U.S. Congress Lifts Regulations from Public Utilities Summary

  • Last updated on November 10, 2022

The Public Utility Regulatory Policies Act, part of the National Energy Act, was designed to prevent energy crises in the United States and to encourage innovation in the production of electricity without the use of fossil fuels.

Summary of Event

When President Jimmy Carter signed the Public Utility Regulatory Policies Act (PURPA) into law on November 9, 1978, it was one of five pieces of legislation that together formed the National Energy Act. National Energy Act (1978) Drafted as a response to the so-called energy crisis, PURPA’s provisions were meant to reduce dependence on foreign oil by encouraging the development of alternative energy. PURPA restructured the electric utility industry by permitting the emergence of power producers who were not subject to the regulations that governed normal utility operations. In the ten years following enactment of the legislation, generation of electricity by independent nonutility producers more than doubled. Public Utility Regulatory Policies Act (1978) Energy;regulation [kw]U.S. Congress Lifts Regulations from Public Utilities (Nov. 9, 1978) [kw]Congress Lifts Regulations from Public Utilities, U.S. (Nov. 9, 1978) [kw]Regulations from Public Utilities, U.S. Congress Lifts (Nov. 9, 1978) [kw]Public Utilities, U.S. Congress Lifts Regulations from (Nov. 9, 1978) [kw]Utilities, U.S. Congress Lifts Regulations from Public (Nov. 9, 1978) Public Utility Regulatory Policies Act (1978) Energy;regulation [g]North America;Nov. 9, 1978: U.S. Congress Lifts Regulations from Public Utilities[03430] [g]United States;Nov. 9, 1978: U.S. Congress Lifts Regulations from Public Utilities[03430] [c]Energy;Nov. 9, 1978: U.S. Congress Lifts Regulations from Public Utilities[03430] [c]Laws, acts, and legal history;Nov. 9, 1978: U.S. Congress Lifts Regulations from Public Utilities[03430] Carter, Jimmy [p]Carter, Jimmy;energy policy Jackson, Scoop O’Neill, Tip Schlesinger, James

As a former nuclear engineer, Carter had campaigned for office on a platform that promised to prevent any oil shortages similar to the one that had panicked the country in 1973. Energy crisis (1973) At that time, members of the Organization of Petroleum Exporting Countries Organization of Petroleum Exporting Countries (OPEC) had sharply curtailed sales of crude oil to the United States in what became a successful attempt to drive prices up. Although the United States was itself a major producer of petroleum, the OPEC oil embargo Arab oil embargo (1973-1974) resulted in numerous shortages, higher prices, and impromptu rationing at gasoline service stations. The government responded to the crisis with a wide variety of new legislation designed either to relieve the existing shortages or to prevent future problems. The Federal Highway Administration, for example, lowered speed limits on federal interstate highways to 55 miles per hour after researchers determined that this was the most energy-efficient speed for motor vehicles.

Although many people think of petroleum products such as gasoline and fuel oil as being used primarily for transportation or home heating, fuel oil is also a major source of energy for the generation of electricity. The bulk of electricity produced in the United States in the 1970’s came from power plants that generated electricity using steam boilers, and many of those boilers were fired with fuel oil refined from the crude petroleum imported from countries such as Saudi Arabia and Nigeria. Both elected officials and government analysts recognized the implications of an overdependence on foreign oil. Transporting crude oil in large tanker ships not only presented risks to the environment but also made the U.S. economy vulnerable in case of war.

Senator Scoop Jackson of Washington State, for example, had long been critical of big oil companies. While serving as chairman of the U.S. Senate’s Permanent Subcommittee on Investigations in 1974, Jackson rebuked the American executives of major oil companies regarding the high profits the oil companies enjoyed following the 1973 oil crisis. By the mid-1970’s, when he became chairman of the Senate Committee on Energy and Natural Resources, Jackson had amassed a solid record on defense, environmental, and energy issues. As a supporter of both the defense industries and environmental causes, Jackson could push for environmental legislation without alienating more conservative members of the Senate.

Jackson believed in achieving a balance between the environment and the economy. PURPA, which proposed reducing the use of fossil fuels, particularly foreign oil (despite the 1973 crisis, in 1977 the United States imported half the oil it consumed), while encouraging the development of alternative energy sources such as solar and wind power, seemed to strike such a balance. By encouraging entrepreneurs to enter the electrical power production industry, new technologies could be developed, using renewable resources. The National Energy Act provided for incentives such as tax breaks and government grants to new independent power producers.

