Ironically, the electricity industry in early twentieth-century America featured the lusty competition touted today by supporters of restructuring. Local governments played key roles in this era, as they awarded electric service franchises to competing bidders. But conflicts soon arose between city governments and their franchisees. Citizens attributed high rates to price gouging and secret pacts among the franchise holders, and they called for municipal takeover of the electricity system. Meanwhile, the utilities bemoaned the escalating bribes extorted by corrupt officials in return for granting and renewing franchises, and they complained that competition led to the unnecessary duplication of facilities (e.g., parallel sets of distribution lines on the same street) that forestalled economies of scale and kept prices high.
Nevertheless, as the Progressive political movement of the early twentieth century swept the country, increasing numbers of local governments assumed responsibility for electric service. Each year from 1897 to 1907, citizen referenda created between 60 and 120 public systems.9 Approval for municipal electricity was not universal, however. Some Americans doubted that bureaucrats could rival the innovative spirit of private enterprise and worried that political leaders - even if not actually corrupt - would pander to the voting public by keeping rates inefficiently low. Besides, some grumbled, public ownership smacked of socialism, a serious imputation in the years following the Russian Revolution.10
The specter of municipalization and the often messy rivalries between competing private companies prompted utility industry leaders such as Samuel Insull of Chicago's Commonwealth Edison Company to call for state regulation of the electric sector. Civic reformers seeking to exterminate municipal graft supported Insull, and the first few decades of the century saw the establishment of powerful state regulatory commissions. Henceforth, in return for a guaranteed market and protection from competitors (both of which delighted their investors), private utilities submitted to state regulation of electricity rates.
The number of privately owned utilities peaked at 4,224 in 1917 and declined rapidly thereafter as firms merged and the sector consolidated. Complex webs of holding companies came to dominate the industry. At one time, for example, Insull's holding companies controlled 239 electric firms in 30 states and Canada. The emergence of state regulation halted the wave of municipalization; the number of municipal systems crested at 3,066 in 1923. Ultimately, private firms enjoying substantial economies of scale absorbed many of the small municipal systems nestled in their territories. By 1932, public power produced only 5 percent of the nation's electricity.11
Nevertheless, public power, broadly defined, provided a politically powerful alternative to private power for several decades. Most notable, President Franklin Roosevelt made the extension of rural service and the breakup of the electric holding companies goals of his presidency. His administration developed a new entity, the customer-owned electric cooperative, as an antidote to private power firms' hesitancy to serve economically uninviting rural territories. Public power still plays a substantial role in America - in 1994, publicly owned facilities sold 14 percent of the nation's retail power, and rural co-ops another 8 percent.12
As this brief history of local power demonstrates, municipal involvement brought strengths and weaknesses to the electricity sector. Most important, municipalization represented a response to a situation - unbridled competition - perceived as genuinely dangerous to the public interest. In this sense, the story offers insight to the present. In 1995, electric firms proposed 16 mergers, representing $120 billion or almost 20 percent of the nation's investor-owned utility asset base. 1997 saw an additional seven proposed mergers involving another $30 billion in assets.13 Moreover, retail competition - assumed to be inevitable by many analysts - will offer many customers a choice of several large, distant power providers, none of which may have the community's best interests at heart. The entry of local governments into the power sector may once again be an appropriate policy alternative. The difference today is that in a competitive retail market, local governments need not own any generating or transmission equipment. Rather, they can protect consumer interest in fair prices and meet citizen demand for clean power through green aggregation.