History of Electricity

Affordable, reliable electricity is fundamental to modern life. Electricity

provides clean, safe light around the clock, it cools our homes on hot
summer days (and heats many of them in winter), and it quietly
breathes life into the digital world we tap into with our smartphones
and computers. Although hundreds of millions of Americans plug into
the electric grid every day, most of us don’t give the history of
electricity a second thought. Where does it come from? What’s its
story?

When we take a fresh look at electricity, we see that keeping America

powered up is actually an amazing feat—an everyday miracle. Here’s
the Story of Electricity.

Contents
Part 1: Revolutionary Power
Part 2: The Dawn of Electric Light in the U.S.
Part 3: The Rise of an Industry
Part 4: Insull Builds the Modern Power Grid
Part 5: Electricity Becomes Politicized
Part 6: A Powerful Vision

Revolutionary Power

Although people have known about electricity since ancient times,

they’ve only been harnessing its power for about 250 years. Benjamin
Franklin’s electricity experiments – including his famous kite
experiment in 1752 – showed just how little we knew about electricity
in the era of the American revolution and the first industrial revolution.
[1] In the time since Franklin’s experiments, our grasp of electricity has
grown tremendously, and we are constantly finding new ways to use it
to improve our lives.

Ben Franklin’s famous kite experiment

One of the first major breakthroughs in electricity occurred in 1831,

when British scientist Michael Faraday discovered the basic principles
of electricity generation.[2] Building on the experiments of Franklin
and others, he observed that he could create or “induce” electric
current by moving magnets inside coils of copper wire. The discovery
of electromagnetic induction revolutionized how we use energy. In
fact, Faraday’s process is used in modern power production, although
today’s power plants produce much stronger currents on a much
larger scale than Faraday’s hand-held device.

In the era of modern power plants, coal has always generated more
electricity in the U.S. than any other fuel source. In recent decades, we
have seen other sources compete for second place: first
hydroelectricity, then natural gas, nuclear power, and natural gas
again.

Source: Energy Information Administration

Electricity generation mix by fuel type, 1949-2011

We also use electricity to power an increasing number of devices. Our

modern electric world began with applications like the telegraph, light
bulb, and telephone, and continued with radio, television, and many
household appliances. Most recently, electrons have powered the
digital age to create what energy expert Vaclav Smil calls our
“instantaneously interconnected global civilization.”[3] Technology
expert Mark Mills points out that electricity powers an increasing
portion of our economy. The always-on data centers that support the
internet and “cloud computing” will continue to increase demand for
electricity, overwhelming the modest decreases in electricity use in
other parts of the economy, such as manufacturing processes.[4][5]

The ever-growing applications of electricity explain the increasing use

of fuels like natural gas, oil, and coal in power generation as opposed
to direct uses such as heating or transportation. In 1900, for example,
less than two percent of natural gas, oil, and coal were used to make
electricity. A century later, 30 percent of our use of natural gas, oil,
and coal was devoted to electric power.[6] Smil explains electricity’s
appeal: “Electricity is the preferred form of energy because of its high
efficiency, instant and effortless access, perfect and easily adjustable
flow, cleanliness, and silence at the point of use.”[7]

Increased electricity access has lit corners of the world that were once
dark. As international development groups and economists point out,
access to electricity is a hallmark of advanced societies and a basic
requirement for economic progress.[8] “Next to the increasing
importance of hydrocarbons as sources of energy,” economist Erich
Zimmermann wrote in 1951, “the rise of electricity is the most
characteristic feature of the so-called second industrial revolution.”[9]
In recent years, people in countries from China to Kenya have
experienced rising living standards, as more people are able to use
electricity to keep their homes and schools cool during torrid
summers, to refrigerate food that would have otherwise spoiled, and to
purify water that would have otherwise been unsafe to drink.

There is, of course, still much more to be done. In 2009, the

International Energy Agency estimated that nearly 70 percent of
people in Sub-Saharan Africa lacked access to electricity. That means
585.2 million people remain in the dark.[10]

Source: NASA

Many parts of the world remain in the dark.

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The Dawn of Electric Light in the U.S.

One of the greatest pioneers in electricity was Thomas Edison, who

saw electricity as his “field of fields” to “reorganize the life of the
world.” Working tirelessly on electricity from his laboratory in New
Jersey in the 1870s, America’s greatest inventor brought the
incandescent electric light bulb into practical use by the end of that
decade and patented the incandescent light bulb in 1880.[11] “When
Edison…snatched up the spark of Prometheus in his little pear-shaped
glass bulb, ”German historian Emil Ludwig observed, “it meant that fire
had been discovered for the second time, that mankind had been
delivered again from the curse of night.”[12] Yet Edison’s electric light
was even better than fire—it was brighter, more consistent, and safer
than the flame of candles or lamps.

