Please Blame the Deregulation and Regulation Fiascos Parte 37

Dick Maclay added another comment as follows:

Gentlemen, I believe I have seen both Steve and Len suggest that participation in innovative deregulated markets should be optional. In that case, as customers with lower than average cost-to-serve desert the old regulated market, remaining regulated customers will see their bills rise as their concentration in the old system rises. Some object to that as unfair, but it seems those remaining in this discussion see it as fair, and as a natural progression. I agree with this view.

When we begin discussing how to open the market there is probably room for sensible people to differ. The most important thing in my mind is to avoid rushing into fallacies the way California did. Recognize that while the changes from central planning to market competition will be less drastic than the overhaul of entire economies in Eastern Europe, the challenges are similar in nature and non-trivial in degree. There is no consistent definition of fairness, for instance, in a transition from one paradigm to another. Each has its own definition, but they are different. An incumbent’s desire for exit fees makes sense in the cost-of-service paradigm, but it is poison in a competitive paradigm. There are many other examples.

The customer is the center of activity in markets. Deregulation should start with a better deal for customers who have a choice to take it or leave it. Then the pace of deregulation will be determined by how well it serves customers. It may be necessary to make some revisions in regulated service when significant numbers of customers have abandoned it. But that will only occur if deregulation proves attractive, and the essence of protecting the uninterested from serious consequences from their inattention can be preserved.

I have had the job of Market Manager in a competitive service company. Similar positions in companies selling manufactured goods are called Brand Manager. My job as a Market Manager was to come up with innovative ideas on how to increase market share and the profitability of our market share. I see that as an important role from day one in deregulation. First, take market share from the regulated incumbent. Second, defend one’s market from other competitors while stealing their customers with better ideas. I do not think this is a zero sum game so long as competitors are competing to refine their offerings to better fit the values-of-service of customers.

I am more skeptical of any central entity than is Len. I would rather let retailers deploy meters meeting specified industry standards than mass replace all meters with new ones that may turn out to lack some important feature down the line. Evolution is better than revolution. True, evolution has moved fast in some industries that have been deregulated, but it still benefits from trial and error along the way before things are rolled out en mass to all customers. I expect that Len and I will continue to differ on this point.

Steve, do you believe the Hogan model can work? If so, how does it provide adequate revenues to generators and constrain prices in shortage periods?