Public vs. Private Control
of Electric Utilities

Background information | Discussion Questions | Activities | Resources

BACKGROUND

Throughout the evolution of the electric utility industry, the political climate of the times has shaped the development and distribution of electric power resources. In the 1890's, during the early days of electricity, hundreds of small private power companies sprang up around the nation. It was not uncommon for a single city to have thirty or more different companies vying for business. The nation's electric power producers operated in an atmosphere of disorderly, overlapping grids of competing private interests. During this time, some politicians called for a publicly run network to bring order to the electric utility industry. But, the business community successfully lobbied against government control [1]. Over time, consolidation took place within the private sphere as successively larger corporations swallowed up smaller companies. By 1930, ten large holding companies, which were headed by multi-millionaires like John D. Rockefeller Jr., J.P. Morgan Jr. and Samuel Insull owned 75 percent of the electric industry. The size and complexity of the companies made industry regulation and oversight by the states impossible. Despite massive advertising campaigns by the private power industry condemning pubic ownership as "socialistic," public opinion had begun to shift toward a negative view of the big holding companies. After the economic collapse of several of the large holding companies, a study by the Federal Trade Commission in the early 1930's revealed that the private companies paid less in taxes than they overcharged in rates. The Securities and Exchange Commission also investigated and publicly charged that the holding companies had been guilty of stock watering and capital inflation, manipulation of subsidiaries, and improper accounting practices [2]. During the 1932 presidential campaign, at a stop in Portland Oregon, candidate Franklin D. Roosevelt made the following campaign promise:

"To the people of the country I have but one answer on this subject. Judge me by the enemies I have made. Judge me by the selfish purposes of these utility leaders who have talked of radicalism while they were selling watered stock to the people and using our schools to deceive the coming generation. My friends, my policy is as radical as the Constitution of the United States. I promise you this: Never shall the Federal Government part with its sovereignty or with its control of its power resources while I'm President of the United States." [3]

The Bonneville Power Administration had its roots in the Northwest Regional Planning Board created by President Roosevelt in 1933 to study economic development in the Northwest. With the building of Bonneville and Grand Coulee dams by the Federal Government, decisions had to be made as to how the massive amounts of generated hydroelectric power would be managed and distributed. Progressive politicians in the region had sponsored bills favoring a Columbia Valley Authority modeled after the Tennessee Valley Authority. Such bills faced stiff opposition by conservatives who felt that businesses and agencies already existed that were addressing agricultural promotion, soil conservation and other broad social welfare issues that had been part of the TVA mission. They also disliked the TVA model of giving preference for the sale of electricity to publicly owned systems rather than to industries doing business for profit. A compromise bill, which was substantially influenced by the recommendations of the Northwest Regional Planning Board, was submitted in 1936, and in 1937 President Roosevelt signed the Bonneville Project Act [4]. Under this act the federal government would manage the power generated by Bonneville and Grand Coulee dams. The day- to-day operation of the dams would remain under the control of the Army Corps of Engineers for Bonneville and the Bureau of Reclamation for Grand Coulee. The BPA would take over the marketing and transmission of electric power including construction of a power grid to connect communities to the sources of power. It was to be an integrated power system connecting with all utilities public and private in the Pacific Northwest. Public power entities, represented by municipals, public utility districts (PUDs) and cooperatives were given preference for available power [5].

The power generated on the Columbia River would be sold "at cost" to utility systems throughout the region at a flat rate. This meant that power providers in Pendleton, Oregon far away from Bonneville or Grand Coulee dams would pay the same low wholesale rate as a power company right next door to the dams. Before the turn of the century, in the early days of electric power, rates in the Pacific Northwest were equivalent to several dollars per kilowatt-hour. Bonneville's wholesale rate was a bargain at one-fifth of one cent per kilowatt-hour, which was 50 percent cheaper than that offered by the TVA. The average family income in the 1930's was around $100.00 per month. With the low rates charged by Bonneville, a family could expect to pay around $7.50 per month for electric lights, the operation of basic appliances and electric heat [6]. This made electricity affordable for many more people. As retail rates charged by publicly owned utilities fell, privately owned power companies had to lower their rates as well.

In the Pacific Northwest, private power companies had hesitated to run power lines out to sparsely populated rural communities since doing so would not have been profitable. They were reluctant to increase their energy producing capacity by building larger dams, which would ultimately lower prices. The Eastern owned holding companies felt that the Pacific Northwest would be slow to develop an industrial base and population large enough to make extensive hydroelectric development profitable. This angered farmers who were still living with coal oil and kerosene lamps for light and without other modern conveniences enjoyed by city dwellers. In the early 1930's, largely through rural support, voters in Washington and Oregon passed initiative measures allowing communities to create public utility districts, which would allow public control of electric utilities through citizen, elected boards [7]. Cooperative efforts between the BPA and another New Deal agency, The Rural Electrification Administration built the infrastructure that brought electricity to rural populations in the Pacific Northwest. In 1937 only 44 percent of Oregon farms had electricity [8]. With the construction of the regional transmission grid by B.P.A. and local distribution systems through the R.E.A., by 1954 over 90 percent of Oregon farms had electricity.

