Trystan Casey
The history of electricity as a public utility in the United States began in the 1880s, with the first public power utility born in Wabash, Indiana, in 1880. The commercial distribution of electric power started in 1882 when electricity was produced for electric lighting. In the early 20th century, electricity was considered a natural monopoly, with government supervision regulating the rate of return and cost structure. The Public Utility Holding Company Act of 1935 (PUHCA) further facilitated the regulation of electric utilities, protecting the financial health of public utilities that supplied electricity and retail natural gas. Today, public power utilities continue to play an integral role in the nation's electric utility infrastructure, providing low-cost and reliable service to their communities.
| Characteristics | Values |
|---|---|
| Commercial distribution of electricity | Started in 1882 |
| Public power business model | In place since the 1880s |
| Electricity as a "natural monopoly" | By the middle of the 20th century |
| Public Utility Holding Company Act | Passed in 1935 |
| Rural Electrification Act | Passed in 1936 |
| Federal Energy Regulatory Commission decisions | 1996–1999 |
| Wholesale electricity markets | Operate in some countries |
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What You'll Learn
The first public power utility
The Wabash City Council's decision to own its electric lighting system instead of franchising the new utility to a private company created America's first municipal utility. Wabash later sold its electric utility to a private company, relinquishing its title of America's oldest public power community to Butler, Missouri.
However, Wabash created a model in 1880 that would be adopted by thousands of American communities and still thrives today. This model, also known as municipal ownership, is an American tradition rooted in community. The model is simple: distribute electricity to local customers on a not-for-profit basis. The focus is on customers, with cost-based rates and reliable service. Dollars spent on electricity stay in the community and are reinvested there. Customers are the owners and, through elected or appointed governing boards or city councils, the decision-makers for their utilities.
Public power utilities have survived frequently unfavorable political and economic environments. They have also capitalized on new techniques and technologies to provide low-cost, superior service to their communities and citizens. Public power systems have consistently served as a benchmark by which the performance of other utilities has been measured.
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The Public Utility Holding Company Act of 1935
The Act limited holding company operations to a single state, making them subject to effective state regulation. It also broke up any holding companies with more than two tiers, forcing divestitures so that each became a single integrated system serving a limited geographic area. This prevented utility holding companies from engaging in both regulated and unregulated businesses.
The passage of the Act was the culmination of a thirty-year nationwide battle between public and private development interests in the electricity sector. The political fight over its passage was one of the most contentious of the New Deal era, with holding companies, led by the Electric Bond and Share Company, filing eleven years of legal appeals. The first of these lawsuits was filed on December 7, 1935, when the U.S. Attorney General and the SEC's General Counsel moved to stay all lawsuits until the Supreme Court could determine the validity of the Act. On March 28, 1938, the Supreme Court ruled in favour of the SEC and the Act, granting it full authority to enforce the law.
Over the years, the utility industry and prospective utility owners lobbied Congress heavily to repeal the Act, claiming it was outdated. In 1989, for instance, Standley H. Hoch, CEO of General Public Utilities, had two primary goals: to reduce management and costs and to fight to repeal the Act. The Act was finally repealed in 2005 under the Energy Policy Act, which was signed into law by President George W. Bush.
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Public power utilities today
Public power utilities, also known as municipal ownership, have been an integral part of the nation's electric utility infrastructure for over a century. The model is simple: distribute electricity to local customers on a not-for-profit basis, with a focus on reliable service and cost-based rates. This approach has deep roots in American communities, where dollars spent on electricity stay within the community and are reinvested locally.
Today, public power utilities continue to play a crucial role in providing electricity to their citizens. They have embraced new technologies and innovations to offer low-cost, superior service, setting the benchmark for the industry. Public power utilities are known for putting their customers first and adapting to the changing needs of their communities.
However, the landscape of public utilities is evolving. The traditional monopoly position of public utilities has been challenged in recent decades, with a growing trend towards liberalization, deregulation, and privatization. While the infrastructure for distributing utility services remains largely monopolistic, competition is emerging in various sectors, including wholesale electricity generation markets and renewable energy sources.
To maintain their relevance, public power utilities must strike a balance between embracing change and upholding their traditional values. They need to adapt to new technologies, such as renewable energy sources, electrification of transportation, and the emergence of smaller, innovative firms in the market. At the same time, they must continue to prioritize their customers and communities, ensuring that their decisions reflect the needs of those they serve.
Public pressure for renewable energy options is steadily increasing, presenting both opportunities and challenges for public power utilities. While the technology for renewable sources is still under development, public energy policy has been focused on short-term alternatives, such as natural gas and nuclear power. Balancing economic needs with social equity, regulators strive to guarantee access to primary services for all.
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The Rural Electrification Act of 1936
The Act formally established the Rural Electrification Administration (REA) as a government agency, building on the work started by President Franklin Roosevelt under the Emergency Relief Appropriation Act of 1935. The REA was tasked with electrifying rural areas, which had been neglected by private electricity companies due to the higher costs involved in serving these communities.
The Act authorized the REA to make loans to wire homes and provide them with lights and appliances. However, private utilities were reluctant to work with the REA due to restrictive loan terms. As a result, the REA turned to electric cooperatives, or "co-ops", which were familiar entities to farmers. These co-ops borrowed funds from the REA at low-interest rates (between 2% and 3%) to finance the construction of transmission lines and the wiring of farms and homes.
The REA also provided engineering support to help design more cost-effective ways to build the lines. This combination of financial and technical assistance ensured a demand for electricity from the start, allowing co-ops to benefit from economies of scale and keep usage costs low. The success of rural electrification in the United States can be attributed in part to this support, which included the extension of credit to wire rural homes and fund purchases of electrical appliances.
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The Bonneville Power Administration
The public power business model, also known as municipal ownership, has been in place in the United States since the 1880s. The first public power utility was born on 31 March 1880, in Wabash, Indiana.
BPA delivers reliable, affordable, and carbon-free hydropower produced in the Columbia River Basin to communities across the Northwest. BPA's territory includes Idaho, Oregon, Washington, western Montana, and small parts of eastern Montana, California, Nevada, Utah, and Wyoming.
BPA Transmission Services provides energy delivery across 15,000 miles of high-voltage facilities to the Pacific Northwest and beyond. BPA is committed to keeping its customers and the public up to date on its initiatives with timely and transparent news articles and releases.
BPA funds regional efforts to mitigate the impacts of federal dams on the region's fish and wildlife species. They also work closely with federal and state agencies, tribes, landowners, and the public to protect and recover endangered species, as well as to protect and preserve cultural resources and reduce impacts on the environment.
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Frequently asked questions
The first public power utility was born on March 31, 1880, in Wabash, Indiana.
Mechanics hitched a threshing machine engine to the west wall of the Wabash County Courthouse and sent motive power to a generator in the basement.
The public power business model, also known as municipal ownership, has been in place since the 1880s. It focuses on customers, with rates being cost-based and service being reliable.
Public power utilities in the 21st century are still an integral part of the nation's electric utility infrastructure. They have capitalized on new techniques and technologies to provide low-cost, superior service to their communities and citizens.
