As federal policy makers push for GHG regulation and transparent markets, the California experience shows what works and what doesn’t work.
Bottling the Genie
Why deregulation is easy and reregulation is hard.
or requiring use of long-term contracts in energy procurement and the acquisition of generating plants to accomplish vertical re-integration; and limiting retail choice to only large customers when promised competition has worked only for them and not residential and small business customer classes. 12
Unhappily, the outlook for value acceptability on the part of the citizenry or decision elites to rise to the level that, together with technical feasibility, allows for corrective policy action toward reregulation continues to be unpromising. It seems that the answer to Cudahy’s 1998 musing 13 about whether deregulation was “a sea change or only a nudge of right rudder” is now abundantly clear—and with little chance of actually righting the ship.
1. For example, Sam Peltzman and Clifford Winston, editors, Deregulation of Network Industries , AEI-Brookings Center, Washington, D.C., 2000; Susan J. Tolchin and Martin Tolchin, Dismantling America: The Rush To Deregulate , New York, Oxford University Press, 1983; Phillip J. Cooper, The War Against Regulation: From Jimmy Carter to George W. Bush , University Press of Kansas, 2009; Alfred E. Kahn, “The Political Feasibility of Regulatory Reform: How Did We Do It?”; Chapter 12 in Reforming Social Regulation: Alternative Public Policy Strategies , L. Graymer and F. Thompson, editors, Sage Publications, 1982; and Martha Derthick and Paul J. Quirk, The Politics of Deregulation , Brookings Institution, Washington, D.C., 1985; Paul L. Joskow, “Regulation and Deregulation after 25 Years: Lessons Learned in Industrial Organization,” Review of Industrial Organization , Vol. 26, Springer, 2005.
2. The PURPA legislation of 1978 mandated that the states consider various pro-competitive provisions of the act; the Telecommunications Act of 1996 prescribed fairly detailed competitive initiatives to the states; federal deregulation of the transport sector prohibited states from reregulating what had just been abandoned.
3. Derthick & Quirk, op. cit., Chapter 2, The Reform Idea.
4. Richard D. Cudahy, “The Folklore of Deregulation,” Yale Journal of Regulation, Summer 1998.
5. Economists and others had long argued that the transportation sectors, with the possible exception of railroads, never fit the monopoly model for comprehensive financial regulation.
6. Harry M. Trebing, “A Critical Assessment of Electricity and Natural Gas Deregulation,” Journal of Economic Issues , June 2008.
7. A recent anecdotal example is found in a Columbus Dispatch newspaper item (“ Ohioans burned by gas choice ,” Nov. 11, 2012) reporting that “customers on unregulated gas contracts have paid $885 million more for gas since 1997 than they would have at the regulated price.”
8. For a persuasive discussion of this see, for example, Robert Kuttner, Everything For Sail: The Virtues and Limits of Markets , 20th Century Fund, Alfred A. Knoph, New York, 1997.
9. While not the focus of this article, the difficulty currently being experienced in reregulating the financial services industry—banks and investment firms—in a serious way, first in getting legislation through and now in devising implementing rules, provides a counterpart example to the topic here.
10. Greg Aliff and Branko Terzic, “A Lost Art,” Electric Perspectives, November/December 2004; Douglas N. Jones, “Agency Transformation and State Public Utility Commissions,” Utilities Policy