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The end of conventional wisdom
EDITORIAL
The End of Conventional Wisdom Everybody knows the boat is sinking, everybody knows that the captahl lied. Everybody's got this broken feeling that their momma or their dog just died. Everybody's hand is h: their pockets, evendbody u~nts a box of d~ocolates and a longstem rose Everybody kllows.
L. Cohen and S. Robinson aving spent a week traveling by car with my teen-age daughter recently, I happened to hear - - again and again - - this lyric of alienation from a song that seems not inappropriate to these times, despite its having been written some years ago. A lot of people, not just in the U.S., have that "everybody knows" feeling. There is the feeling of not having been told the truth about the economy and other matters of importance. Along with it, there is the feeling of losing ground economically. Despite the implosion of communism, things worldwide are a touch precarious. Japan's econ-, omy is slowing, with profits down and housing values dropping precipitously. Europe's problems are many and complex: Eurocrats are trying to weld a dozen economies as disparate as those of Greece and Germany into a more seamless whole, but it's not clear the body politic will ac-
H
cept the new organ, in spite of the narrow French vote to approve the Maastricht treaty. Official reassurances no longer count for much: note Europe's currency traders making boxcars of money while officaldom tried to keep the lid on the boiling currency problem. Even the economies of lesser developed countries are "going the wrong way," as income, already pitifully low, dedines. here is a message in this for U.S. utilities, which are about to enter the terra incognita of increased global competition. Their journey may be a bumpy one if the Public Utility Holding Company Act is relaxed, as Congress proposes. We agree with conventional wisdom that competition is generally beneficial for consumers; but there is an oftignored dark side to competition: there are losers as well as winners. Congress is easing historic restraints at the same time utilities are sitting on a pile of cash and the alluring global power market beckons - - the equivalent of giving your 16 year-old boy a Porsche the day he gets his driver's license. Perhaps utilities and those who oversee them should keep the brakes on expansion plans just a bit.
T
Events like Europe's currency crisis have underscored the need to challenge conventional wisdom. The greatest candor should be required for anyone contemplating investment in a world that is changing in unpredictable ways. Given the need for accountability-- shareholders and customers will hold the bag jointly if plans don't pan out - utilities considering entry into the global fray should begin by preparing a list of everything they don't know about an investment. Regulators should see this list, even i f - - as is too often true - they lack means to audit the utility's process or prevent the investment directly. he last thing U.S. utilities and their customers need is another round of utility "diworsification." This time, whether a utility is considering investing in Texas or Virginia, in Thailand or Venezuela - - it should expect the unexpected. This time, utility customers and regulators are likely to keep a sharper pencil and better notes about diversification activities. This time, they may want more than "a box of chocolates and a longstem rose" if things go awry and they are asked to pay. This time, they may want the company. •
T
73
The End of Conventional Wisdom Everybody knows the boat is sinking, everybody knows that the captahl lied. Everybody's got this broken feeling that their momma or their dog just died. Everybody's hand is h: their pockets, evendbody u~nts a box of d~ocolates and a longstem rose Everybody kllows.
L. Cohen and S. Robinson aving spent a week traveling by car with my teen-age daughter recently, I happened to hear - - again and again - - this lyric of alienation from a song that seems not inappropriate to these times, despite its having been written some years ago. A lot of people, not just in the U.S., have that "everybody knows" feeling. There is the feeling of not having been told the truth about the economy and other matters of importance. Along with it, there is the feeling of losing ground economically. Despite the implosion of communism, things worldwide are a touch precarious. Japan's econ-, omy is slowing, with profits down and housing values dropping precipitously. Europe's problems are many and complex: Eurocrats are trying to weld a dozen economies as disparate as those of Greece and Germany into a more seamless whole, but it's not clear the body politic will ac-
H
cept the new organ, in spite of the narrow French vote to approve the Maastricht treaty. Official reassurances no longer count for much: note Europe's currency traders making boxcars of money while officaldom tried to keep the lid on the boiling currency problem. Even the economies of lesser developed countries are "going the wrong way," as income, already pitifully low, dedines. here is a message in this for U.S. utilities, which are about to enter the terra incognita of increased global competition. Their journey may be a bumpy one if the Public Utility Holding Company Act is relaxed, as Congress proposes. We agree with conventional wisdom that competition is generally beneficial for consumers; but there is an oftignored dark side to competition: there are losers as well as winners. Congress is easing historic restraints at the same time utilities are sitting on a pile of cash and the alluring global power market beckons - - the equivalent of giving your 16 year-old boy a Porsche the day he gets his driver's license. Perhaps utilities and those who oversee them should keep the brakes on expansion plans just a bit.
T
Events like Europe's currency crisis have underscored the need to challenge conventional wisdom. The greatest candor should be required for anyone contemplating investment in a world that is changing in unpredictable ways. Given the need for accountability-- shareholders and customers will hold the bag jointly if plans don't pan out - utilities considering entry into the global fray should begin by preparing a list of everything they don't know about an investment. Regulators should see this list, even i f - - as is too often true - they lack means to audit the utility's process or prevent the investment directly. he last thing U.S. utilities and their customers need is another round of utility "diworsification." This time, whether a utility is considering investing in Texas or Virginia, in Thailand or Venezuela - - it should expect the unexpected. This time, utility customers and regulators are likely to keep a sharper pencil and better notes about diversification activities. This time, they may want more than "a box of chocolates and a longstem rose" if things go awry and they are asked to pay. This time, they may want the company. •
T
73