While the electricity industry is currently experiencing a regime shift
from state regulation to competitive markets for generation, a number of
questions regarding the change in regulatory environment in the electricity
industry during the beginning of this century remain unsettled. This
paper attempts to revisit some of these issues. Specifically, the
paper tests the validity of the two most commonly suggested reasons for
the origin of state regulation in the electricity industry. Using
Census data gather on the electricity industry during the beginning of
the century, the paper models the decision to adopt state regulation as
a function of the average electricity price and profit rate in the state.
The results cast doubt on the commonly accepted justification, attributed
to Jarrell (1978), that state regulation was passed to limit competition
and increase the profits of electricity firms, but do not unilaterally
support the public interest view, either. The paper then draws on
trade publications to assess the industry’s mindset during this period.
Literature from the National Electric Light Association suggests that although
some industry leaders supported state regulation in order to rid themselves
of corrupt local politicians, the industry did not unilaterally support
increases in regulation.