Edison’s light bulb was one of the first applications of electricity to

modern life. He initially worked with J. P. Morgan and a few privileged
customers in New York City in the 1880s to light their homes, pairing
his new incandescent bulbs with small generators. Edison’s electric
lighting systems were basic by today’s standards but bold at the time
—they not only threatened the existing gas lighting industry but
radically challenged the status quo by introducing people to an entirely
new type of energy. In a few short years, Edison transformed
electricity from a science experiment into an exciting, safe, and
coveted luxury.
The light bulb—a symbol of innovation and the invention that sparked
the electricity revolution.

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The Rise of an Industry

In order for the magic of electricity to truly take hold in American life,
new industries were needed to build the generators to supply electric
power, as well as the new appliances and electric lights that used it. In
1882, with J.P. Morgan funding his efforts, Edison launched the
businesses that would later be known as General Electric. In
September of that year, he opened the United States’ first central
power plant in lower Manhattan—the Pearl Street Station.

Pearl Street was a stroke of genius. Edison connected a large bank of

generators to homes and businesses (including the New York Times)
in the immediate area through a network of buried copper wires. At
that time, there was no “electric grid.” Before Pearl Street, customers
who wanted power for electric lights or motors relied on generators
located on-site, typically in the basement. Pearl Street’s “central”
power plant design was an important shift from small-scale, on-site
generation to industrial-scale power, and soon became the model for
the entire power generation industry.[13]

Source: Deutsches Museum Bildarchiv

The Dynamo Room at the Pearl Street Station, the first power plant in
the U.S.

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Enter Samuel Insull

Although Edison was a brilliant inventor, he was a disorganized
businessman. His inventions came to him faster than the financial
capital necessary to carry them out, and Edison preferred to focus on
the inventions themselves rather than the paperwork they created.
The inventor needed a managerial counterpart. That counterpart
arrived in 1881, in the form of a promising 21-year-old from England.
Samuel Insull, who began his career in the U.S. as a personal assistant
to Edison, astounded the inventor with his business prowess—so
much so that Edison soon granted Insull power of attorney over his
businesses.[14] But the work with Edison would be just the beginning
for Insull—over the next four decades, he built an electricity business
that made him the Henry Ford of the modern electricity industry.

Electricity required a different business model because it was different

than virtually every other commodity. Electricity had to be consumed
the moment it was produced. (Storage was very costly and limited—
and still is.) In order for electricity to become accessible and
affordable, someone needed to bring together mass efficiencies in
production and consumption. Insull saw the opportunities in front of
him. Whoever mastered the engineering and the economics of the
power grid could take the reins of the rising electricity industry—an
industry that was already toppling the stocks of gas light companies
and attracting big investors like J.P. Morgan. In 1892, Insull left his job
as an executive at the lighting company Edison started (General
Electric near New York City) for Chicago Edison (an electricity
generation/distribution company, later known as Commonwealth
Edison).[15] It was a move that would indelibly change the industry.
Early transmission lines in rural America. Photo Credit: Towers

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Insull Builds the Modern Power Grid

Insull was able to achieve what economists call “economies of scale”

(cost savings from large-scale operations) by consolidating the mom-
and-pop electricity providers and closing small generators in favor of
larger, more efficient units manufactured by General Electric. He also
found efficiencies in customer sales—the more customers he had, the
more efficiently he could run his generators, and the cheaper it was to
provide power. As Insull’s business grew, he was able to find better
ways of providing electricity to more and more people.

Source: Library of Congress

1903 turbine hall at Fisk Street Station

Insull became a master salesman for all things electric. In order to use
his generators more efficiently (i.e., run them at full capacity for more
hours of the day), he offered to power elevators and streetcars during
the daytime when there was less demand for electric lighting.

Insull also used high-voltage transmission lines to spread electricity to

the suburbs and then to the countryside. Because customers inside
and outside cities used power at different times, Insull was able to
provide power to both types of customers more efficiently than if he
had served them independently. Such diversification, served by ever-
larger and more efficient generators, brought the price of a kilowatt-
hour down. Electricity prices fell year after year as the young industry
grew between 1902 to 1930.

