Chapter 4: The Public Utility Regulatory Challenge
Public utilities are subject to a wide variety of local, state, and federal government regulations. These regulations began with the early attempts during the 1870s to control railroad and grain elevator trusts. The scope of utility regulations was broadened extensively with passage of antitrust legislation during the ﬁrst two decades of the twentieth century. The severe shocks to the world economic systems that followed the global depression that began in 1929 and continued through the 1930s resulted in passage of many more regulatory laws, including regulations on company ownership and governance, rules on methods and timing of raising capital, limits to transactions between separate company units, and controlling how utilities are permitted to produce and distribute their products and services. More recent regulations have included limiting any action which might adversely aﬀect the environment, standards for promoting public and worker safety, and initiating provisions for anti-terrorist activity against utility facilities. As ‘natural monopolies,’ utilities are considered to be holders of a special public trust and therefore legitimately subject to government oversight. This chapter discusses some of the more important of the federal regulations under which utilities operate. The rationale for regulation of business activities lies in our reliance upon market competition to set and control prices (Brennan et al. 2002). Businesses often use price competition to best their competitors. Consumers pay what it costs to produce and distribute goods, with suppliers’ proﬁts limited by these competitive actions of businesses. Moreover, market competition helps provide consumers with a...
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