HISTORY INSTRUCTIVE TO ENERGY NOMINEE

"I know about command and control regulations, and I can tell you they do not work." (Hazel Rollins O'Leary, in a press conference Dec. 21 following her nomination as U.S. secretary of energy.) "The natural gas resource base is abundant and can be produced and delivered at prices that allow both expansion of the market and continued development of the resource." (One of four major findings in the Dec. 17 report of a 2 year National Petroleum Council study entitled The Potential for Natural

Jan. 12, 1993

3 min read

"I know about command and control regulations, and I can tell you they do not work." (Hazel Rollins O'Leary, in a press conference Dec. 21 following her nomination as U.S. secretary of energy.)

"The natural gas resource base is abundant and can be produced and delivered at prices that allow both expansion of the market and continued development of the resource." (One of four major findings in the Dec. 17 report of a 2 year National Petroleum Council study entitled The Potential for Natural Gas in the United States.)

If ever during her tenure as energy secretary Hazel O'Leary needs a reminder about command and control regulation, she should reread NPC's conclusions on the gas resource. She is credited with having helped write regulations for the Powerplant and Industrial Fuel Use Act of 1978, which prohibited natural gas use in new industrial boilers under the official assumption that the U.S. had nearly exhausted its conventional gas resource. That assumption provided the foundation for the most ambitious federal energy program ever. It came from the finest theoretical minds that the government would heed. And, as the NPC study shows, it contradicted reality.

NO BLAME INTENDED

This is neither to blame O'Leary for past errors nor to regret her nomination. Indeed, she has more energy experience than any past energy secretary, coming from the natural gas division of Northern States Power Co. of Minnesota. In that job, to be sure, she didn't get much oil field mud on her boots. But utility executives have reason to acknowledge that energy must come from somewhere, and O'Leary has shown no inclination to ignore supply. What's more, she evinces a quality especially becoming to former regulators: the ability to learn from mistakes.

Lessons from the official mistakes that O'Leary has been able to observe add up to something akin to an energy policy graduate degree. Her challenge will be to make certain others in the Clinton administration, inclined as some of them are to ignore markets, share and heed the education.

In the 1970s, government pessimism about the resource not only kept gas out of natural markets but also led Congress to enact incentives for the most-costly types of production. Pipelines endowed with price-controlled old gas balanced supplies with the high-cost variety. Often, they bought the gas under take or pay contracts that proved ruinous when the nearly exhausted resource of government fancy somehow yielded a surplus. Echoes from that distortion still haunt the market. And who can forget that other fallen monument to shortage-minded government, the Synthetic Fuels Corp.?

MISTAKES WITH OIL

And that's just gas. In her former position at the Economic Regulatory Administration, O'Leary had a front-row seat for the costly circus produced by oil price and allocation controls. These manipulations, undertaken to protect U.S. consumers from foreign oil producers, encouraged consumption and discouraged domestic production-quite the opposite of what consumers and the nation really needed.

Government possesses an uncanny knack for upending things when it swashbuckles into private energy affairs. It cannot know more about supply, demand, and price than private buyers and sellers do when they are free to pursue their own interests. This is why command and control regulations, as O'Leary says, never work. There is no right way or wrong way for the government to substitute itself for the discipline of markets; there is no legitimate reason for it to make the attempt at all.