Edison to Enron: Energy Markets and Political Strategies

Book 2 Internet Appendices

Chapter 2: Dynamo at Chicago Edison

• 2.1 From Manufacturing to Integrated Distribution
• 2.2 Some Discrepancies in Insull Historiography
• 2.3 Corporate Culture
• 2.4 Battery Storage for Central Stations
• 2.5 Edison, Ford, and the Electric Car
• 2.6 The Utility of Electricity
• Bibliography (PDF)

2.1 From Manufacturing to Integrated Distribution

Samuel Insull’s bold move from General Electric to Chicago Edison Company in 1892 was fortuitous for the electricity industry and its customers. In retrospect, his former job was a stepping stone for the latter. “When I got out of manufacturing into the operating side of the electric light and power business, that knowledge of costs and of the economic fundamentals of cost, which had been acquired,” explained Insull, “gave me an experience and a foundation that has enabled me to apply those same rules to the manufacture of energy, to the wholesaling of energy, to the massing of production, and the distribution of energy over large areas.”

Insull had personal reasons also to make the change. He chafed at Charles Coffin’s charge to J. P. Morgan that Edison General Electric was not well managed. So when the new General Electric was formed with Coffin as number one and Insull as number three, Insull was ready to move on. “Later on, as a result of the consolidation of manufacturing and selling interests,” Insull recalled in a 1925 speech, “it seemed better for me to get out; or to put it more politely, some people probably helped me get out” (Insull, 1925, p. 13). Coffin was one of those, but J. P. Morgan, the ultimate decision-maker, was the primary person, as mentioned in chapter 1.

2.2 Some Discrepancies in Insull Historiography

The serious scholar will note some areas of disagreement in the literature on Samuel Insull. I have uncovered these; other examples surely exist.

In The Visible Hand (1977) Alfred Chandler refers to Insull as “a [Henry] Villard protégé” (427). Insull did report that President Villard upon the formation of Edison General Electric in 1889, but there is little record of Villard was his mentor in any significant way. Chandler’s incorrect notion that Insull left General Electric in conjunction with Villard losing out upon the formation of the company in 1892 (428) is part of this author’s misconception.

Chandler also credits Charles Coffin, who took Insull’s place over the business operations of the old Edison General Electric, with “amalgamat(ing) the organizations of the two companies into a single centralized structure” (428). Coffin also embarked on other centralization and rationalization strategies (also noted by Chandler, 428—29) that gave him a place in the history of management innovation. But Insull should have been credited in this regard, for (as McDonald noted) “Coffin immediately scrapped his own manufacturing and sales system and adopted the one created by Insull” (51). McDonald goes on to add that Coffin’s bad customer relations policy would be corrected by Insull as General Electric’s major customer (52).

In his biography of Samuel Insull, The Merchant of Power (2006), John Wasik characterizes Insull as, among other things, a “huckster,” a “tyrant,” and a “scoundrel” (ix). This interpretation is harsher than the interpretation found in Forrest McDonald’s Insull and in the present book and likely reflects an under-researched, populist approach.

Wasik states that “tightfisted New York bankers … initially looked upon Edison’s ventures as amusing novelties compared to sure bets like telegraph lines, steel mills, and railroads” (5). But in October 1878, Edison’s lighting experiments caused a gas panic and a missive from J. P. Morgan alerting a colleague about the “most important” subject of “Edison’s Electric light” (Collins and Gitelman, 86).

Smaller factual discrepancies are also found in Wasik:

