The legislation provided for a liberalized market
The legislation provided for a liberalized market in Liberator X2 1986. It took a decade for the reality of a competitive market to emerge. That terrible precedent has been an object lesson for numerous privatization and liberalization schemes created since 1986. Most have sought to learn the lessons and avoid the obvious mistakes and it is clearly a mistake to structure privatization and liberalization in such a way that it does not deliver the potential benefits of competition for a decade.
The energy industry is characterized by its natural monopoly element
The energy industry is characterized by its natural monopoly element, but creating a private sector monopoly simply adds to the inevitable information asymmetry. The regulator is always second-guessing. The companies, specifically the monopolists know far better than the regulator the precise cost of doing business. They can seek to hide costs in cross subsidies between the various elements of the business. That makes regulation more difficult, and tends to lead to incentive regulation rather than pure rate of return regulation where it is inevitable that the regulator will have to second guess the cost structure of the business.
Privatization leads to a change in the role for government.
Privatization leads to a change in the role for government. The state is no longer the provider of energy, but rather is the creator of a suitable legal environment in which others will elect to enter the business of energy production and supply. Privatization also means as said earlier on, that it is difficult to sustain the traditional gains from monopoly provision. Monopoly is traditionally granted on various conditions being imposed in the public interest. Typically these conditions will include an obligation to supply, and an obligation of universal service.
It is apparent that energy policies have resulted in positive
It is apparent that energy policies have resulted in positive but modest gains in the electricity industry. However it has not shown visible lasting benefits to consumers. Its merit has included restructuring of monopoly through the independent regulators, initiating competition and innovation, creation of opportunities for a rise in employee remunerations via increased efficiency and emission control through the development of the electricity market. It has also improved the policy making mechanism of the industry, ensuring expensive policies are adequately scrutinized and criticized before implementation. This scrutiny is unlikely in a monopoly system, and has so far brought important benefits by increasing choices and creating a greater responsiveness to consumer needs.