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Category — Edison Electric Institute (EEI)

The Insull Speech of 1898: Call for Public Utility Regulation of Electricity (The origins of EEI’s support for cap-and-trade in today’s energy/climate bill)

[Editor note: Bradley is currently working on the second volume of his political capitalism trilogy. Book 1, Capitalism at Work: Business, Government, and Energy, came out last year.  Edison to Enron: Energy Markets and Political Strategies (Scrivener Press/John Wiley & Sons) will examine the rise and fall of the father of the modern electricity industry, Samuel Insull. Publication of Book 2 is scheduled for year-end.]

“Several electric utilities, including nuclear power giant Exelon and PG&E, joined more than 170 businesses to punctuate the importance of placing a price on carbon through a complex bill that is facing a political impasse.”

 - Evan Lehmann, “Businesses Push Reid to Abandon Immigration for Climate,”E&E News, April 29, 2010

The Edison Electric Institute has controversially thrown its support behind cap-and-trade legislation sponsored by Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joseph Lieberman (I-Conn.), aka the KGL Bill.

The question may be asked: why would a major business lobby advocate legislation that increases costs and thus electric rates?

The answer is easy: the companies get to pass on the costs to their customers under public-utility regulation. So higher costs from CO2 rationing can be judged ‘reasonable’ by state authorities, and the new federal law can give the utilities a lot of sweeteners to make sure they profit, at least in the short term.

Jim Rogers of Duke Energy, who more than any other person in his industry has championed CO2 pricing, sees advantage. The Ken Lay protégé will go down in history as one of the major rent-seekers of our era–despite the troubled case for climate alarmism, the political problems of any global “solution,” and the negative effects on electricity users.

Where did the drive for automatic pass-through of  “reasonable” costs begin? For the electric industry, it began in Chicago in June 1898 in a then-controversial speech by Samuel Insull, the head of Chicago Edison Company and the president of the major trade association of the industry, the National Electric Light Association.

Insull did not want regulation for its own sake. He believed that franchise protection was worth giving authorities control over rates. Insull believed that this quid-pro-quo — exclusive franchises for cost-based rate maximums — would lower interest costs (a huge cost item for public utilities) and thus lower rates. Insull also saw statewide public utility regulation as a better alternative to local politics and to municipalization.

Insull’s political program was ahead of its time. Most of his fellow electric utility heads were opposed when Insull first gave his speech. But he would win them over in the next years, and state-after-state would implement formal cost-of-service regulation for electricity. [Read more →]

April 29, 2010   4 Comments