• Wasik describes Insull’s height as five-foot-three (5); Insull himself stated five-foot-eight (Insull, 1934, p. 15).
• Wasik states that Insull’s maiden voyage to the United States from England in 1881 took two months (6). The trip took closer to two weeks (McDonald, 19—20).
• Wasik described Insull at the first meeting with Edison as “partially in fear, horrified that Edison was looking for someone with an entirely different skill set and he would not fit the bill” (6). Yet remembrances by Insull and secondary descriptions do not suggest a lack of confidence but a calm, well prepared Insull impressing Edison with his informed advice.
• “Insull was offered [around 1879] a stenographer’s position in the New York office of Drexel, Morgan & Company” (11). This was a more substantial job as discussed in chapter 1 of Edison to Enron, (29).
• “Insull would later call [Edison Construction Department] the ‘destruction department since it was little more than a poorly capitalized contracting firm whose main purpose was to build power plants” (30). Critics, not Insull, gave it this name as discussed in chapter 1 of Edison to Enron, (45).
• Wasik put the value of Thompson-Houston at the time of the merger with Edison General Electric to form General Electric at $7 million (p. 51). Other accounts put the Morgan-determined valuation at $18 million (Conot, 302).
• Wasik estimates the number of companies in Chicago at the time Insull became president of Chicago Edison at 45 (p. 57). Insull himself placed the number of competitors at “perhaps 30” (1917, p. 110), while Thomas Hughes (1983, p. 204) and John Hogan estimated the number to be just more than 20 (p. 36).

Elsewhere, there is a discrepancy on the initial size of the Harrison Street Station that came online in 1894. The estimate of 6.4 MW (Hogan, 39) appears to be correct, rather than 16.4 MW stated elsewhere (Klein, 402).

Different accounts exist of the size of the new-generation prime movers that Charles Coffin of General Electric wanted to build versus Insull’s request. The Curtis turbogenerator, as it was called, was in development around the turn of the century in Europe and at Schenectady. Insull himself in a June 1912 lecture (“Stepping Stones of Central-Station Development through Three Decades” [p. 354]), said that Coffin wanted to build a one-megawatt unit for Commonwealth Edison’s new Fisk station:

Mr. Coffin wanted, on the advice of his engineers, to build a 1,000-kilowatt machine, or a 1,000 horse-power machine—I forget which. I pointed out to him that we had reached a point in central-station development that enables us to get reciprocating engines of 5,000—6,000 kilowatts, and that to make a steam turbine of a fifth that size would be a step backward. We had long negotiations on the subject….

But other accounts, referenced in Chapter 2, recount Coffin’s offer to have been 3 MW (versus the actually chosen size of 5 MW). Perhaps this discrepancy is from the beginning and end of the “long negotiations” where Coffin started out stating his preference to be 1 MW and later increasing it to 3 MW and ending with the shared risk arrangement of 5 MW.

2.3 Battery Storage for Central Stations

The challenge for electricity was serving a market where distribution had to be synchronous with generation. The primary energies oil, gas, and coal (and to a lesser extent hydropower) could be stored to even out production and consumption. But without affordable battery storage, electricity was another matter, necessitating complicated rate designs to profitably manage the peak load.

“I think we all concede the advantages to be obtained from the use of storage battery from the storage point of view only,” stated Samuel Insull in 1897. “But some of us are still in doubt as to our ability to save sufficient money by this plan to justify the large investment required” (Insull, 1897: 4). Indeed, batteries returned just 70 percent of the power they received, limiting the market. “So far as I have been able to ascertain, it would appear to be economical to use storage batteries in connection with central-station systems the peak of whose load does not exceed from two to two and one-half hours” (Insull, 1898: 26).

What batteries did contribute on an ongoing basis, however expensively, was insurance to keep the lights on and elevators running. “Storage with us is practically an impossibility,” Insull lectured in 1909. “The Commonwealth Edison Company has about $1,500,000 invested in storage batteries in this downtown district. We do not carry that investment to help us out at a period of maximum load, but solely to insure us continuity of service” (Insull, 1909, 58).

And continuous service made all the difference, for the public expected it, because life-or-death situations had to be avoided. Stuck elevators, stranded passengers on streetcars, dangling riders at amusement parks, dark interiors of buildings—all of these makings of a “calamity” were a “terror” to Insull (Insull, 1915: 8).

