Energy Policies That Can Lower Prices and
Lead Us Out of This Crisis Quickly
By Craig G. Goodman, President and CEO of the National Energy Marketers Association and former Director of Oil, Economic and Energy Tax Policy in the Reagan and Bush Administrations
In the last year, we have experienced an energy crisis in California, unprecedented prices for natural gas and high oil prices on top of six interest rate increases, and four trillion dollars of lost wealth in the stock market. History has taught us many lessons about energy policy, particularly about making new laws and regulations in response to a "crisis." One thing our country, indeed the global economy, cannot afford is to repeat the energy policy mistakes of our past.
During the Oil Embargo of the 1970s, OPEC withheld oil supplies for a short time as a political gesture causing an oil price spike. In response, the U.S. instituted the most complex scheme of energy price and allocation controls since World War II. Energy price caps and their aftermath caused more than ten years of economic stagflation, rising oil imports, historic trade deficits, massive wealth transfers in petrodollars to OPEC nations, gasoline lines, unprecedented interest rates and declining U.S. energy production. At the very time we needed more U.S. energy supplies, our energy price caps permitted oil produced everywhere else in the world to sell on world markets for as high as $42 per barrel, while U.S. producers were forced to accept $6-$11 per barrel. Once prices were deregulated, prices fell to a low of $9 per barrel, yet at the same time, the government taxed away approximately $88 billion in capital needed to develop new energy supplies under the name of a "Windfall Profit Tax." As a result, today we are nearly twice as dependent on imported oil than when the Embargo began.
Politicians live for the next election, corporations live for the next quarter's earnings and most of the rest of us live from paycheck to paycheck. So how do we deal with the immediate political and the financial pain of energy price spikes, shortages, blackouts, environmental sensitivities, and its disproportionate impact on the poorest Americans?
Price Caps and "Windfall Taxes" are political salves that feels good today and hurt tomorrow. These are bad policies that sound great, help politicians get elected and hurts the average consumer after the next election. Are there any choices? Must we repeat the failed policies of the 1970s that ruined our economy for a decade? No we don't. There are quick, effective and low cost policies to deal with our "energy crisis." Indeed, there are numerous energy policy options that can yield very significant short and long-term paybacks to U.S. Society.
Electricity represents the last vestige of 60 years of the most complicated price and allocation controls known to man. The retail U.S. energy business is one of the largest single businesses in the world. It represents nearly a trillion dollars a year, of which, energy is only about $300 billion. Currently, however, utility bills include all manner of products, services, information and technologies which are truly separate and very competitive businesses.
In the U.S., there are very few true supply monopolies or demand monopsonies. But between competitive sources of supply and demand there are two, full-blown, government sanctioned monopolies. One is an interstate transmission monopoly, and one is a local distribution monopoly. Current rules governing these monopolies are incredibly complex, hard to audit and impose enormously unnecessary costs on consumers in many different ways.
To help consumers and lower energy prices quickly, monopoly barriers to new energy supplies must be repealed, and aggressive conservation and load reduction incentives must be implemented immediately. At the same time, both state and federal policies must squeeze the monopoly profits out of the two monopolies between supply and demand so that more competitive supplies can meet demand at lower prices.
States must also stop granting utilities a monopoly or competitive advantages to provide competitive products, services, information and technologies. Utilities should perform solely natural monopoly functions. Regulated utilities should sell transportation services on a "no frills" cost of service basis. Needed infrastructure investments should be given targeted, performance-based incentives. Regulations, tariff structures, interconnection rules, back up rates and operational protocols should be uniform and designed to permit competitive suppliers to provide all other energy-related products, services, information and technologies at competitive, not monopoly, prices.
Today we are witnessing the largest industrial restructuring in the history of this country, possibly the world. Every other industry that has deregulated has experienced 40 to 50 percent savings. The U.S. market for energy and related products, services, information and technology is nearly a trillion dollars a year. Even a 10 percent saving can save consumers as much as $100 billion a year, every year, in perpetuity, without one penny lost in government services.