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). The difference between rate of return for a public utility and the rate base is that the rate base is the after-tax earnings while the rate of return is the rate allowed by the regulatory body ().
The argument for maintaining regulation of utilities came from the fact that demand for electricity is relatively inelastic, meaning that there is a considerable amount of variance which can occur in the price before there is an appreciable change in ...