2.4 Edison, Ford, and the Electric Car

Samuel Insull (1859—1938), considered the father of the modern electricity industry, recounted a summer 1896 meeting between his mentor, Thomas Edison, and the-then chief engineer of the Detroit Edison Company, Henry Ford, at the annual meeting of the Association of Edison Illuminating Companies (Baldwin: 303). Ford has just made his first car—or “quadricyle” as it was called then—and wanted to know of he was on the right track for a second design. Insull recounted the encounter as follows (Insull, 1934: 142—43):

“He asked me no end of details,” to use Mr. Ford’s own language, “and I sketched everything for him; for I have always found that I could convey an idea quicker by sketching than by just describing it.” When the conversation ended, Mr. Edison brought his fist down on the table with a bang, and said:

Young man, that’s the thing; you have it. Keep at it. Electric cars must keep near to power stations. The storage battery is too heavy. Steam cars won’t do, either, for they require a boiler and fire. Your car is self-contained—carries its own power plant—no fire, no boiler, no smoke and no steam. You have the thing. Keep at it.

Later on Mr. Ford wrote:

That bang on the table was worth worlds to me. No man up to then had given me any encouragement. I had hoped that I was headed right, sometimes I knew that I was, sometimes I only wondered if I was, but here all at once and out of a clear sky the greatest inventive genius in the world had given me a complete approval. The man who knew most about electricity in the world had said that for the purpose my gas motor was better than any electric motor could be—it could go long distances, he said, and there would be stations to supply the cars with hydro-carbon. That was the first time I ever heard this term for liquid fuel. And this at a time when all the electrical engineers took it as an established fact that there could be nothing new and worthwhile that did not run by electricity. It was to be the universal power.

The above meeting between Mr. Henry Ford and Mr. Thomas A. Edison took place at a time when Mr. Ford was engaged in getting ready to build his second car. He has told me on a good many different occasions that the inspiration he received from meeting Mr. Edison had a great deal to do with his having the courage to go ahead with his work in trying to produce a cheap motor car operated by an internal combustion engine.

Edison got the battery bug later in his career, seeing this field as his way to right the wrongs that others had bestowed on him when General Electric was taken over by others in 1892. The Edison Storage Battery Company, founded in 1900, encountered early setbacks, but Thomas Edison soldiered on and produced a superior nickel-iron-alkaline product by 1909 (Jonnes, 351—52).

But a major hoped-for market, motor vehicles, was using gasoline, not electricity. It was not for want of effort between two titans and dear friends. In 1914, Henry Ford announced a “Ford Electric” that would sell for $900 and have a range of 100 miles (Mom: 255). The brainchild of Thomas Edison himself, the concept—described as “Mr. Ford’s personal project” and “experimental” by Ford Motor Company—never got off the ground. The alkaline battery that penetrated the truck market was rejected by car makers because of its size and an incremental cost of between $200 and $600 per vehicle (Mom: 255—56).

So it was back to 1896 for Ford and Edison despite the latter’s $1.5 million battery effort (Jonnes: 352).

2.5 Corporate Culture

An incident in one of Samuel Insull’s first days as president of Chicago Edison Company was indicative of his approach to management. As told by Forrest Crissey in Story of the Commonwealth Edison Company(16—17):

On arriving with his friends at ‘old 139 Adams,’ Mr. Insull rattled the wire door at the street exit. The summons was promptly answered by the old Irish watchman, McDermot.

‘I’m Mr. Insull, the new President of the Company,” quietly announced the man who had rattled the wire door. The watchman bowed respectively and instantly replied:

‘I’m honored to meet ye, sorr.’—but his hand did not go to the bunch of keys in his belt.

“I want to take my friends through the plant,’ explained Mr. Insull.

‘I’m sorry, sorr,’ was the firm, unhesitating response of the watchman, ‘but me orders are very strict and they say that I shall not admit anyone to the building while I am on duty excepting on a pass signed by the officers of the company.’

Mr. Insull smiled, offered his apologies to his friends, and then walked away with them. The next day Mr. McDermot’s pay was raised by order of the President. He remained with the company a long time.

Insull was not a softie by any means, however. He expected results and did not inflate the value of laudation. “Your know I am not in the habit of paying compliments,” Insull wrote to Frank Sargent about the spectacularly successful Fisk Generating Station, “but I desire to take this opportunity of telling you that I am not forgetful of the great assistance you have rendered me in my efforts to give cheap power to this community” (Insull, 1914). The personal note ended:

The great engineering ability which you have displayed in designing our great power plants has placed us in the forefront lead to such an extent that what has been accomplished is a matter of great satisfaction to me as I am sure it must be to you. It gives me a confidence in the future which is very pleasant to contemplate.

