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When Two Worlds Collide

Energy guru Joseph A. Stanislaw explains how the battle between government and the marketplace is changing.

Fortnightly Magazine - August 2007

tick-tocks back and forth. Now, I see it more as a rolling ball. We’re back in that phase where we have more nationalism emerging, more state control emerging, more regulation emerging. This is for a variety of reasons. In the resource-rich countries, high prices help drive the desire to control or to have more of a portion of what they see as the rent—or maybe that is the wrong word—but they see it as a larger pie to which they have more of a right. And the producers can be bolder when the prices are high.

Where do you go if you are a buyer and the prices are high? The prices are high because you can’t find the stuff or access it so that those who own it have more ability to say, “I want more of that pie.” It gives them confidence, more political confidence that they wouldn’t have otherwise. But look at some of the national economies where state companies became private companies. Some of the private companies have failed on the promise of lower prices to the consumer. That causes the ball to roll in the direction of more regulation. The government says, “We the government want to make sure that the benefits are accruing to you the consumer, the public, and if the market can’t do it we want to make sure we can try to help and do it for you.”

Fortnightly: Why in your opinion has electric competition failed to take hold in the United States, while telecom, banking, trucking, and airlines were deregulated successfully?

Stanislaw: I think that, to a large degree, the others you mentioned are more national in their system rather than more state in their system. That’s a peculiarity of our political system. You have states and you have the federal system. What can the states do, and what can the federal system do? How do you create the market structure where you have 50 operating systems?

It is a matter of design. How were they designed? There were a lot of state systems or designs that didn’t work. They missed a lot of elements, like the need to have some form of pricing in the system for future capital needs.

It’s a matter of learning. Will the learning be allowed to create necessary changes to systems when there are failures? It takes time because of a lack of trust. Then there were market abuses that took place due to a variety of peculiar reasons. How do you go back and say, “We’ve learned, and we can now create a better system”? Will the legislatures allow that and will they trust it?

That’s where you have a consistency issue. Prices went up instead of going down. Do consumers trust deregulation? Competition does work. It is how you write the rules. Can the rules anticipate all the eventualities that may arise? Some rules are written better than others, and some are more adaptable than others. Take the United Kingdom (UK), where they kept evolving their system over time. They kept adapting it