How politics, economics, and institutions shaped electric utility regulation in the United States: 1879–2009

A Case Study of CPS Energy’s Management of Disruptive Forces

“…By the 1920's almost all of the US was connected to a grid of generation facilities, electrical transmission, and distribution lines powering industry and, the average, working-class house (Kwoka, 2008). As economic growth and quality of living became increasingly connected to electricity, the Federal Government supported initiatives for universal access reaching into rural communities (Hausman & Neufeld, 2011). The rising demand required larger generation plants and their associated infrastructure of transmission and distribution lines to transport the electricity to the increasing number of factories, businesses, and homes (Kwoka, 2008).…”

“…The rising demand required larger generation plants and their associated infrastructure of transmission and distribution lines to transport the electricity to the increasing number of factories, businesses, and homes (Kwoka, 2008). These large-scale construction projects required vast amounts of capital with long return periods leading early holding companies to utilize their economies of scale to minimize risk by manipulating rates and suppressing competition (Hausman & Neufeld, 2011).…”

“…The expectation of an accessible, affordable and reliable electrical power grid has led the industry to three foundational dynamics that limit traditional supply and demand markets (Hausman & Neufeld, 2011). First, the need for universal access, even to areas that are not economically beneficial for the energy company.…”

“…Large power plants and grid projects typically have 30-year return on investment periods, putting the investors at substantial risk (Kind, 2013). These three factors favored large centralized electrical utilities as power lines spread across the US (Hausman & Neufeld, 2011).…”

“…These elements led to large holding companies in the early 20th century owning a majority of the electrical generation across the US in an attempt to decrease risk by spreading out demand variance across large territories (Hausman & Neufeld, 2011). Due to the outcry over market manipulation and rising rates, Congress enacted the Public Utility Holding Company Act (PUHCA) of 1935 and forced holding companies, that managed about 75% of the electrical generating capacity, to break up, and gave localized utilities a sanctioned monopoly over specific territories with the purpose of providing all US citizens with access to reliable and affordable power, while ensuring investors a small but low risk return (Hausman & Neufeld, 2011;US House of Representatives, 1935).…”