Archive for September 6th, 2010

More Bad Regulation from the PUC

So you move to the US from a foreign country, go to work, save your money, and then decide to strike out on your own to start your own business.  Pretty much the American dream, huh?

Not if you’re the Colorado Public Utilities Commission:

All Colorado cabdriver Edem “Archie” Archibong wants is to fulfill the next stage in his immigrant success story — to start his own business.But Colorado’s heavily regulated taxi industry isn’t cooperating, causing some local politicians to ask why government is getting in the way of the free-market system.

Mr. Archibong, a Nigerian native and married father of two, came to the U.S. legally in 1977. He joined the Army, where he worked as an optical technician and later started driving a cab to support his family. In 2008, he helped lead a group of 150 Denver-area cabdrivers, many of them legal African immigrants, with plans to start a taxi company called Mile High Cab to serve five Denver-area counties.

In July, the Colorado Public Utilities Commission (PUC), which oversees the local taxi industry, ruled that Mr. Archibong’s startup had its financial house in order. The entrepreneurs pooled their collective savings to start the company, eschewing cumbersome bank loans.

But the PUC said Mile High Cab would hurt the public interest.

That’s right.  More cabs and more competition would hurt the public, according to the PUC.  Why it wouldn’t be a simple matter to let the public decide this is apparently beyond the reasoning capacity of the PUC.

In fact, it’s a perfect example of how regulatory bodies often become captive to the industries they’re supposed to be regulating.  Since they establish barriers to entry, they then become overly concerned with the health of the existing entities.

It’s also an example of how regulatory bodies will almost always seek to expand regulation, rather than contract it, in order to solve a problem.  A 2008 report by the PUC to the legislature shows that when the legislature had the opportunity to prevent this situation from arising, it took the opposite fork.

During the discussion and debate at the Legislature, multiple amendments to the original bill were proposed. Each of these amendments sought to balance the nature and scope of taxi regulation in Colorado in various ways. For example, in its early form, the bill stated a legislative declaration that “competition in the motor vehicle carrier industry will benefit Colorado consumers, making for greater choice and convenience.” The introduced version of the bill included a criminal history background check; the requirement that the operator meet certain safety, insurance and service quality standards; and the requirement that the Commission not limit the number of companies authorized to provide taxi service. Amendments were drafted, but not adopted, that required the Commission to conduct a study regarding expanding taxi service in rural areas; mandated the Commission to prescribe taxi rules regarding wheelchair access, refusals of service, taxi hailing without dispatch, reasonable lease rates, and the use of alternative fuels; prohibited unreasonable lease rates and fees to process credit transactions; and required companies to have at least 25 vehicles in populous base areas; required the companies to operate vehicles that are less than eight model years old, and to have a central dispatch open at all times.

Ultimately, after much discussion and debate, House Bill 07-1114 repealed the prohibition that precluded the Commission from regulating the lease rate charged to a driver by a common or contract carrier as found in § 40-3-103, C.R.S.  (emphasis added)

That’s it.  The bill started out with reasonable consumer protections in return for letting as many companies operate as could meet those standards, quickly became a hobby horse for a couple of dozen special cases, at which point the sponsors decided that the best solution was to ditch the deregulation aspect of the bill and add regulatory authority to the PUC.

As the report points out, cab drivers are independent contractors, leasing their vehicles from the cab companies.  Right now, many of the cabbies are charged $800 or $900 a week rental.  To make up this fixed cost, the cabbies often have to drive 12 or 14 hours a day.  The PUC formerly had no oversight of these arrangements, but has for the last three years, and hasn’t seen fit to do anything about them.  It’s obvious why.  Cab companies get to testify about over-capacity, and seek to protect their (literal) rent-seeking by limiting the number of cabs.

This arrangement serves the cab companies just fine.  It may very well be that the number of cabs is optimized for their close-to-extortionist lease agreements.  But for the rider who wants faster service or a lower fare, or for the cabbie who wants negotiating leverage, it’s not such a good deal.

With control over the number of available cabs, the fares, and the lease arrangements, the PUC has done little more than to discredit (once again) the idea of central planning.  The right answer is to remove the PUC’s control of all three elements, and let normal market forces work their magic.  If Yellow Cab or Metro Cab drivers find they can’t make their leases, Yellow Cab and Metro Cab will find themselves with fewer drivers.  Some drivers will leave to join Mile High Cab.  I can certainly see where Mile High Cab could even work with finance companies to help refugees from Yellow and Metro who want to work, but who haven’t yet set aside enough cash to buy a car.

To maintain standards, let fares decide – on the spot – whether they want the cab that pulls up or the next cab in line; no reason anyone should have to ride in an unsanitary vehicle.

The members of the PUC are appointed by the Governor and approved by the Senate.  All terms of the current Commissioners will expire during the term of the next governor.  As a member of the House, I won’t have any say in the matter.  But I’d certainly encourage my colleagues in the Senate to ask about new nominees’ positions on regulation the markets.  And I’d happily sponsor legislation similar to the original HB07-1114.

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