to the essence of what really happened.  The point is what can be drawn from the story, and at least that part is 100% true.]

My friend Lisa just celebrated her 30th birthday.  I was not there (she lives in Calgary), but she tells me that she and Larry, her fiancée (and boss), had a quiet dinner, then went to what turned out to be a surprise party thrown by some of her friends and co-workers.

Given the conflicts circling around her relationship with Larry, the party must have been a welcome respite.

Lisa grew up in Toronto, in a middle class Italian family still living, then and now, in the Via Italia neighbourhood.  After high school, she decided to take a “gap year”, and basically backpacked through southeast Asia.  Her trip kept being extended, though, as she added travel in China, Japan, and Australia.

Then, she decided not to come back at all.

It wasn’t anything dramatic.  She just enjoyed not being in school, and she found she could get jobs, and look after herself, no matter where she was living.

So, she went to London (England) and worked in an office, answering phones and getting paid under the table.   She was great with the customers, and her fluency in both English and French was an asset.  She even spoke a bit of Chinese by then, which helped even more.  Her big disadvantages were her lack of a college education, and her illegal status.

After a couple of years, she got tired of it, and came back to Canada.  A visit to her parents ended up being shorter than planned, because she was unwilling to endure the constant refrain of “go to university”.  She got a job in a restaurant, worked three weeks, and with those small savings decamped immediately to Calgary.

With $600 and no place to stay, Lisa was highly motivated to find a job in Calgary as soon as possible, and she did.  It took her three days (!) to find a customer service job in a small company.

Lisa didn’t meet Larry, the owner of the company, when she joined his company.  Lisa was hired by a manager, and reported to the supervisor of a small group of customer service representatives.  Mainly, the job was to handle complaints, and make changes to the services customers were buying.

Larry was then 29 (now 38), and he didn’t become the owner of the company because he was some kind of gifted entrepreneur.  Larry got his BSc in microbiology, then went on to get a masters, but by then it was clear that he was not going to end up in academia or government.  His only option, to stay in the field, was to make lots of money working for a large company doing what he was told, or to make very little money working for a non-profit.

Luckily for Larry, his parents are pretty well off.   When Larry found a small Calgary company in financial difficulty, his parents bought a majority interest in Larry’s name.  He became, at the age of 25, the owner of a company with $8 million in revenues, but losing money.

Now, before you go jumping to conclusions, the company was in need of a turnaround, and Larry did just that.  He may not have been a world class scientist, but he isn’t an idiot, and he certainly isn’t afraid of hard work.  After all, he got his MSc primarily through hard work.  It took him a couple of years, and for sure the strong financial backing from his family helped a lot.  Still, it was Larry who turned the company around.  No-one else.

When Lisa joined the company two years after that, it was ticking along smoothly, making money and keeping its customers happy.  Lisa, though, made it better.  As everyone around her quickly realized, she was just a genius with customers.  Her co-workers also liked her, and she was enjoying herself.

Lisa worked in the customer service department for three years before Larry even noticed her.  She was getting good performance reviews from her manager and supervisor, and increases in pay, but she rarely had any reason to be in contact with the company’s president.

That changed in 2012, when she solved a problem for a long-time customer who happened to know Larry’s family.  (Calgary is sometimes smaller than you think.)  The customer went over the top talking to Larry’s parents, and then Larry, about this particular employee.  When Larry brought her into his office to congratulate her, it was their first conversation of more than two sentences.

A week later, the still-single Larry asked her out on a “date”.  Lisa was nervous about dating the boss, eight years her senior, but with some hesitation she went, and she had a good time.  That led to two more dates, both very positive.  Lisa is a reasonably attractive and intelligent woman, and Larry is a reasonably attractive and intelligent guy.  They had many other things in common, and the relationship looked, to Lisa, like it might have some real potential.

Within a month of their first date, Lisa was given a promotion to supervisor of a small team of customer service representatives.  She didn’t ask for it.   In fact, it was a surprise.  And, although there was no doubt she deserved the promotion, she didn’t really like it.  It seemed to her like it might be tainted, and she wasn’t comfortable.

