Unique History of U.S. Public Utility Regulation

By
Branko Terzic

The year 2023 marked the 116th anniversary of the establishment of state regulation of the public utilities (electric, gas and telephone) in the United States of America. In 1907 California, New York and Wisconsin state legislatures passed laws subjecting public utilities, also called public service companies, to state regulation.

In my home state of Wisconsin that new regulatory authority was granted to the Wisconsin Railroad Commission (established in 1974). A name change was approved in 1931 to that of the Public Service Commission of Wisconsin.

The provision of “public services” or “public utility” services of electricity, natural gas, telephone and, occasionally, water by private corporations was, at the turn of the last century, a somewhat unique private capital endeavor to this country. In return for a grant of monopoly by the state to the private enterprise a “regulatory compact” was established whereby a private owned monopoly was balanced by comprehensive state regulation. This regulatory compact has withstood the test of time, resulting in the USA of the provision of almost universal modern, reliable, and affordable public utility services into the twentieth century.

Today in the third  decade of the 21st century, we still have a world where a large population (estimated at 700 million people) is without public utility service, electric or natural gas energy delivery or basic network communications. Some observers attribute this underinvestment to a shortage of private or public capital.

However, I believe what has been missing is the essential pre-condition of regulatory law and administration as pioneered in the USA by the Wisconsin Public Service Commission and other state regulatory agencies over a hundred years ago.

Most of the developed world and much of the developing world, including the member states of the European Union, Russia, China, Eastern Europe, and Asia, have now adopted the US model of an independent regulatory agency following the principles of “scientific regulation” as promoted by the Wisconsin Idea and its leader a hundred years ago, Governor Robert M. Follette, Sr. In his speeches “Fighting Bob” La Follette laid out three principal purposes of regulation, which remain valid today:

• First, to prevent unjust and unreasonable rates.
• Second, to prevent discrimination.
• Third, to enforce and regulate adequate service.

Governor La Follette’s vision, in setting up a regulatory commission, was for legislation “more sweeping than any legislation enacted by any state up to that time” and it was.

At the 2007 anniversary of the founding of public utility regulation in Wisconsin, where I served as a commissioner from 1981-1986, I quoted Earl Warren, late Chief Justice of the United States Supreme Court. In a speech on June 19, 1955, in Madison Wisconsin on the 100th anniversary of the birth of Robert M. La Follette, Sr. Justice Warren recounted what La Follette believed when he sought to establish regulation...

“He believed implicitly in our system, in our system of government and in our system of free enterprise, but he believed it belonged to the people, that it should not be shackled and that every hindrance should be removed from it in order to enable it to progress so that it might produce a better life for every man and woman and their children.”

To those of you involved in the everyday work of regulation, either as regulators or as the providers of regulated public services, I ask you to pause for a moment and recognize how fine a system we have inherited. Can it be made better? Yes, it can. Can it be damaged? Yes, that can happen too. But I am an optimist and hope for the better of the two outcomes.