"We need to fix energy policy. And what we need to do to fix the policy problem is simple in concept but politically dramatic in practice: repeal all the state and federal laws that regulate energy, including those authorizing both state and federal utility regulatory commissions," writes Paul Ballonoff in Energy: Ending the Never-Ending Crisis.
In the first four chapters of the book, Ballonoff discusses the myths on which present energy policy is based; in the closing three chapters, he argues that nearly all energy regulation is unconstitutional and considers what should be done.
Regulation of energy is based on two myths: that energy supplies are "finite" and need to be conserved lest prices skyrocket and that the energy industry is likely to be dominated by monopoly. Ballonoff finds both of those arguments dubious.
Energy supplies, Ballonoff argues, are goods like any other. As demand increases, so will supply. "Petroleum," he maintains, "is a technological product. It differs little from computer chips or any other manufactured product in its basic economics. True enough, we cannot produce any more petroleum today than is available from existing known, connected, operating, proven wells. But we can drill more wells in the future and we can drill them at lower costs as our knowledge increases. In addition, we can expand the life of existing wells by adapting their operation as knowledge increases. And we can invent new forms of energy to substitute for petroleum, just as petroleum was itself a substitute for whale oil."
How about the natural monopoly argument? Even if resources are not finite, the energy industry still needs to be regulated because it has a natural tendency toward concentration, right? Wrong, responds Ballonoff. "Utility costs are not characterized by the economies of scale that we expect to find in a natural monopoly. We would expect the data to show that the larger the utility, the lower its distribution costs. Empirical studies, however, show a statistically insignificant relationship between average cost and number of customers. Rather, costs are at their minimum in the first 10 percent of the range of output."
An issue that is not frequently raised but should be, maintains Ballonoff, is the constitutionality of energy regulation. "The courts," he argues, "should prohibit most current public utility regulation because the federal government is not empowered to enact such regulation and the states may only do so if such intervention does not restrict competition, which current price-and-entry regulation clearly does."
"The political lesson of this century," Ballonoff concludes, "is that the best way to reinvent government is to reduce what it does. But if electoral pressure forces government to act, we must constrain the intervention by establishing institutions that do the least harm."
Paul Ballonoff is an energy consultant in Washington, D.C.
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Category: Science & Technology
Format: Book (Paperback)
Publisher: Cato Institute
Date Published: Jul 31, 1997
Dimensions: 6.00 x 9.00 x 0.50 (in)
Weight: 7.10 oz