Thus the electric utility’s insights, like those of the oil company, often go unheard. I recall a conversation in 1994 with a Southern California Edison executive at a social function in Hollywood. He told me that he was retiring from the company so that he would not be part of — and therefore not bear responsibility for — the pending upheaval and ultimate catastrophe that deregulation would mean to customers in the years ahead.
He said, in essence, that California consumers did not know how good they had it in their regulated markets and that it was a shame that they would have to experience deregulation to find out. He predicted that deregulation would lead initially to lower prices for consumers but ultimately would take the market to unprecedented high wholesale prices and then lead to shortages of power.
Turns out he was pretty much right on all counts. The ill-conceived legislation of the late 1990s in California set up a deregulated electric power market by capping wholesale prices to “protect” retail prices. This led to shortages in the state’s internal supply system that made it necessary to bring in hugely expensive uncapped supplies from outside the system. The resulting energy shortages and price hikes not only inconvenienced people, but also led to a number of tragic deaths (for example, among those caught in rolling blackouts). Like the Standard Oil abuses in the oil industry 90 years earlier, the experience tarnished the power industry and has poisoned the well of deregulation for a long time to come.
When oil and utility companies are seen as the problem, it is easy to avoid looking at some of the deeper social and political issues that need to be addressed. If the oil companies have the answers to the energy crisis — and in many cases they do — who will believe them? Would you accept a fox’s plan for a chicken coop? Ignorance leads in one direction: bad public policy that ultimately hurts all energy consumers. If oil company leaders want to act against this ignorance, the place to start is within their own companies: toward transparency, better collaboration with outsiders, and more attention to understanding their customers.
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John Hofmeister is the founder and CEO of the nonprofit association Citizens for Affordable Energy. He was the president of Shell Oil Company from 2005 to 2008.
- This article was adapted from Why We Hate the Oil Companies, by John Hofmeister. Copyright © 2010 by the author and reprinted by permission of Palgrave Macmillan, a division of Macmillan Publishers Limited. All rights reserved.