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Category — Insull, Samuel

Edison to Enron (Bradley): Some Thoughts

Consider the preconceptions that surface in your mind when you read the name “Enron”. Chances are that they are negative, and not particularly nuanced — fraudulent business activity, tarnishing the idea of free markets by trying to manipulate them using the political process, and so on.

If that’s true for you, then you are probably in a pretty similar mental space to mine when I started reading Rob Bradley’s Edison to Enron: Energy Markets and Political Strategies. Rob’s detailed and thoroughly researched book is a well-told analysis of the valuable and interesting regulatory and business history that formed the backdrop of Enron’s spectacular failure.

Samuel Insull, Father of Modern Electricity

The name of the book is somewhat misleading, because the first third of the book focuses not on Thomas Edison but on Samuel Insull. Insull, the oldest son of a working class family in Victorian England, emigrated to the U.S. (at age 21) after several years of a successful financial career in London.

Insull brought, and sharpened, his business acumen to complement Edison’s inventive creativity. Together they built the company that was renamed General Electric in 1892. But it was Insull’s business genius after he left the manufacturing side of the business to enter the distribution side (integrated from power generation to delivery), which accelerated the electrification of the country.

Rob tells Insull’s story extremely well, and provides extensive links to supporting material that illustrates how important Insull’s contributions were to Edison’s success individually and as a business/set of businesses.

With his analysis Rob also argues that Insull’s business skill generated substantial social value (i.e., consumer surplus as well as profit). That point is incontrovertible, but the story is not told often enough or well enough, and Rob has done so here.

I appreciated this part of the book in particular because although I am familiar with Insull’s biography, I did not realized that his business model advocacy had shaped our modern electricity industry so dramatically; for example, Insull consistently pursued acquisitions and consolidation that led to reduced costs through economies of scale, but always advocated for pairing those moves with reductions in retail prices to consumers. The companies he headed that followed this strategy profited while charging lower prices, in the absence of formal economic regulation.

Insull was, though, always an advocate for regulation, largely because he worried that rising debt service costs would make it difficult to pursue this model. [Read more →]

July 25, 2012   2 Comments

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