Paul W. MacAvoy - Böcker

Over the past six decades federal regulatory agencies have attempted different strategies to regulate the natural gas industry in the United States. All have been unsuccessful, resulting in nationwide gas shortages or massive gas surpluses and costing the nation scores of billions of dollars. In addition, partial deregulation has led the regulatory agency to become more involved in controlling individual transactions among gas producers, distributors, and consumers. In this important book, Paul MacAvoy demonstrates that no affected group has gained from these experiments in public control and that all participants would gain from complete deregulation. Although losses have declined with partial deregulation in recent years, current regulatory practices still limit the growth of supply through the transmission system. MacAvoy’s history of the regulation of natural gas is a cautionary tale for other natural resource or network industries that are regulated or are about to be regulated.

Three decades ago, federal policymakers—Republicans and Democrats—embarked on a general strategy of deregulation. In the electricity, gas delivery, and telecommunications industries, the strategy called for restructuring to separate production from transmission and distribution, followed by elimination of price controls. The expected results were lower prices and increased quality, reliability, and scope of services. Paul W. MacAvoy, an economist with forty years of experience in the regulatory field, here assesses the results and concludes that deregulation has failed to achieve any of these goals in any of these industries.MacAvoy shows that we now have only partial deregulation, a mixture of oligopoly structure with direct price control. He explores why this system leads to volatile and high prices, reduced investment, and low profitability, and what policy actions can be implemented to address these problems.

An authority on regulation who has served on the Council of Economic Advisers calls attention to the explosive growth in regulation since the late 1960s and its effects and examines movements for reform and deregulation

Northeast Utilities Company adopted an ambitious new competitive strategy in the mid-1980s, seeking to become the low-cost supplier in New England electric power markets bracing for deregulation. Given its high-cost nuclear facilities, doing so required a corporate turnaround. For a decade Northeast faced increasing public and employee resistance to cost cutting at its nuclear plants. Though management achieved many of its goals, curtailing outlays on nuclear operations meant high risk that the Nuclear Regulatory Commission would close the plants because of frequent, prolonged outages. This is just what happened in 1996. Did management's deliberate cost-containment strategy take nuclear operations to an inevitable regulatory shutdown, and if so, why? Was it the pursuit of executive compensation tied to cost containment that caused undue risk of regulatory shutdown?Paul MacAvoy and Jean Rosenthal describe ten years of corporate performance preceding the shutdown, detailing aggressive executive decisions, mounting regulatory actions in response to increasingly severe operational failures, and--at the same time--overall improvement in corporate earnings, stock prices, and executive pay packages. They relate the complexities of managing declining nuclear plant operations under ever more pressing budgetary targets. Their discussion of the increasing risk of outages raises the issue of the tradeoff of profit and conservative management of hazard operations. All the more timely in light of the massive 2003 East Coast blackout, Corporate Profit and Nuclear Safety represents a powerful and cautionary commentary on industrial practices that goes to the heart of effective corporate governance.

Work on this book began in the Spring of 1983, not long­ after an Amax Corporation annual budget meeting. As a member of the Amax board of directors since 1979, I had been present at such meetings in which the molybdenum price had been forecast to move higher than $7.00 per pound. The actual annual average prices were $9.70 in 1980, $8.50 in 1981, and $4.00 in 1982. The forecast for 1983 called for prices to return to higher levels, but as both dealer and producer prices declined further, my research began in earnest. Initially, the research was to address the question of why the molybdenum price had declined by more than half in a short period. More fundamental, as other metals prices also declined, was an impelling need to know the causes of the abrupt and sustained reduction in metals price levels that year. As prices stayed at low levels, while those of other materials recovered over the 1983-1986 period, the question became that of why metals prices had remained at startlingly low levels for over five years.

Beginning with railroad regulation in 1887 and continuing for eight decades, the U.S. Federal Government expanded its regulatory scope to cover key transportation, telecommunications and energy sectors. In the last quarter of the 20th century this long-term trend was abruptly and dramatically reversed as important sectors of the U.S. economy were deregulated. This Research Review introduces the causes and effects of this process, and the political and economic forces behind the elimination of regulatory authority.

Work on this book began in the Spring of 1983, not long­ after an Amax Corporation annual budget meeting. As a member of the Amax board of directors since 1979, I had been present at such meetings in which the molybdenum price had been forecast to move higher than $7.00 per pound. The actual annual average prices were $9.70 in 1980, $8.50 in 1981, and $4.00 in 1982. The forecast for 1983 called for prices to return to higher levels, but as both dealer and producer prices declined further, my research began in earnest. Initially, the research was to address the question of why the molybdenum price had declined by more than half in a short period. More fundamental, as other metals prices also declined, was an impelling need to know the causes of the abrupt and sustained reduction in metals price levels that year. As prices stayed at low levels, while those of other materials recovered over the 1983-1986 period, the question became that of why metals prices had remained at startlingly low levels for over five years.

The book is divided into three major sections. The first presents a theoretical discussion that underlies the other essays. The second section deals with privatization issues from the perspective of the United States. The third describes research addressed to the U. K. and Canada. In the first chapter, Richard Zeckbauser and Murray Horn develop a wide-ranging theoretical framework for assessing the capabilities and role of state-owned enterprises; it provides a foundation for the analyses that follow. In The Control and Perfonnance o[ State-Owned Enterprises , they describe state-owned enterprises as an extreme case of the separation of ownership and control. The focus is on management --the incentives it faces and the conflicts to which it is subjected. The distinguishing characteristics of public enterprise, the authors suggest, give it a comparative advantage over both public bureaucracy and private enterprise in certain situations. They argue that legislators are more likely to prefer SOEs over private enterprise when the efficiency of private enterprise is undermined by regulation or the tbreat of opportunistic state action, when the informational demands of subsidizing private production to meet distributional objectives are high, when it is difficult to assign property rights, or when state ownership is ideologically appealing. These considerations suggest why SOEs are usually assigned special rights and responsibilities, and they help explain observed regularities in the distribution of SOEs across countries and sectors. Zeckhauser and Horn apply principal-agent theory to identify the key factors underlying the performance of state-owned enterprises.