Public Utilities
PUBLIC UTILITIES
PUBLIC UTILITIES. In the United States, public utilities supply consumers with electricity, natural gas, water, telecommunications, and other essential services. Government regulation of these utilities considered vital to the "public interest" has waxed and waned. In the nineteenth century, canals, ferries, inns, gristmills, docks, and many other entities were regulated. However, in the early twentieth century, emerging electric companies initially avoided regulation These rapidly growing power companies often merged, creating monopolies that controlled the generation, transmission, and distribution of electric power. By 1907, entrepreneur Samuel Insull of Chicago Edison had acquired twenty other utility companies. He and others argued that building multiple transmission and distribution systems would be costly and inefficient. Nevertheless, reformers clamored for state regulation of the monopolies. By 1914, forty-three states had established regulatory polices governing electric utilities. Insull and other electric power "barons" found a way past regulation by restructuring their firms as holding companies. A holding company is a corporate entity that partly or completely controls interest in another (operating) company. Throughout the 1920s, holding companies bought smaller utilities, sometimes to the point that a holding company was as many as ten times removed from the operating company. Operating companies were subject to state regulation, holding companies were not. Holding companies could issue new stock and bonds without state oversight. This pyramid structure allowed holding companies to inflate the value of utility securities. Consolidation of utilities continued until, by the end of the 1920s, ten utility systems controlled three-fourths of the electric power in the United States. Utility stocks, considered relatively secure, were held by millions of investors, many of whom lost their total investment in the stock market crash of 1929.
Public Utility Holding Company Act
With strong support from President Franklin D. Roosevelt, Congress passed the Public Utility Holding Company Act (PUHCA) in 1935. PUHCA outlawed interstate utility holding companies and made it illegal for a holding company to be more than twice removed from its operating subsidiary. Holding companies that owned 10 percent or more of a public utility had to register with the Securities and Exchange Commission and provide detailed accounts of all financial transactions and holdings. The legislation had a swift and dramatic effect. Between 1938 and 1958 the number of holding companies fell from 216 to eighteen. This forced divestiture continued until deregulation of the 1980s and 1990s.
Deregulation
Many politicians and economists argued that the marketplace, not government regulation, should determine utility prices. Many consumers also sought lower prices through deregulation. Near the end of the twentieth century, while government oversight of safety remained, price and service regulation were removed from several industries, including telecommunications, transportation, natural gas, and electric power. As a result, new services and lower prices were often introduced. The increased competition among investor-owned utilities also led to mergers and acquisitions and a concentration of ownership. Deregulation is also credited with the rise of unregulated power brokers, such as Enron, whose historic collapse in 2002 laid bare the vulnerability of consumers and investors when corporations control essential public services. About a dozen states repealed or delayed their deregulation laws; many consumer groups maintained that PUHCA's protections should be reinstated.
BIBLIOGRAPHY
Euromonitor International. "Electric Power Distribution in the United States." http://www.MarketResearch.com.
Lai, Loi Lei. Power System Restructuring and Deregulation. New York: Wiley, 2001.
Warkentin, Denise. Electric Power Industry in Nontechnical Language. Tulsa, Okla.: Penn Well Publishers, 1998.
LyndaDeWitt
See alsoMonopoly ; Robber Barons ; Trusts ; andvol. 9:Power .