Corporation for National Research Initiatives







Amy Friedlander, Power and Light: Electricity in the U.S. Energy Infrastructure, 1870-1940, 1996.


After disparate experiments in the U.S. and abroad, beginning with Michael Faraday's in 1831, electricity owes its origins as an energy infrastructure in the U.S. to Thomas Edison's work in the late 1870s. Edison was not just exploring the properties of electricity. Rather, he and the members of his laboratory were examining the attributes of electricity in the context of solving a particular problem: devising a system of interior illumination that was competitive with gas. The gas companies also provided Edison with his model of organization, distribution, and delivery of services to prospective customers. Thus, he conceptualized a specific product -- lamps -- in terms of a technological and an organizational system that contained generation, transmission, regulation, and delivery of electrical power together with a mass production manufacturing process and a corporate management structure.

Quickly, however, electric illumination split off into separate but related companies that manufactured and sold appliances and equipment or provided services to power users. Eventually, power generation and distribution itself divided into the power producers (whether hydro or coal), the electrical transmission companies, and the local utilities. Separate from these companies were the financiers. Most of these entities formed interlocking relationships that culminated in the organization of holding companies after 1910.

The advantages of the holding companies were that they stabilized financially precarious small utility companies and supplied management and engineering expertise, thus implicitly standardizing operations and equipment. The disadvantages were that they tended to reduce competition and were said to be unresponsive to local needs. Moreover, since the companies were highly leveraged, a tremor in one part of the organizational system could and did have far-reaching repercussions for consumers. Samuel Insull's electric power holding company controlled and generated one-eighth of the nation's power in 1931, and when the company failed, it affected over 1 million stock and bond holders as well as 41 million customers.

Unlike gas, electricity cannot be effectively stored in large quantities. Thus, plant size was a function of maximum or peak demand. Despite decentralized alternatives offered by batteries or self-contained generating plants that served one or two buildings or perhaps an industrial complex, the American model was central station generation and distribution on an increasingly expansive scale. The focus on central station electric power generation and distribution derived partly from Edison's vision and partly from Insull's strategy, which called for encouraging energy use to achieve greater production capacity and increased revenues, while passing off savings to the consumer in the form of lower prices to stimulate even greater consumption.

Edison's system had been based on direct current (DC), which had a practicable transmission range of about one mile. From 1880 to 1920, most of the innovations, including the use of alternating current (AC), were designed to increase the range, scale, and capacity of the central power station concept. Indeed, the Niagara project (1895) demonstrated the possibility of a regional system based on a hydroelectric generating station, high voltage transmission lines, substations, and local distribution. Improvement in coal-fired, steam-powered generators achieved similar increases in capacity. In the 1920s, inter-connection of generating plants and distribution systems together with pooling of energy sources enabled transmission grids to integrate coal- and hydro-powered generating plants into an expansive distribution system that served a diverse range of demands.

Interior electric illumination in the 1880s was initially a luxury for the average consumer. It was introduced first into commercial establishments, like theaters and department stores, as well as into affluent residences. Electricity was first adopted by industry in small, labor-intensive and new industries, which took advantage of its fractional attributes -- meaning that the same system could support small machines, which used motors of less than 1 horsepower, and larger ones, such as motors of 1 to 10 horsepower. Central power station delivery allowed them to pay only for what they consumed and did not have to meet the relatively high threshold cost of installing and maintaining a self-contained power source, like a steam engine or an independent electric power plant nor find a means of exhausting the generated heat. Electricity was subsequently adopted by the large scale, heat-intensive industries, such metallurgy or food processing, in which the thermal properties possessed value for the industrial process. Electrification of industry led to substantial re-engineering of the industrial plant to achieve ancillary benefits in the form of more efficient uses of space as well as unit drive systems (i.e., one energy source per machine).

The 1920s were the era in which electricity permeated the home. By then, occupants of cities and burgeoning suburbs had access to multiple energy technologies. Although electricity continued to be most intensively used by the affluent, the presence of interproduct competition from gas and oil meant that prices for electricity tended to stay low. Falling prices, increased wages, and the decrease in the number of servants willing to staff middle and upper-middle class households fundamentally increased the material standard of living for the working class, while increasing the burden of housework for many women. With improvements in several household energy systems, which brought about gas and electric ranges, hot water heaters, irons, vacuum cleaners and refrigerators, Americans began to enjoy and to expect a cleaner personal and environmental standard. Laundry, which in an earlier time might have been sent out or assigned to a laundress who came in once a week, now became a routine household chore for the lady of the house.

From Edison's lab in New Jersey to John Ryan's copper mines in Montana, electrification was largely a private sector phenomenon. Cities, of course, were among the earlier consumers, and municipal regulation was a constant from the 1880s onward. From experience with both water and gas, which predated the Civil War (1861-1865), it was obvious that municipal franchises, which implied a degree of regulation, would be necessary to obtain access to rights-of-way within which to construct the conduits. State regulation of electric utilities was instituted in 1887 in Massachusetts, and state regulation, exercised through setting rates, has remained the dominant form of public oversight.

For the most part, industry executives pursued a cooperative policy toward state regulatory agencies, with the savings they achieved through improved technology passed along to consumers in the form of lower rates. Interproduct competition from gas and oil for heat (if not for interior illumination) as well as the specter of public regulation or even public acquisition became powerful incentives for cooperation with regulatory agencies as well as for price discipline by the utility companies themselves. Regulation tended to manifest itself primarily through setting rates, and the rate structure itself became a marketing tool, designed to attract large, industrial users who might otherwise have installed self-contained, independent plants which potentially competed with central station power. Although residential consumers paid more per unit of power on average than large industrial consumers did, and, indeed, generated more profitable revenues for the power companies, stable or falling prices relative to higher wages, particularly in the 1920s, muffled consumer discontent.

Federal New Deal programs were aimed toward dismantling holding companies and limiting interstate operation of electric holding companies. Regulation was believed justified in order to protect the public from widely perceived abuses. It is unclear how successful this regulatory function has been, based on studies of consumer prices and the extent to which early regulatory agencies in fact protected power companies from competition. It is, however, evident that federal intervention, in particular, was instrumental in expanding electric power to underserved, predominantly rural populations through the REA and other New Deal and Truman-era programs.

Amy Friedlander

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