Power and Electricity Services

Where do power and electricity services from public utilities come from?

The idea of the modern electric grid– and the modern electric utility– came about through historical accident. Prior to innovations in electricity generation in the 1870s, electricity was merely a technological curiosity– not a useful tool or a necessity for daily life. For decades, Samuel Morse’s battery-operated telegraph held sway as one of the only practical uses of electricity. The power requirements for this new communication device were small: the electricity it required was chemically generated and consumed on the spot in small amounts, using simple voltaic batteries.

When engineers in places like Grand Rapids and Niagara Falls connected water-driven turbines to dynamos, they discovered they could produce cheap, reliable electricity. With this new abundance of power, new uses for electricity sprang up– as did new questions about how electricity should be sold, distributed, and regulated.

Thomas Edison, already famed for inventing the first practical lightbulb, saw that his products would have no market if the public did not have widespread access to electricity. Scorning the in-house power plant model, in which each business and home maintained their own generator, he established the Pearl Street Station in Manhattan, a forerunner of modern commercial power plants.

Power and Electricity ServicesSamuel Insull, a colleague of Edison’s and then-president of the Chicago Edison power company, took this principle of consolidated electrical generation and distribution even further. He believed that the best way to service electric customers was for one company to acquire a “regulated monopoly” over electric power distribution in a geographic area. The company would have the exclusive right to provide electricity to a region, but the state would be able to set prices and service terms. Through the Chicago Edison company, Insull established what would become the model for all electric utility companies today.

Why do I Buy Power from a Monopoly?

These days, most Americans expect to purchase their electricity from a local power and electricity services public utility that maintains the electric grid and holds a “natural” monopoly over a region’s power infrastructure. While other entities could, theoretically, enter the market and try to compete with established electric utilities, the infrastructure costs inherent in founding such a company, such as establishing independent power generating stations, stringing up new electrical transmission wires, etc, are enormously high. These high start-up costs discourage new players from entering the game of selling electricity.

Who keeps the monopolies in check?

Since electric utilities are generally monopolies, it is in the public’s interest for the government to regulate their practices. Whether the local power and electricity services provider is municipally-owned, publicly traded, or privately held by investors, all are subject to official scrutiny. All states maintain their own public utilities commissions, which exist to scrutinize the rates and services of these powerful companies. Electricity, along with other necessities like telephone infrastructure, public transport systems, water, and sewage, is a service the public can’t go without.

We have Samuel Insull to thank for both the modern electric utility and the regulatory bodies that hold electric utilities in check. By 1907, Insull had a functional monopoly over Chicago’s power supply. By 1914, in response, 43 states established regulations over electric utilities. The tension between market and regulation characterizes electric utilities to this day.

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