1970 to 1978: Social concerns, energy crisis aftermath forces new industry course

• 1879 to 1895
• 1896 to 1928
• 1927 to 1936
• 1927 to 1969
• 1970 to 1978
• 1978 to 1996
• 1999 to 2003

by Jeff Hein

(Note: This is the fifth of a series about the history of the U.S. electric utility industry. Hein developed this material as part of his master's thesis research.)

The 1970s were difficult times for the electric utility industry, with prices of electricity quadrupling between 1970 and 1985. Utilities continued to operate with their customers' best interest in mind, by employing techniques—like large central generating stations and high-voltage and extra-high-voltage transmission—to continue delivering reliable, cheap electricity. Then along came a perfect storm of unforeseen, uncontrollable events—environmental and conservation concerns, an energy crisis, a poor economy, inflation, occupational safety issues and low load growth.

In 1970, Congress passed the Clean Air Act because of concerns about acid rain. This act substantially reduced allowable emission levels from coal-fired power plants. It was followed by the Water Pollution Control Act of 1972. Both laws substantially reduced the amount of electrical power that the large, central generating stations could create. That also reduced the amount of generation available to the interconnected power system.

Fueled by the Organization of Petroleum Exporting Countries' oil embargo, the 1973 energy crisis raised electric generation fuel prices. This led to a focus on conservation and energy efficiency. The Energy Supply and Environmental Coordination Act of 1974 required utilities to stop using natural gas or other petroleum-based products to generate electricity. The Resource Conservation & Recovery Act of 1976, amendments to the 1970 Clean Air Act issued in 1977, the Power Plant and Industrial Fuel Use Act of 1978 and the National Energy Conservation Policy Act of 1978 all contributed to further reductions in the generating capacity of large powerplants.

1977: DOE, Western, FERC created

In response to the precarious national energy situation, several Federal agencies, including the Department of Energy, Western and the Federal Energy Regulatory Commission, were created by the DOE Organization Act in 1977. FERC took over the jurisdictional authority previously assigned to the Federal Power Commission.

This was also a difficult time for the U.S. economy. Inflation grew and economic expansion slowed to a crawl or stopped altogether. The utility industry reflected minimal or no load growth.

However, many large, central station powerplants were still being built to supply the forecasted load growth. These powerplants were primarily coal and nuclear, which were very costly and took years to build. Not only did these plants cost more as a result of inflation, financing cost increases, safety concerns and regulatory requirements, but once completed, the drastically reduced load growth meant they were no longer needed. The result was excessive generation capacity reserve margins.

These additional costs incurred by utilities were legitimately passed on to electricity consumers resulting in dramatic price increases. Average residential customers paid 2.2 cents per kWh in 1969 and 6.6 cents in 1985. Industrial customers paid 1.5 cents per kWh in 1970 and 6 cents in 1985.

1978: Public Utility Regulatory Policies Act

The Public Utility Regulatory Policy Act's provisions created a tremendous ripple effect throughout the electric utility industry creating a lasting impact that continues today.

The intent of the 1978 law was twofold:

• To introduce more efficient, cheaper, and environmentally friendly generation technologies.
  
• To reduce United States' dependency on foreign oil.
  

New generation technologies cost much less to construct and could produce electricity more cheaply than their large predecessors. Economies of scale no longer favored larger megawatt generators; bigger was no longer better.

For the first time, PURPA's provisions allowed nonutility generators to supply electricity to the bulk power system through FERC-approved qualifying facilities, or QFs. PURPA required utilities to purchase this generation. However, the additional QFs-supplied capacity was relatively small due to limitations imposed upon them.

Other PURPA provisions included the addition of sections 210, 211 and 212 to the Federal Power Act, which gave FERC authority over QF interconnections and interstate transmission service.

In the near-term, PURPA legislation resulted in cheaper, cleaner generation technology development, added to the power system via QFs and larger independent power producers. The most lasting, unintended result of PURPA was the possibility of deregulation of the generator section.

In the 1970s, the natural gas sector was also deregulated under FERC's oversight. This led many to believe the same could be done to the electricity generation sector. Many believed generating electricity was no longer a natural monopoly, since most companies could now afford to build powerplants using these new generation technologies. Many also believed replacing the regulated, cost-based sector with a deregulated, or competitive, market-based approach would result in cheaper electricity through improved business decisions combined with the cheaper generation technologies.

Not knowing the direction the industry would take, utilities began to reduce generation, transmission, distribution and employment costs. As a result, generation and transmission reserve margins and capacity began to decline.

(Note: Hein was a substation engineer in Western's Engineering group at CSO.)