NCPA - National Center for Policy Analysis

The Good Old Days Of Free Market Electricity

March 18, 1999

Local electric companies were not always monopolies, points out James A. Damask of the Buckeye Institute. Before 1910, the United States had competing electric companies:

  • In 1887 alone, six electric companies organized in New York City.
  • By 1907, 45 electric companies were operating in Chicago.
  • Duluth, Minn. had five electric lighting companies operating before 1895, and by 1906, Scranton, Penn., had four.
  • As late as the 1930s, Cleveland and Columbus, Ohio, each had direct competition between two private electric companies.

These companies did not act as monopolies -- with the power to make money by restricting production and raising prices. Instead, electricity production surged from 4.5 million to 17.2 million megawatt hours between 1900 and 1910 while prices fell by more than 26 percent.

And because of competition, consumers benefited from new services -- offered without government help or mandates. For example:

  • Private companies began offering electric trolley service, balancing out the nighttime demand for electricity with a daytime market.
  • Unlike the regulated natural gas utilities, which offered service for a fixed monthly price, the electric industry introduced metering and pricing based on usage.
  • Through voluntary teamwork, a committee of the Institute of Electrical Engineers found ways to standardize electrical machinery, which lowered costs and improved service.
  • And the National Board of Fire Underwriters, a private insurance association, helped develop safety procedures.

States began regulating electricity pricing and market entry because utility executives and their economists lobbied state legislatures, says Damask, arguing that rates could be determined better by regulators who acted "scientifically" and had exceptional "social consciences."

By 1913, 27 states and the District of Columbia had state commissions regulating electricity -- and the industry became monopolistic. Thus after states began regulating electricity, prices increased and production decreased.

Source: James A. Damask, "A Power(ful) Myth," Perspective on Current Issues, February 1999, Buckeye Institute for Public Policy Solutions, 131 N. Ludlow Street, Suite 317, Dayton, Ohio 45402, (937) 224-8352.

 

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