The History of Energy Deregulation in The United States

In 1935, Congress passed the Public Utility Holding Company Act (PUHCA). This law set about

the restructuring of the electric and gas utility industries, requiring companies to do away with

subsidiaries. Utility Companies were limited to a single, geographically integrated system that

was easier to regulate. This meant that a person's electricity provider was determined by where

they live. Prior to this, the electric grid was controlled by a large number of private investors and

trusts which used competing transmission systems. Essentially, this created the system of

regulated energy that most people are familiar with today.

During the 1970’s, the United States faced an energy crisis when the Organization of Arab

Petroleum Exporting Countries proclaimed an oil embargo. The U.S. was heavily dependent on

oil from this region and the result was a sharp rise in energy prices. In response, Congress

enacted the Public Utility Regulatory Policies Act (PURPA) which required utility companies to

purchase their energy from private companies when they could supply power at a lower cost

than the public utility. The law’s stated purpose was to provide, “increased conservation of

electrical energy, increased efficiency in the use of public facilities and resources by electric

utilities and equitable retail rates for electric consumers.”

In 1992, Congress enacted the National Energy Policy Act which stated, “Agencies are

authorized and encouraged to participate in programs to increase energy efficiency and for

water conservation or the management of electricity demand conducted by gas, water, or

electric utilities and generally available to customers of such utilities.” Private market

competition was supported in the wholesale generation of energy. The National Energy Policy

Act was fundamental in setting the country down the road to more energy deregulation.

In 1996, the Federal Regulatory Commission (FERC) issued order 888 which required utilities to

provide, “open access non-discriminatory transmission services” to independent producers.

This separated power plants from the transmission services, breaking up parts of the vertical

integration system used by public utilities companies. That same year, California passed partial

deregulation legislation which would have later repercussions.

By 1999 New York, Massachusetts, Pennsylvania, Rhode Island, Texas, and California had all

pushed forward legislation to allow consumers access to private power suppliers. FERC issued

order 2000 which called for the creation of RTOs (Regional Transmission Organizations),

designed to replace state control and operation of the transmission grid.

By 2000, 24 states had passed laws allowing utilities to sell their power plants to private

companies, or transfer them to unregulated affiliates. However, the California Energy Crisis

created uncertainty amongst many of the states hoping to pass deregulation legislation. The

state saw rolling blackouts and high electricity rates. Arizona, Arkansas, Montana, Nevada, New

Mexico, Oklahoma, Oregon, and West Virginia repealed or delayed legislation.

In 2005, President Bush signed The Energy Policy Act which transferred oversight of public

utilities from the SEC to FERC. This also repealed the 1935 PUHCA law.

As of 2012, there are 16 states which have implemented deregulation policies and given

consumers the power to choose energy providers. Some of them have suspended these

policies, while others remain in effect. This includes New York, New Jersey, Maine, Connecticut,

Ohio, Michigan, Illinois, Massachusetts, Maryland, Oregon, Rhode Island, Texas, Montana,

Pennsylvania, and Washington D.C.

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