ER national power grid we have today. The roots go back to the creation of the early'power monopolies, a fascinating and surprisingly little known skeleton in the closet of American history, Electric Robber Barons It took a while for the idea of centralized·generation of electricity to catch on. The original idea was simply to m:ake and sell small scale generating equipment for local use. Thomas Edison expanded on the idea soqiewhat by developing equipmend or complete dis-. trict generating systems. Edison held all the patents for his system, and set out to establish total monopoly control over the industry through a series of exclusive contracts with district t,1tilities. His low voltage DC system, however, was quickly dated by the more efficient Westinghouse system of high voltage alternating current, invented by Edison's former employee, Nikolai Tesla. After a bitter 'seven-year battle, Edison was forced to fold, leaving a string of . smaffutilities.across the country. A third company (controlled by J.P. Moi:-gah), pirated·1some patents"from Westinghouse, developed its own AC system, bought out Edison in 1889, and went on to form the General Electric Company. While GE and Westinghouse were busy _selling equipment, Edison's newly unemployed secretary, a young Scottish immigrant by the name of Sam I~sull, moved to Chicago, got hired as the president of a small l~cal light company that used Edison equipment, and proceeded to invent the power monopoly. . . Electicity was still considered a novelty item at the time. Gas lighting·was cheaper and more reliable until the early part of the 20th century. Industry was still powered by steam, and if a company did decide to convert to electricity, it was cheaper for them to buy their own generator than it was to buy power from a utility. The first major use of electricity wasfor the electric light rail trolley lines that were rapidly becoming prevalent in Ameriqi's urban areas. The.trolley_lin~s, and.the generating equipment to run them, were municipally owned, establishing an early precedent for publicly owned power. The investor utilities that existed were mainly leftovers frorn the intense rivalry between Edison and Westinghouse,.and were tiny even by contemporary standards. But by speµding the first 15 ye~rs or so of his new career buying out every utility he·could get his hands on to form what is now · Commonwealth Edison, Insull was able to acquire a big enough demand for power to j u.stify expanding his generating capacity. Through a combination of argument, bribery, and corruption, he was then able to acquire'an exclusive contract to sell electricity to Chicago's trolley system, instantly creating a utility empire. Insull's economic arguments were largely based on the fact that electricity could not be easily stored. With different customers using electricity at different times of the day, the peaks and valleys of electrical use would smooth out somewhat, which meant that utilities could use a few generators that ran most of the time instead of a ,,Ji January 1981 RAIN Page 7 PLAY lot of generators that ran only some of the time: The result was a· more efficient system that needed less expensiye equipment and saved money. , ~ But for the large municipal and industrial customers that Insull needed in order to justify expansion of his utilities, the slight economic advantage gained by more efficient generating equipment was more than offset by the costs of•transmission and maintenance of the system. Insu.ll's solution was to sell power to large customers for less than what it would ·cost them to install their own generating capacity, which meant selling 'it for less than what it cost the utility to produce the power. Insull recovered·the capital cost of the sys·- . tern~as well as a tidy profit, by-chariging exorbitant rates to his residential and small commercial customers. In 1912, for,example, 1residential customers were paying over 12 cents/kWh, compared to industrial rates as low as 0.5 cents/kWh. ln effect, the residential customers were subsidizing the large industrial users, a praqice that continues to this day. Industry rushed to buy power from Insull, and the future of centralized utility power was assured. It is interesting to ponder what the alternative could have been. A more diverse electrical load could reduce the swings in electrical demand over the course of the day, but, not 'over the course of the year; which would mean that lot of generators still sit around mos_t of the time. An efficient way to store electricity would have made large, centralized generators unnecessary. But development of some of the promising storage technologies of the time, as with many other potentially d~ entralized technologies, came.to a grinding halt with the gr.owth of a large, ce'ntralized power system. As early'as 1902, the president of t~e National Ele~ric Light Association had stated: "Our earnings through the economy of operation have well-defined limits, but the-possibilities of increasing our earning~by developing dur markets have a much wider range." • Expansion of the system was the key to increasing profits, in large part.due to the peculiar regulatory legacy established by American railroads ·during the 19th century that allo~ed utilities to charge rates that would guarantee a set percentage of profit on their capital investment'. The more capital investment, the more profits. With smaller customers bearing the risks, ·the utilities w~re able to leverage money to continue building new generation capacity, ;needed or not. Using the time'honored tactics of political and fina;ncial IIlanipulation so successfully employed by the great robber barons, Sam Insull and J.P. Morgan •succeeded in gaining direct control of over half of the electricity generated in the United States by the/end of •the 1920s, and indus~rial generation of electricity had been essentially eliminated. Utilitjes launched a massive propaganda ~am- • paign, convincing pe0ple to use more electricity while'smearing proponents of pt,tblic power.as tools of the Socialist conspiracy. Consumptimt_-and profits-soared; cont.--'---
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