Sunny, another side of the energy regulatory issue is that we don't really have a free market in the production and delivery of electrical energy. That is why deregulation, while it sounds good, doesn't work very well. To have a free market requires unrestricted entry into the market, numerous buyers and sellers, and information on price and availability accessible to all those participating in the market in a timely, low cost manner. If you're not satisfied with the price and service of your current electrical supplier, changing is not all that easy. And there is still only one set of utility lines bringing electricity to your home or business, unless you have an alternative energy source such as photovoltaic cells.
Electricity shortages are only partly the result of neighborhood opposition to generating plants. Under the old rate-of-return regulatory systems, companies could charge enough to bring a modest return on investment, provided everything went as anticipated. Under deregulation, a utility company can sell its old plants, now depreciated, for a price sufficiently high to give them a capital gain. But that price allows the buyer to increase electric rates in order to obtain a reasonable return on an investment that is now greater than the value of the old plant before it was sold. Add to that the additional costs of modernization to meet environmental emission requirements and you get a reluctance to build new plants until shortages are so great that increased prices finally spur new facilities.
That's why the new deregulation doesn't necessarily achieve results that are any better than those under old regulation, unless the old regulation was carried out so stupidly and under so much political pressure that anything would be better. This scenario is not unusual either, and is why there was so much interest in deregulation in the 80's.
The most appropriate comment I've seen on the dangers of regulation comes from Nobel laureat George Stigler, of the Univ. of Chicago. He said that regulation never helps consumers but only those firms subject to regulation. What he meant was that rarely, if ever does a regulatory agency operate independently of the firms it is supposed to regulate. The political process of selecting regulators generally works against intelligent regulation, if there is even such a thing.
In my view, which I have arrived at as a result of several years study of regulatory theory in conjunction with my doctoral work at the Univ. of Michigan, one of the aspects of regulation that is most often ignored is the fact that it works only when regulators take a long term view. The long term view is difficult for individual firms to take because they inevitably have to think about such mundane things as paying the bills and generating enough cash flow to support a dividend. A long term strategy may (but only may, not will) make a firm outperform the market if the market were unregulated. That's because regulation, if done intelligently (and that is really a big if) can take into account long term goals, not just short term.
It should be clear that some of the reasons for the shortages and resulting high natural gas prices (above $9 today, or more than four times what they were at the end of 1998) are NOT related to lack of supplies of natural gas but go to increased demand. Increased demand comes from switching from more polluting coal fired or oil fired units, combined with a very significant increase in the size of new residential housing units, measured in square feet, built over the last ten years. Put another way, consumers who assumed that they could continue to get natural gas at about $2 - $2.50, built accordingly and ended up with houses that are undoubtedly quite expensive to heat with $9 gas. Conservation was obviously not paramount in their minds.
Merely providing more gas supplies won't do the job, as pipelines are also of limited capacity. As is usual in situations like this, there are no simple, short term answers. The only feasible alternatives are combinations of things, including conservation, developing more supply sources, increasing pipeline capacity, reducing consumption through conservation measures, and many other common sense measures. Since all these cost money, there is a certain reluctance among individuals to put out more capital for improving the efficiency of use when it would be so much nicer to buy a new digital camera and high capacity flash memory!
My comments are based mainly on two papers I published: The Dynamics of the Regulatory Process (Univ. of Mich., 1975), and Energy Alternatives in Urban Areas (The Urban Institute, 1981). These problems didn't come up all of a sudden, as some people critical of the current administration believe. The current administration, after all, if it did have an energy policy that involved conservation, had a difficult time getting any sort of agreement from a Congress oriented more toward finding new energy supplies.
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