Public Utilities Act
The Public Utilities Act, enacted in 1935 in the United States, was a significant piece of legislation aimed at regulating the rapidly growing electricity and natural gas industries. Following World War I, the expansion of utility companies occurred without sufficient oversight, leading to issues of monopolistic practices and unfair pricing that contributed to economic instability, including the 1929 stock market crash. In response to these challenges, the act established regulatory authority under the Securities and Exchange Commission and the Federal Power Commission, allowing the federal government to impose regulations on public utilities. A key feature of the act was the introduction of "parity pricing," which ensured that utility companies could charge rates that covered their costs and allowed for a reasonable profit. This legislation represented a pivotal shift in the balance of power between the government and utility corporations, prioritizing consumer access to essential services over corporate profit. The act remained in effect until its repeal in 2006, highlighting its long-standing influence on the regulation of public utilities in the U.S. Overall, the Public Utilities Act served to reinforce the government's role in stabilizing the economy and protecting consumer interests in the utility sector.
Public Utilities Act
The Law Federal law restricting the monopolies of electric and natural-gas companies
Also known as Wheeler-Rayburn Act; Public Utility Holding Company Act; PUHCA
Date Signed into law on August 26, 1935
As a response to the destabilization that led to the Great Depression, the Public Utilities Act of 1935 declared the federal government’s right to limit the activities of energy companies—specifically electric companies—in terms of their rates, profits, diversification, and expansion.
After World War I, technological advancements made possible for the first time the possibility of electrifying the entire United States. Utility companies supplying electricity and natural gas spread across the country, quickly and without any regional or national planning. During the 1930’s, Congress directed the Federal Power Commission to study the utilities. The resulting report found that the utilities were abusing their monopolies by charging unfair and uneven rates for energy. Further, it found that their finance structure, based on speculation, was destabilizing the entire United States economy and had contributed to the 1929 stock market crash. Senator Burton Kendall Wheeler of Montana and Congressman Sam Rayburn of Texas sponsored the so-called Wheeler-Rayburn Act to impose regulation on the electric industry.
Under the terms of the U.S. Public Utilities Act of 1935, the authority to regulate public utilities was given to the Securities and Exchange Commission and the Federal Power Commission. The act also established “parity pricing,” which allowed utility companies to charge enough to cover the costs of providing energy plus a reasonable profit, rather than allowing the market to set prices.
Impact
The Public Utilities Act established the principle that the federal government has the right to set policies to stabilize the national economy and to ensure access to fundamental utilities to most citizens, even if it means that corporations earn less money. Over strong objections from business, the act was passed and declared constitutional by the Supreme Court. It continued to regulate the electric utilities until its repeal in 2006.
Bibliography
Casazza, John, and Frank Delea. Understanding Electrical Power Systems: An Overview of the Technology and the Marketplace. Hoboken, N.J.: Wiley-IEEE, 2003.
Geisst, Charles R. Wall Street: From Its Beginnings to the Fall of Enron. 2d ed. New York: Oxford University Press, 2004.
Warkentin-Glenn, Denise. Electric Power Industry in Nontechnical Language. 2d ed. Tulsa, Okla.: PennWell Books, 2006.