Utilities in the United States have been regulated monopolies for decades. Overseen by state-run Public Utility Commissions (PUC), these power companies provided electricity, water and oil/gas to consumers at both the residential and commercial level, and all aspects of the utility, from acquisition through distribution, were regulated. In spring 1998, California deregulated its electric utility and other states are in the process of doing the same. This research considers the history of regulation in the utility industry, the arguments for deregulation, and the effects that deregulation is expected to have on various groups in society.
Historically, the Federal Energy Regulatory Commission (FERC) regulated corporate sales of power to municipalities and cooperatives for resale. All such wholesale transactions were subject to this federal regulation even when all parties were located within the same state. The FERC also regulated large volume, high-voltage bulk power sales by corporate utilities to each other. FERC also coordinates agreements (power pools) and the rates and terms of transmission contracts. It is also within the FERC's jurisdiction to order one utility to interconnect with another or to sell bulk power to it ().
One of the cornerstones of regulation in the utility industry is the way in which utilities are permitted to bill for their products and services. Rate base regulation was in force throughout the industry and provided the revenue for most power utilities. In this calculation, "rate" is the rate of return allowed to the utility while "base" is the total investment on which the return is calculated. Total investment can be calculated in several different ways: fair return on fair value, original cost, investment cost, prudent investment cost and reproduction new cost. The rate base may be established by evaluating the asset side of the balance sheet, or by using the liability side (cost of capital...