Public Choice, Energy Regulation and Deregulation

Abstract

This chapter addresses the interaction between public choice and legal issues in the energy industry. The extent to which the interaction between private stake holders and governmental actors in the energy industry reflects self-interest rather than sound economic policy was studied by public choice scholars as early as the 1960s and continues to hold the attention of economists and political scientists today. Certain economic features and legal doctrines that are commonplace under traditional public utility regulation - the predominant approach by which many energy resources were price regulated throughout the twentieth century - may reflect rent seeking on the part of private stakeholders as much as enlightened public interest by lawmakers. For example, the preferences of various interest groups have bolstered the stability of public utility legal doctrines, such as consumer protection requirements and the judicial reluctance to extend strong constitutional protections to energy firms. Public choice approaches also can illuminate the regulatory and institutional arrangements that have evolved in national energy regulation. Many energy resources are geographically-based in source and extraction, yet nationwide in consumption. An interest group approach to legislation sheds light on why Congress has selected to address some energy issues at the national level, while ignoring others altogether or leaving them to subnational governments. In addition, logrolling, which has characterized most recent congressional energy legislation, helps to illustrate how seemingly disparate energy issues have become connected in national energy policy and how national energy policy has been largely unsatisfactory and unstable across time. It also advises caution in reading specific purposes into general energy legislation.Recent efforts to privatize and deregulate energy resources have been celebrated by many as a triumph of competitive markets over regulation. However, the interest group story surrounding the movement towards energy markets is also heavily dependent on governmental processes and merits the same type of public choice critique that has been applied to traditional energy regulation. Competitive restructuring of energy markets has been motivated by private self-interest in the political process as much as enlightened free-market policy, giving public choice insights relevance in addressing matters such as the filed rate doctrine and state regulation.