Review of Industrial Organization 17: 61–74, 2000.
© 2000 Kluwer Academic Publishers. Printed in the Netherlands.
Electricity: Changes and Issues
HARRY M. TREBING
Institute of Public Utilities, Michigan State University, 410 Eppley Center, East Lansing, MI 48824,
Abstract. This paper surveys recent developments in the restructuring and deregulation of the
electric utility industry. New federal and state legislation is reviewed together with commission
actions designed to carry out restructuring. The Department of Energy’s highly controversial attempt
to measure the net beneﬁts of electricity deregulation is noted, along with the response of DOE’s
critics. Five major factors that will affect the success or failure of restructuring and deregulation
are examined at length. These include: growing industry concentration, the increased risk premium
attached to the market trading of electricity, the transition costs that will be incurred, the organiza-
tion and governance of the transmission network, and the adequacy of consumer and environmental
protection in the new setting.
Key words: Electricity deregulation, electricity restructuring, market concentration, regulatory re-
There have been two periods of radical restructuring in the electric utility industry.
The ﬁrst covered the years 1935–48, when the Securities and Exchange Commis-
sion implemented the Public Utility Holding Company Act (1935) to dismantle
the large electric and gas utility holding companies and thereby eliminate a wide
range of abusive practices.
The SEC’s goal was to create an industry composed of
independent operating companies serving local markets under state regulation of
retail rates and federal regulation of interstate rates. The second period began in the
1970s and continues to the present time. It is the result of growing dissatisfaction
with rapidly increasing electric utility prices stemming from cost overruns for new
generation, rising capital and fuel costs, redundancy resulting from poor planning,
and poor reliability records for large generating units (particularly nuclear units).
The Public Utility Regulatory Policy Act (1978) opened the door to a shift from
monopoly generation to nonutility generation and pluralism in power supply.
By the late 1920s, 15 holding company groups controlled 85% of the nation’s electric utility
industry. Abuses included pyramiding of control to separate control from ownership, inﬂation of
property accounts, excessive servicing fees, exploitation of operating companies, and various forms
of ﬁnancial fraud. The industry bitterly opposed SEC restructuring, while the current restructuring
has received growing industry acceptance.