Insull also created new electricity pricing schemes. For example, he

introduced two-part pricing to handle customers whose electricity use
fluctuated widely or spiked for brief periods. Given that electricity has
to be produced and consumed simultaneously, providing power to a
customer who demanded electricity in large surges could be
unprofitable—new generators built to meet the intermittent surges in
demand would only run a fraction of the time, but would have to
remain constantly at the ready. Examples of customers that have
“peaky” demand[16] include metal-smelting factories that use huge
amounts of power in brief bursts to run electric furnaces.

To be able to provide power for “peaky” customers, Insull

implemented a demand charge (a fixed fee) in addition to the typical
usage charge. That way, the customer paid for the privilege to use a
lot of electricity in a little time. In this way, Insull could profitably
expand his business to include all types of customers.

Lastly, Insull found efficiencies by interconnecting or “networking”

power grids for backup and reliability, eliminating the need to build
(redundant) generation in the same service area.

Consolidation. Mass production. Mass consumption. Rural

electrification. Two-part pricing. Networked power. Samuel Insull did
for electricity what Henry Ford did for the automobile—he turned a
luxury product into an affordable part of everyday life for millions of
Americans. Where Edison provided the novelty of electric light to
Manhattan’s upper class, Insull’s innovations made electricity
accessible to all.

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Electricity Becomes Politicized

The electricity industry in the U.S. was intertwined with politics from
the beginning. Before Pearl Street ever opened, Edison had to bribe
New York politicians just to begin laying the foundations of his work.
As Time magazine recounts, Edison “obtained with great difficulty the
consent of New York’s famously corrupt city government to build his
proposed network on the southern tip of Manhattan. (He got their
approval in part by plying them with a lavish champagne dinner at
Menlo Park catered by Delmonico’s, then New York’s finest
restaurant.)”[17] As the early electricity industry grew, it became more
involved with city politics over lighting contracts. Electricity providers
had to receive franchise rights from city officials in order to serve local
areas, opening the door for those officials to extort power companies
for campaign contributions or personal bribes.

Early on, electricity pioneers faced two populist threats from local
governments. One was rate ordinances that could arbitrarily require
rate rollbacks or impose rate ceilings, thus ruining profitability. The
second was municipalization, whereby private investments in
electricity infrastructure would be taken over by city or county
government.[18] This was the political environment that Samuel Insull
found in Chicago and other electricity entrepreneurs faced across the
country.

Insull’s solution was new legislation that would replace local regulation
with statewide regulation of power companies by public utility
commissions (modeled after state railroad commissions). In this
arrangement, the state commissions would establish a maximum rate
for the power company to charge its customers based on the
company’s cost of providing electric service (plus a reasonable rate of
return).

In exchange for such rate regulation, the state commissions gave the
power company an exclusive franchise to serve a given geographical
area (a legal monopoly). The early electricity industry was a natural
monopoly (according to many economists and regulators, and Insull
himself) which turned out to be a self-fulfilling prophecy: state
regulators assumed power companies were bound to be monopolies,
so they regulated them accordingly and gave them legal monopoly
status. The prospect of a true, laissez-faire electricity market was
never on the table.

Insull needed time and a huge public relations effort to convince the
industry that statewide public utility regulation was the best way to
provide low-cost power and dodge harsh local regulation or takeover.
Wisconsin and New York were the first states to extend state-level rate
regulation to the electricity industry in 1907. By 1914, forty-three other
states had followed suit and created state-level commissions to
oversee electric utilities.[19]
These state public utility commissions, formed in the early 20th
century, still regulate utilities. In theory, their rate regulation is
supposed to protect the consumer, but in practice it often benefits
other interest groups—or the utilities themselves—at the expense of
consumers. Despite these regulations, Insull continued to provide
inexpensive power to a greater number of customers through the first
three decades of the 20th century.

Tragically, the Great Depression financially ruined Insull’s expanding

enterprises. His indebted holding company collapsed and legal battles
ensued. Facing trial in 1934, he was quoted in newspapers as saying “I
am fighting not only for freedom but for complete vindication. I have
erred, but my greatest error was in underestimating the effects of the
financial panic on American securities, and particularly on the
companies I was trying to build. I worked with all my energy to save
those companies.”[20]

Insull was acquitted but lost his companies and wealth, and fell into
disrepute and obscurity. Public knowledge of his contributions as a
pioneer of the modern power grid seems to have died along with him
in 1938. As Forrest McDonald wrote of the acquittal in Insull’s
biography, “For his fifty-three years of labor to make electric power
universally cheap and abundant, Insull had his reward from a grateful
people: He was allowed to die outside prison.”[21]