Nor were her co-workers.  As soon as they realized she had been dating the boss, and then got a promotion, they turned on her despite her previous popularity.

Lisa didn’t hesitate in her decision.  Right away, she quit the job, and two weeks after that she was back living in Toronto.  She refused to talk to Larry.  This was not what she wanted.

That’s the end of the story, right?

Nah.

From 2012 to 2015, Lisa lived mostly in Toronto.  She worked in small and large companies, took courses on information technology (not in her wheelhouse, but she enjoyed them), started her own small business (it failed), and ended up working in customer service at a large utility.  That’s where she was when Larry, in town for some other reason – he says –, decided to look her up.  They went out, found that they still had lots in common, and enjoyed themselves.

Over the next two months, Larry found several reasons to be back in Toronto, and each trip ended up being focused on Lisa.  In the second month, he stopped getting a hotel room, instead staying in Lisa’s apartment.

They never talked about their history, but they did talk about their future.  Larry, a traditionalist, asked Lisa to marry him by getting down on one knee in front of her entire family on Christmas Eve 2015.  She said yes.

It was during the period when they were making arrangements for her to move to Calgary that Larry broached the subject of coming back to work for his company.  Larry told her she was the best employee the company had ever had (probably true), and he wanted her to be Manager of Customer Relations, one of the three jobs reporting directly to Larry.  She would be in charge of a dozen CSRs and their supervisors, as well as the IT department and the marketing department.  It was a great job, perfect for Lisa.

The offer almost knocked their relationship off the rails again, but in the end she said yes to the job despite her misgivings.  In the middle of 2016, when she returned to Calgary, it was to a new apartment (she wasn’t yet ready to live in Larry’s somewhat gaudy house), and a new job.

She’s still in that job, and as expected she’s very good at it.  It turns out she isn’t just good with customers.  She is also good with staff.

But Lisa’s decision to work for Larry has their families, friends and co-workers deeply divided.

A case in point is Lisa’s older brother Mike.  As far as Mike is concerned, Lisa got her good job by finally agreeing to sleep with the boss.  Larry, in Mike’s view, is just a sexual predator using his power to get what he wants.  Mike refuses to speak to Larry at all.

Mike is not alone, although he is at the extreme end of the spectrum.  Lisa’s sister Mary has agreed to be maid of honour at the upcoming (2019, they say) wedding, but also expresses concern about the dual relationship.  “Why did you leave Calgary the first time?” she asked Lisa recently.

At the other extreme, Lisa’s best friend at the utility, Norma, is vigorous in her defence of the relationship.  “They fell in love.  They’re going to get married.  They’ll both work in the family company, as many couples do.  How is there anything bad there?”

Lisa tells me that, at a recent Thanksgiving dinner at Larry’s parents’ home, this debate spilled into the open.  Larry’s sister has secretly been expressing the same view as Lisa’s brother, and after a few drinks pointedly asked Lisa in front of Larry’s family whether it was time for her to say #MeToo.  Before Lisa could respond, Larry’s mother went ballistic, saying things to her daughter that perhaps should not have been said.

It was not pretty.

I’ve talked to both Lisa and Larry since then.  Both are adamant that their personal relationship and business relationship are completely separate, despite the apparent evidence to the contrary.  However, both recognize that what they present to their family and friends has many people confused, even upset.

Now they plan to move in together.  At Lisa’s insistence it is to a new house that they both will choose and pay for, and is theirs, not Larry’s.  When they do, tongues will wag even more.

Lisa said to me the other day:  “Larry’s focused right now on whether some people will refuse to come to the wedding, which is why he wanted a delay.  For me, that’s just bullshit.  The only thing that matters is that our relationship will last for a long time, and will make us happy.  When that happens, we will be right, and they will be wrong.  End of story.”

Frankly, I don’t know what to think.

If anything.

  • Jay Shepherd, January 3, 2018
Posted in Lives | Tagged , , , , | 1 Comment