Even with the popularity of the New Deal and the promotion of PUDs by the B.P.A., the formation of PUDs was a struggle due to several factors. In Washington State, the legislature decided that PUDs could not extend beyond the borders of a county. In 1938 a proposal that would have created a large, seven-county PUD in Oregon was defeated. Opponents of the PUD were successful in convincing voters that approval of a PUD would have a negative impact on the quality of public services offered since PUDs did not pay taxes. Thereafter, the BPA established a two- percent tax on PUDs to support local government [9].
The battle between advocates of public power and proponents of private power was fierce during the 1930's and 1940's. Private industry saw that the government's entry into the electric utility business would cut into their profits. The advantages that allowed the B.P.A. to offer electricity at cost, such as access to federal tax revenues and cheap bonds was seen by private business as a threat to the free market system. Stephen Kahn, Bonneville's Public Information Officer at the time commented, "As I remember it, there was a lot of vituperation, nasty comments, statements such as 'if you go for this PUD, the next thing they'll do is socialize the grocery store and then they'll socialize your wife, and its going to be the Russian system coming over and taking over.' [10].
Private and public power advocates were in competition for the hearts and minds of the voters who would decide at the ballot box what sort of entity would provide power in their community. The film that the BPA planned to make using Woody Guthrie's Columbia River songs was one way to reach the public with its message of how federally controlled hydroelectric power could better the lives of the average citizen in the Pacific Northwest. To a large extent, the BPA was successful, since by 1940, the Northwest had the highest ratio of public power in the nation. This formative era provided the basis for the mix of public and private electric power systems existing in the region today.

References

  1. William Dietrich, The Great Columbia River, (Simon and Schuster, 1995) 255
  2. Tollefson, Gene. B.P.A. and the Struggle for Power at Cost. (Bonneville Power Administration, 1987) 255
  3. Tollefson, 110
  4. Tollefson, 127
  5. Tollefson, 132
  6. Tollefson, 132
  7. Tollefson, 104
  8. Tollefson, 172
  9. Tollefson, 135
  10. Tollefson, 1

DISCUSSION QUESTIONS

Before the video:

  1. Can you think of any songs that you know which were written to promote an idea to the public? Can you think of any songs that advertisers use to sell a product?
  2. List some examples of organizations that are publicly owned. List examples of organizations that are privately owned.
  3. What does the phrase "in the public interest" mean?
  4. What company supplies electrical power to your household? Is it publicly or privately owned?

After viewing the video:

  1. Why was it important for the B.P.A. to get "the common people" on their side?
  2. If you were to vote on whether your utility vendor were to be privately or publicly owned, how would you vote? Why?
  3. Before the Roosevelt administration came into power in 1932 with its New Deal politics; the electric industry had been dominated by private holding companies. What trends do you see today in terms of ownership and control of electric utilities?
  4. If there was an important decision to be made which would affect your life and the lives of thousands of people in your community, would you be more likely to trust a public or a private entity to make a good decision? Why?
  5. What parallels do you see between the debate in the 1930's and 40's about the best way to bring electricity to rural/disadvantaged people and discussions today about the Internet and how to bridge the digital divide to insure that all citizens have Internet access?

ACTIVITIES

  1. Have students look for newspapers from the Pacific Northwest to find articles from the 1930's and/or 1940's that focus on a vote or struggle between the forces of public and private electrical utilities. Let students report their findings to the class.
  2. Have students look at the Energy Information Administration website on Electric Power Industry Restructuring. Have a discussion asking students to compare/contrast the electrical industry in the 1930's and 40's with industry trends today.
  3. Have students look at the web sites for the Tennessee Valley Authority and the Bonneville Power Administration. Have the students write a short paper comparing the similarities and differences between the historic missions of these two federal agencies.
  4. Have students interview an older person who can remember not having electricity. How did getting electricity change life for the person? Have students write about or report on their findings
  5. New Deal Network's Lesson Plans for "TVA: Electricity for All". Includes:
    • Lesson 1: Political Cartoons and the TVA
    • Lesson 2: The TVA: A Constructive Controversy
    • Lesson 3: Comprehension Aids on Selected TVA Documents

RESOURCES

Books

Brennan, Timothy J. A Shock to the System: Restructuring America's Electricity Industry. Resources for the Future, 1996.

Flavin, Christopher and Lenssen, Nicholas. Powering the Future: Blueprint for a Sustainable Electricity Industry. Worldwatch Institute, 1994.

Hyman, Leonard S. America's Electric Utilities: Past, Present and Future. 6th Edition Public Utilities Reports, 1997.

Smeloff, Peter Asmus. Reinventing Electric Utilities: Competition, Citizen Action, and Clean Power. Island Press, 1996

Tollefson, Gene. B.P.A. and the Struggle for Power at Cost. Bonneville Power Administration, 1987.

U.S. Department of Energy. Columbia River Power for the People: A History of Policies of the Bonneville Power Administration. Bonneville Power Administration, 1981.

Wasserman, Harvey. The Energy War: The Battle Over Utility Deregulation. Seven Stones Press, 2000

League for C.V.A. The Story of CVA. Seattle, WA. 1946.

Web sites:

Public Citizen, Critical Mass Energy and Environment Program, Electricity Deregulation

Energy Education Resources Guide (U.S. Dept. of Energy National Energy Information Center)

Energy Information Administration map showing the status of electric utility deregulation in each state.

Deregulation.com

National Rural Electric Cooperative Association (Details recent news and information from a partnership of America's consumer-owned electric utilities.)

The Utility Connection (Provides links to 3,673 utilities, and related organizations, news, and regulatory information sites.

Tennessee Valley Authority

The Bonneville Power Administration

Union of Concerned Scientists, Energy, Restructure

American Local Power News