Author:Jeffrey Lehman, Shirelle Phelps

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Electricity has been known since ancient times, but scientists could not make use of it safely until the eighteenth century. Thomas Edison's invention of the electric lightbulb in 1879 sparked the demand for electric power that continues to this day, ultimately resulting in the need for legislative and regulatory controls on the electric-power-generating industry.


By the end of the nineteenth century, the United States had completed its transition from using wood as a major energy source to using coal, and the next transition from coal to oil and natural gas was just beginning. By the early twentieth century, both homes and businesses increased their demand for electric power, and electric utilities obtained long-term franchises from municipalities.

In 1920, the Federal Power Act (FPA), 16 U.S.C.A. §§ 791a?828c, was passed in response to increased competition between electric utilities and a lack of consistent service to rural areas. The Federal Power Act gave the Federal Power Commission the authority to license hydroelectric plants. Later, President FRANKLIN D. ROOSEVELT encouraged Congress to create part II of the act, which gave the Federal Power Commission the power to regulate the transmission of electric energy (16 U.S.C.A. §§ 824?824m). This legislation was necessary to guard against potential abuses of the utility companies' monopolistic structure and to ensure adequate and consistent service nationwide.

As more and larger electric generating plants were constructed and as more electric power lines were strung, legislators believed that through economies of scale, electric utility monopolies could actually offer lower costs to consumers than could competition between smaller utilities. Because of the capital-intensive nature of providing electric power, and the sunken costs of building plants and stringing lines, it is more cost-effective to spread these

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costs over the large and consistent customer base provided by a MONOPOLY.

Structure of the Industry

Modern electric utilities have three major organizational components: generation (power plants), transmission (high-voltage bulk power between utilities), and distribution (low-voltage power to ultimate consumers). Modern electric utilities not only produce the power they need for their consumers but also pool and coordinate excess electricity with other utilities.

In 2001, the United States had the ability to produce over 788 million megawatts of electrical energy. Pooling and coordination of electrical energy take place through high-voltage wires that are maintained and referred to as the national grid; high-voltage wires are used because they allow transmission at a lower current, which generates less heat and results in less energy loss. At regional distribution centers closer to the ultimate consumers, the electrical energy is transformed into the low-voltage, higher-current electricity delivered to homes and businesses.

Major electric utilities produce electric power by burning coal, harnessing the hydroelectric energy produced by dams, and...

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