In addition, PURPA removed many of the existing restrictions on independent power producers while requiring utility companies to purchase electricity from those independents at a rate that made entry into the electric power market by entrepreneurs in alternative energy financially attractive. The legislation exempted small power producers and cogenerators of electricity from many of the regulations to which public utilities were subject. PURPA defined a small power producer as any independent producer whose facility generated less than eighty megawatts of electricity. (A megawatt is one million watts of electricity.) Cogeneration facilities are industrial plants, such as paper mills or other factories, that can generate electricity as a by-product of the waste heat their plants produce. Rather than being vented through a smokestack, the heat is captured and used to generate steam and electrical power. PURPA not only permitted such industries to sell any surplus power to the local public electrical utility but also mandated that the utility pay a fair market rate for that surplus. In addition, PURPA required that utilities make electricity available to cogenerators as needed.

Officials in the Carter administration, legislators in Congress, and citizens concerned about both the environment and national security all hoped that PURPA would lead to the development of more alternative energy sources, such as small-scale hydroelectric plants, wind power, and geothermal sources. (Small-scale hydropower facilities are considered environmentally friendly, as they utilize the water from the run of a river without requiring construction of large dams.) With alteration of the regulatory structure, the electric power industry would become more diversified, electric utility companies would be able to meet increased consumer demand without having to build additional facilities, and consumers would benefit from lower rates for power.

PURPA was designed to complement other pieces of the National Energy Act. While it focused on the utility industry and particularly on altering the regulations governing public utilities, other legislation within the framework of the National Energy Act provided for research funding in alternative energy. For example, funds allocated to the Department of Energy (then under Secretary of Energy James Schlesinger) supported research projects in solar, wind, and small-scale hydropower as part of the administration’s commitment to alternative energy. Thus, for a few brief years, the United States made a serious commitment to developing renewable resources for the generation of electrical power. With the support of Scoop Jackson in the Senate and Majority Leader Tip O’Neill in the House, the Carter administration passed the comprehensive National Energy Act. Of the five separate pieces of legislation that constituted the act, PURPA had perhaps the greatest impact.

Following Ronald Reagan’s election in 1980, many of the environmental initiatives of the Carter administration experienced reduced funding, revocation, or drastic revisions. Bipartisan support for environmental legislation dwindled during the economic recession the United States experienced as the 1970’s ended. Many aspects of the development of alternative energy sources suddenly appeared financially impractical or technically unattainable. Federal support for research into solar energy and wind power began to disappear. PURPA, however, because it dealt with regulations rather than with direct funding, initially remained relatively unaffected by the change in political administrations and societal conditions. Still, without active federal support for research into alternative sources of energy, the effects of PURPA inevitably were not what its supporters had envisioned.

Significance

PURPA had been intended to reduce the use of nonrenewable resources; that is, it was meant to discourage the use of fossil fuels such as oil. Because it forms over millions of years, oil is a finite resource. Although as-yet-unknown petroleum reserves may exist, those that have been untapped will last for only a limited period of time, and sooner or later all the earth’s petroleum deposits will be exhausted. Sources of electrical energy such as solar or wind power, in contrast, theoretically are infinitely renewable. Rather than specifically stimulating the development of wind and solar power, however, the main effect of PURPA was simply to encourage the growth of independent power producers.

Until the passage of PURPA in 1978, most electricity for individual consumption in the United States was produced by public utility companies at central generating stations. The cost of electricity for the average ratepayer was based on what it cost the local utility to produce power at its own power plants, although there were exceptions. Smaller utilities, such as some municipal systems and rural electric cooperatives, did not always own their own generating facilities. These utilities purchased power from regional electric companies. In all cases, the states strictly regulated the rates the consumer, be it an individual household or a large manufacturing firm, paid for electricity. This regulation was meant to prevent the utilities from abusing their position as monopolies and overcharging consumers. Both the industry and state and federal government viewed regulation of electrical power production as being the prerogative of the states.

PURPA was an attempt to change that. It was the first entry of the federal government into public utility rate regulation since the 1930’s and the New Deal. From the viewpoint of advocates of alternative energy, however, PURPA contained a fatal flaw: Whereas state public utility commissions were required to consider the use of energy-saving methods, actual implementation of those methods was strictly voluntary.

Large-volume discounts, for example, formed one target of the Carter administration’s policy on energy conservation. Under standard utility-system rate structures, the more electricity a business or industry consumed, the lower the rates it paid for power would become. Rather than rewarding consumers for attempting to conserve energy, the conventional rate structures imposed penalties. The lower an individual customer’s consumption became, the more that individual consumer paid per kilowatt hour (the standard unit for measuring power consumption, representing the energy expended by one thousand watts of electricity in one hour). Schlesinger and Carter both wanted to require the state utility commissions to force utility companies to discontinue large volume discounts. As part of the compromises that are an essential element of the legislative process, however, many of the provisions within PURPA concerning energy conservation were written as suggestions rather than as mandates. The utility commissions that reviewed the rate structures for the utility companies within each state thus might look at ideas for energy conservation but did not have to require that utilities actually employ them.

