IEEE Power & Energy Magazine - September/October 2016 - 58

utilities were given monopoly status to generate, transmit, and
distribute electricity (see Figure 1 for key historical legislation
affecting electric utilities).
From 1935 through the mid-1970s, electricity consumption
grew at an astounding rate, averaging between 7 and 10% per
year. consequently, utilities had to double their infrastructure
capacity every seven to ten years. Each and every year, utilities increased their generation capacity by 10%, their transmission capacity by 10%, and their distribution capacity by
10%. due to this, it was said that "electric utilities are construction companies that happen to sell electricity."
rapid growth in electricity usage led to innovation and
economies of scale. Each year, utilities had robust revenue
and profit growth, even as rates declined. investors were
happy, customers were happy, regulators were happy, and
utility employees were content with the security of lifelong
stable employment.
the energy crisis of the 1970s changed everything. instead of 10% load growth, most utilities experienced about
1% growth, with many areas experiencing negative growth.
major construction projects kept utility employees busy for
a while, but by the mid-1980s, most construction had ceased,
and utilities found themselves dramatically overstaffed.

1935
Public Utility Holding Company Act (PUHCA)
Established the vertically integrated electric
utility as a state-regulated monopoly.

1978
Public Utility Regulatory Policy Act (PURPA)
Required utilities to purchase electricity
generated from qualified nonutility
generators at the utilities' avoided cost. This
was a first step in ending the utility's
monopoly on generation.

2005
Energy Policy Act
Repealed PUHCA and set the groundwork for
wholesale electricity market deregulation.
Also established the Federal Electric Reliability
Organization focused on bulk power reliability
standards.

2006
FERC Order 888
Mandated that electric utilities allow
wholesale competitors to transmit power
across their transmission systems (open access).

until this point, most utility executives were engineers who
had risen through the utility ranks. these engineer-leaders
were generally replaced by lawyers to manage the legal risks
associated with massive layoffs and early retirements. most
of the senior technical talent was let go or early retired during
this time, as they had the highest salaries. university students
took notice of these layoffs and stopped taking power systems
courses, resulting in the decimation of most undergraduate
power programs in the united states.
after this downsizing, the investment community was
asking, "where is utility profit growth going to come from
now?" to address these concerns, most utilities brought in
senior leadership with accounting and finance backgrounds,
which remains the case today. the first action of these business leaders was to spend less on maintenance (a dollar
spent less on maintenance today results in a dollar more
in profits today). after a point, less maintenance resulted
in regulators having concerns about reliability degradation, resulting in aggressive reliability regulation. with no
further maintenance cuts possible, executives then started
to spend less on capital. this works during periods of
extended rate freezes but results in eventual problems with
a shrinking rate base. utilities then thought to spent a lot

2006
FERC Order 889
Set standards regarding information that
utilities must make available to the
marketplace and established a platform for
sharing this information (OASIS).

2009
American Recovery and Reinvestment Act
Provided US$4.5 billion in federal funds to help
modernize the nation's electrical grid. Much
of this money was used to subsidize utility
smart meter projects, dramatically
accelerating the deployment of advanced
metering infrastructure across the country.

2010
FERC Order 1000
Requires transmission providers to
participate in a regional transmission
planning process that produces a regional
transmission plan that considers public policy
requirements established by state or federal
laws or regulations. Also addresses regional
and interregional cost.

figure 1. Key historical legislation for electric utilities.
58

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