Evolutionary stakeholder theory in action: Adaptation of public utility regulation in the post‐OPEC world

Abstract

This article extends the Humean example of evolutionary stakeholder theory introduced in Kline and McDermott (2019). In that article, it was established that the Cost of Service Regulation (COSR) rules created by regulatory commissions, courts, and legislation was an example of evolutionary stakeholder theory. Ultimately, the Supreme Court decision in the Hope Natural Gas case established that it was not the method, but the result reach that was important. If the result reach balanced the interests of stakeholders then the outcome was just and reasonable. Kline and McDermott (2019) also established that the COSR process was rather robust in terms of stakeholder participation. The purpose of this article is to extend the analysis to examine one of the most turbulent periods in COSR's history: the Post‐OPEC oil crisis of the 1970s–1980s. The effects of this period called into question the efficacy of the COSR process and led, as evolutionary stakeholder theory predicts, to a series of engagements by stakeholders to modify the rules of the process to achieve a better balance in the publics' interest. While adjudicatory in nature, the COSR process enabled cooperative solutions to redress the imbalances created by the OPEC oil shocks, improvements in information gathering, processing and decision‐making were all products of the evolutionary stakeholder process that regulators engaged in with stakeholders.

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