In 1953, Dwight D. Eisenhower entered the White House determined to reverse twenty years of federal policy toward electric utilities. His predecessors, Franklin D. Roosevelt and Harry S. Truman, had aggressively expanded public power, but Eisenhower considered this "creeping socialism," and he intended to restrict it.
Since the 1930s, public power had been a defining political issue. The introduction of electricity changed lives. Refrigerators, washing machines, and air-conditioning altered eating habits, eased housework, and tempered hot climates. Electricity made possible assembly lines and new industries like aluminum and electrochemicals. Because building and operating a power grid is so expensive, only one company can serve a given area economically, constituting what economists call a "natural monopoly." Americans were naturally uneasy about relying on a monopoly for a vital service, fearing that utilities would pursue "scarcity policies" of high rates and low volume. Because electricity and related industries were among the country's most dynamic, the matter involved more than consumer protection. [End Page 227] The New Republic insisted that "the main issue [is] the installation of great quantities of low-cost generating capacity to sustain the steady growth of the economy."1 Although state and local governments regulated electric rates, many reformers believed utilities manipulated the process, inflating costs and understating profits to keep rates high. The solution, they thought, lay in public power, which would provide electricity cheaply and, by force of example and threat of expansion, drive down the rates of private utilities.
In the 1930s, the administration of Franklin D. Roosevelt moved in this direction, most notably creating the Tennessee Valley Authority (TVA) to develop hydroelectric power there. Roosevelt himself stated that inexpensive public power would serve as a "yardstick" against which to judge private utilities' rates. Under President Harry S. Truman, the construction of federal power projects continued. In 1930, private enterprise generated 94 percent of the country's electricity, but by 1957, when the last projects authorized by the Truman administration came on line, its share had declined to 75 percent. The expansion of federally generated power from 1 percent of the total to 15 percent over this same period accounts for most of the relative decline of the private sector.
Conservatives and private utilities staunchly resisted public power. They denied that the cost of public electricity was a reasonable "yardstick" by which to judge private rates. Most federal projects were free from federal, state, and local taxes, which were a major expense for private utilities. Although federal projects usually did repay the cost of construction to the Treasury over a period of fifty years or so,2 most paid no interest on these funds during this time, avoiding another major expense of private utilities. In other words, government subsidized public power, while private utilities subsidized government. This, critics argued, accounted for the relative cheapness of public power and disadvantaged private utilities and their customers. Inexpensive public power might well have helped areas like the Tennessee Valley, but only by attracting business away from areas that private utilities served. Moreover, if forced to match the below-cost rates charged by public utilities, private companies could become unwilling or unable to finance expansion and modernization. As President Eisenhower put it, "As federal [electric] power expands in a region . . . local enterprise becomes increasingly intimidated and discouraged, even though the needs for energy continue to grow."3
President Eisenhower waded into a bitter debate. Advocates of public power branded their critics "profiteers" and "monopolists," and found themselves in return labeled "un-American" socialists. As one scholar wrote of [End Page 228] those on both sides of the question, "the most common term they used to describe the other side was 'those bastards.' "4
The Legacies of the New Deal
The Eisenhower administration inherited several organizations devoted to public power, most notably the Tennessee Valley Authority and the Rural Electrification Administration (REA). Many associated with the new administration, like former president Herbert Hoover, wanted Washington to "get out of the business of generating and distributing power as soon as possible."5 this was easier said than done, however. The TVA and REA had considerable support, even among some Republicans, and they served millions of custo mers...