State regulation and Insull’s tragic fall ultimately led to federal

intervention into electricity beyond hydroelectric licensing, the
founding job of the Federal Power Commission (est. 1920.) In 1935,
the Federal Power Act authorized the Federal Power Commission—
now the Federal Energy Regulatory Commission (FERC)—to apply
“just and reasonable” cost-based rate regulation to the wholesale
power market (along the same lines as state-level regulation of retail
rates). Another law, the Public Utility Holding Company Act of 1935,
required multi-state companies to divest properties to operate in only
one state.[22]

Federal intervention grew again in the energy-troubled 1970s. The

Public Utility Regulatory Policies Act of 1978 required electric utilities
to buy power from independent generators, successfully creating a
new industry segment but also opening the door for intermittent
generation from renewable sources to enter—and even destabilize—
the growing grid. 23] In fear of using up limited energy and natural
resources, Congress also passed new legislation designed to curb
electricity use and promote environmental goals. New agencies such
as the Environmental Protection Agency (1970) and the Department of
Energy (1977) were created to regulate different aspects of electricity,
including generation from coal-burning power plants.

In the 1990s, federal regulation of electricity shifted towards a market-

based approach.[24] Deregulation had proven beneficial in reducing
the cost and improving the quality of tightly regulated areas like the
airline industry, and regulators were interested in bringing the same
benefits to the electricity industry.

In 1996, FERC attempted to restructure the industry by imposing an

“open access” model[25] on utilities.[26] FERC’s intent was to
“remove impediments to competition in the wholesale bulk power
marketplace.” Despite FERC’s focus on competition, electricity
transmission remains heavily regulated. Hence, the “deregulation” of
electricity in the 1990s was in fact “re-regulation.” Wholesale
electricity markets continue to evolve, with market forces and federal
regulations colliding at each step.
 Currently, the electric power sector
faces an unprecedented amount of
federal intervention from several
different agencies. Some of the most
active are the Environmental
Protection Agency (EPA), FERC, and
the Department of Energy.[27]

The EPA proposed a new rule in 2014

to limit carbon dioxide emissions from
existing power plants. The rule
Source: Department of Energy threatens to close a large portion of
the reliable coal-fired electricity
supply in the U.S. As a result, the rule will undercut power companies’
ability to meet electricity demand safely and reliably.[28] The EPA rule
also comes at huge cost to American families and businesses that use
electricity every day—by 2030, the rule is estimated to increase
electricity bills by a combined $290 billion.[29]

FERC, with its mandate to ensure just and reasonable wholesale rates,
has long been involved in every aspect of wholesale electricity
markets. In 2005, it received increased authority from Congress to
further regulate the reliability of the power grid, and to oversee
wholesale electricity markets. Recent FERC rules favoring renewable
sources of electricity have made the agency more political than ever
before and raised its profile. Conflicts over FERC leadership—between
Congress, the White House, and policy and industry groups—reached
a fever pitch in 2013 and 2014 with two nominees to chair the agency
being denied the job by Congress.

Meanwhile, the Department of Energy has also encouraged renewable

sources of electricity through its national laboratories and essentially
banned the use of certain technologies—such as the familiar
incandescent light bulb—by establishing energy efficiency mandates.
In short, nearly every aspect of electricity is now heavily regulated by
multiple federal agencies.

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A Powerful Vision

Electricity remains a growth industry today, in spite of political

meddling at the local, state, and federal level. New vistas for electricity
will always be there for people to discover, but that discovery will
require the freedom to inspire new inventions. Let the next generation
of electricity entrepreneurs be driven—like Edison and Insull—by the
productive forces of human ingenuity and healthy competition.

Electricity is modern life. Without access to reliable power, our lives

would be much more like they were before the industrial revolution (to
quote Thomas Hobbes): “solitary, poor, nasty, brutish, and short.”[30]
Nearly every feature of modern civilization depends on affordable,
reliable electricity and the things it powers—lamps and heaters to
safely keep our homes well-lit and comfortable, smart phones to stay
in touch with loved ones, and always-on data centers to give us a
reliable Internet—among countless others. It is so crucial to modern
life, in fact, that the history of electricity is really the history of the
modern world.
Photo Credit: Wikipedia Commons

_____________________________________________________________________

Footnotes

[1] Carl Van Doren, An Account of the Kite

Experiment, UShistory.org,
http://www.ushistory.org/franklin/info/kite.htm

[2] Engineering timelines, Faraday’s work- the

electrical generation, http://www.engineering-
timelines.com/how/electricity/generator.asp

[3]Vaclav Smil, The Energy Question, Again, Current

History, December 2000, p. 408.
[4] Mark P. Mills, The Cloud Begins With Coal, August
2013, http://www.tech-pundit.com/wp-
content/uploads/2013/07/Cloud_Begins_With_Coal.p
df?c761ac

[5] Energy Information Administration, Manufacturing

Energy Consumption Data Show Large Reductions in
Both Manufacturing Energy Use and the Energy
Intensity of Manufacturing Activity between 2002
and 2010, March 19, 2013,
http://www.eia.gov/consumption/manufacturing/rep
orts/2010/decrease_use.cfm

[6]Vaclav Smil, “The Energy Question, Again,”Current

History, December 2000, p. 409.

