t the social costs of its consumption. In fact, this may occur even when cost increases are introduced through a switch in technology with a corresponding change in the source of the output. However, such ideal situations do not necessarily occur (Baumol et al., n.g., pp. 138-151). When markets fail to perform efficiently, government may intervene. Various ameliorative measures which can be imposed include the drafting of laws, the imposition of taxes, and regulation (Randall, n.g., 144). However, the validity of government action has been debated for centuries. Understandably then, recent attempts to reform the utility industry have caused considerable controversy (Howe & Rasmussen, n.g., p. 176).
The utility industry has, for the most part, changed with the times. During the years from 1948 to 1965, the world's economies greatly expanded. Moreover, for most nations, growth in their energy consumption approximately paralleled economic growth (Cicchetti & Sepetys, 1995, pp. 31-33). During the 1960s and 1970s though, circumstances changed dramatically. Economic conditions from 1966 to 1981 were both volatile and unpredictable. In the United States, the military costs of the Vietnam War eventually began to exert inflationary pressures. Then, in 1973, there was the Arab oil embargo. While the potential for disruption of foreign oil supplies existed for the United States, in past decades the nation had sufficient production capacity to meet domestic demands. However, by the early 1970s, U.S. and world demand for oil was greater than the nation's ability to produce it. As oil prices increased, inflation accelerated. Between 1974 and 1980, inflation was never lower than 4.5 percent; in 1980, it hit 17.8 percent (Coe, Dasovich, & Meyer, 1993, pp. 27-56).
These events inevitably affected the utility industry. Increasing expenses made it difficult to minimize electricity costs while still maintaining reliability. With...