The practical effect of energy conservation being voluntary rather than mandatory was that, although PURPA did shake up the electric utility industry, it did not result in the widespread substitution of alternative energy for fossil fuels. In his book Technology and Transformation in the American Electric Utility Industry (1989), historian Richard Hirsh Hirsh, Richard documented the stagnation and conservative thinking that characterized electric public utilities in the early 1970’s. The industry had experienced decades of expansion, ever-increasing consumer demand, greater technological efficiencies, falling costs, and minimal competition. The 1973 OPEC oil embargo found the utility companies complacent and sluggish. If the oil crisis woke up the utilities, PURPA helped to keep them awake.

Most significant, the act led to an upsurge in the generation of electricity by independent power producers. PURPA aimed to increase cogeneration and small power production through financial incentives and the removal of regulatory barriers. The number of both small power production facilities and cogeneration plants have indeed increased. Qualifying cogeneration facilities, however, were not required to employ alternative energy sources, so the development of cogeneration did not automatically lead to a reduction in fossil-fuel usage. Most cogeneration facilities are, in fact, fired with natural gas, a nonrenewable fuel source that is as finite as petroleum.

PURPA did require independent power producers to develop alternative energy sources, such as small-scale hydroelectricity and windmills. Since the curtailment of federal research funding for solar and wind, most of the growth of independent power production has occurred in areas where a proven technology existed, that is, in steam-powered plants that burn renewable fuels such as wood or garbage and in hydroelectric plants. These plants do reduce reliance on fossil fuels, but their development often raises other environmental questions. It thus appears that PURPA failed to achieve most of its original objectives. Most telling, although it led to some diversification within the electric power industry, it did not lead to the widespread adoption of alternative energy, nor did it provide consumers with lower rates. In fact, thirty years after the energy crisis of the 1970’s, the United States remained dependent on fossil fuels and foreign oil and actually imported a greater percentage of fuel than it had in 1973.

At the beginning of the twenty-first century, hope for the development of renewable fuels, although technologically feasible, had not advanced much further, despite some development of wind farms and the appearance on the market of a few automobiles using electricity and hydrogen fuel technology. During the 1990’s, deregulation of public utilities by many states had coincided with the fraudulent business practices of power brokers such as Enron, and a brewing conflict in the Middle East after the terrorist attacks on New York City and Washington, D.C., of September 11, 2001, both underscored the need for alternative enery and undermined steps toward it. Public Utility Regulatory Policies Act (1978) Energy;regulation

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Dickson, David. The New Politics of Science. Chicago: University of Chicago Press, 1988. Touches on energy only in passing, but provides descriptions of political maneuvering and compromise that highlight how acts of legislation can evolve in unintended ways. Occasionally provocative.
  • citation-type="booksimple"

    xlink:type="simple">Elliott, David. Energy, Society, and Environment. 2d ed. New York: Routledge, 2003. Addresses the topics of energy-related environmental problems and sustainable energy sources. Presents case studies to illustrate the interactions among energy policy, technology, and social and environmental impacts of energy generation.
  • citation-type="booksimple"

    xlink:type="simple">Grossman, Peter Z., and Daniel H. Cole, eds. The End of a Natural Monopoly: Deregulation and Competition in the Electric Power Industry. New York: Routledge, 2003. Collection of essays examines, from both legal and economic perspectives, the issues involved in the debate concerning deregulation of the electric power industry.
  • citation-type="booksimple"

    xlink:type="simple">Hirsh, Richard F. Technology and Transformation in the American Electric Utility Industry. 1989. Reprint. New York: Cambridge University Press, 2002. Comprehensive history of the electric utility industry’s response to problems and change through the 1980’s. Easily understandable by the average reader.
  • citation-type="booksimple"

    xlink:type="simple">Joskow, Paul L., and Richard Schmanslee. Markets for Power: An Analysis of Electric Utility Deregulation. Cambridge, Mass.: MIT Press, 1983. Presents analysis of trends in power development following the passage of PURPA and other energy conservation legislation in the late 1970’s. Raises intriguing questions.
  • citation-type="booksimple"

    xlink:type="simple">Navarro, Peter. The Dimming of America: The Real Costs of Electric Utility Regulatory Failure. Cambridge, Mass.: Ballinger, 1985. Accuses utilities of shortsightedness and poor planning.
  • citation-type="booksimple"

    xlink:type="simple">Piasecki, Bruce, and Peter Asmus. In Search of Environmental Excellence. New York: Simon & Schuster, 1990. Offers a wide-ranging discussion of industrial environmental problems and possible practical solutions.
  • citation-type="booksimple"

    xlink:type="simple">Victor, Richard H. K. Energy Policy in America Since 1945: A Study of Business-Government Regulations. New York: Cambridge University Press, 1984. Examines the interaction between government regulation and business activity over a thirty-year period. Less technically oriented than the Hirsh book cited above.

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