[7]Vaclav Smil, “The Energy Question, Again,”Current

History, December 2000, p. 409.

[8] International Energy Agency, Access to Electricity,

http://www.worldenergyoutlook.org/resources/energ
ydevelopment/accesstoelectricity/

[9] Erich Zimmermann, World Resources and

Industries (New York: Harper & Brothers, 1951), p.
596.

[10] International Energy Agency, Access to

Electricity,
http://www.iea.org/publications/worldenergyoutlook/
resources/energydevelopment/accesstoelectricity/
[11] National Archives and Records Administration,
Thomas Edison’s Patent drawing for an improvement
in electric lamps, patented January 27,
http://www.archives.gov/exhibits/american_originals
_iv/images/thomas_edison/patent_drawing.html

[12] These quotations are taken from Robert Bradley,

Edison to Enron: Energy Markets and Political
Strategies (Hoboken, NJ: Scrivener Publishing and
John Wiley & Sons, 2011), p. 30.

[13] Robert L. Bradley, Edison to Enron: Energy

Markets and Political Strategies. (Hoboken, NJ:
Scrivener Publishing and John Wiley & Sons, 2011), p.
42.

[14] Conot, Robert. Thomas A. Edison: A Streak of

Luck. New York: Da Capo, 1979. (p. 273)

[15] ComEd, Carrying On a History of Innovation and

Service, https://www.comed.com/about-
us/company-information/Pages/history.aspx

[16] Australian Department of Industry, Energy

Efficiency Exchange,http://eex.gov.au/energy-
management/energy-procurement/procuring-and-
managing-energy/understanding-your-energy-
requirements/#Why_are_demand_profiles_important

[17] Thomas Edison: His Electrifying Life, Time

Magazine Special Edition, 2013.
[18] R. Richard Geddes, A Historical Perspective on
Electric Utility Regulation, Winter 1992
http://object.cato.org/sites/cato.org/files/serials/file
s/regulation/1992/1/v15n1-8.pdf

[19] Emergence of Electric Utilities in America: State

Regulation,http://americanhistory.si.edu/powering/p
ast/h1main.htm

[20] Forrest McDonald, Insull (University of Chicago,

1962).

[21] Ibid., p. 333.

[22] Robert L. Bradley, Edison to Enron: Energy

Markets and Political Strategies. (Hoboken, NJ:
Scrivener Publishing and John Wiley & Sons, 2011), p.
219, 513.

[23] Travis Fisher, PURPA: Another Subsidy for

Intermittent Energies, January 22, 2013,
http://www.masterresource.org/2013/01/purpa-
renewable-energy-subsidies/

[24] Market Economics: The Push for Deregulation,

http://americanhistory.si.edu/powering/past/h5main.
htm

[25] Clyde Wayne Crews, Rethinking Electricity

Deregulation: Does Open Access Have It Wired- Or
Tangled, June 24, 1999, http://cei.org/outreach-
regulatory-comments-and-testimony/rethinking-
electricity-deregulation-does-open-access-have

[26] Federal Energy Regulatory Commission, History

of FERC,
http://www.ferc.gov/students/ferc/history.asp

[27] Institute for Energy Research, EPA’s Power Plant

Carbon Dioxide Reduction Mandate,
https://www.instituteforenergyresearch.org/studies/
111d-emissions-map

[28] Institute for 21st Century Energy, Assessing the

Impact of Proposed New Carbon Regulations in the
United States, http://www.energyxxi.org/epa-regs#

[29] Institute for 21st Century Energy, Assessing the

Impact of Proposed New Carbon Regulations in the
United States,
http://www.energyxxi.org/sites/default/files/file-
tool/Assessing_the_Impact_of_Potential_New_Carbon
_Regulations_in_the_United_States.pdf

[30] Thomas Hobbes, Of Man, Being the First Part of

Leviathan. Chapter XIII Of the Natural Condition of
Mankind as Concerning Their Felicity and Misery,
The Harvard Classics 1909-14,
http://www.bartleby.com/34/5/13.html