Abstract: The Economics of Electricity Networks and the Evolution of the U.S. Electric Utility Industry, 1882-1935

William J. Hausman and John L. Neufeld

Abstract

The widespread and costly electricity blackout in the Midwestern and Northeastern United States and Ontario, Canada in August 2003 highlighted the imperfectly constructed North American electricity transmission network. In this paper, we examine aspects of the development of the U.S. electricity transmission network from the formative years of the industry to 1935. We first discuss the economics of electricity networks, focusing on two salient characteristics, their great economic value, and their problematic control. We then discuss several historical episodes describing the ascendancy of alternating current over direct current, the rise of the holding company, the "Superpower" and "Giant Power" proposals of the 1920s, and the passage of the Public Utility Holding Company Act in 1935 where these two characteristics interacted to shape the structure of the industry, often by stimulating government action.

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