2.6 The Utility of Electricity

The manifold positives of electricity for the human condition is an implicit theme of Part I. And Samuel Insull, as father of the modern electricity industry, was at the center of things. This appendix provides a series of quotations to emphasize how electricity is the master use of the master resource of energy.

“Great are the powers of electricity,” one newspaper wrote in 1897. “It makes millionaires. It paints devils’ tails in the air and floats placidly in the waters of the earth. It hides in the air. It creeps into every living thing” (Buffalo Morning News). Such first impressions would be joined by a mid-twentieth-century perspective of note. “Electricity resparked the Industrial Revolution, found new worlds to conquer, and accelerated the process of mechanization not only of manufacture and transport, but of agriculture as well,” wrote Erich Zimmermann. “It set in motion a new wave of inventions which reduced and continues to reduce the cost of inanimate energy and thus encourages the further spread of its use” (Zimmermann: 596). Indeed, the resource economist linked modern energy to the second industrial revolution (Zimmermann: 568). As he explained:

The increase in the hours spent usefully or pleasantly by millions wherever electricity sheds its light is one of the greatest blessings of mankind. If to this are added the endless hours of drudgery which electrically driven labor-saving devices spare housewives, farm families, and other workers, one gains some idea of the scope of this boon which has come to mankind from a force whose real nature remains a mystery” (Zimmermann: 596).

Specifically,

New industries resting squarely on electricity come readily to mind: telephone, telegraph, cable, radio, radar, refrigeration, air-conditioning, electronics, television. There seems no end to the miracles which can be traced to this qualitative improvement of ancient energies and the refinement in their use (Zimmermann: 596).

Electricity for the masses represented a sharp break from a pre-electrical era, noted Julian Simon:

Not much more than one century ago—after more than 50 centuries of recorded history and hundreds of centuries of unrecorded history—for the first time people had something better than a firelight or oil lamp to break the darkness after dusk. And the absence of electricity continued almost into the second half of the twentieth century for substantial portions of the population of the richest country in the world. Now all of us Americans take Edison’s gift for granted (Simon: 23).

The utility of electricity led to its growth both absolutely and as part of the energy pie. Explained energy economist and historian Vaclav Smil:

The expanding use of electricity has been another key mark of twentieth-century progress. In 1900 less than 2 percent of the world’s fossil-fuel output was converted to electricity; in 2000 the share surpassed 30 percent. 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 (Smil, 2000: 409).

Samuel Insull’s drive to bring electricity to rural America, which typically had dusk-to-dawn street lighting only, had a huge social benefit that is pertinent today for the developing world:

Bringing electricity to rural areas also creates opportunities for microenterprise. For example, improved lighting can allow for longer working hours or higher productivity in already established household industries, while new small industries requiring electricity, such as machine shops, can be established. . . . Electricity can also benefit households in numerous ways that boost quality of life and household productivity (Bernstein et al.: 4).

The egalitarian nature of electricity is important. “On the personal level,” stated Smil, “electricity has been essential in easing the lives of the traditionally disadvantaged half of the humanity as it did away with tiresome domestic labor and offered the possibility of female emancipation” Smil, 1999: 134).

Electric streetcars, not only gasoline-powered automobiles, vans, and trucks, ushered in a new, vastly improved era of transportation. Stated John Hammond in his history of General Electric Company:

With people beginning to talk of electricity as the emancipator of the horse, it was high time for an emancipator to appear. Horses frequently collapsed in the traces from the heat. They could be worked only two or three hours a day. The streetcar stables were immense, and property surrounding them invariably depreciated in value (86).

The need for electricity in emergency situations has only added to its importance:

Businesses affected by extreme weather events commonly cite electricity as the most important “lifeline” service—more crucial than telephones, natural gas, or water. Disrupted power can account for as much as 40 percent of the total insured losses claimed after a disaster (Dunn and Flavin: 150).

And then there is the most recent triumph for the wonder fuel. “A reliable electricity supply, noted Smil, “has also created the first instantaneously interconnected global civilization” (408).

Bibliography: Book 2, Chapter 1 Internet Appendices

Baldwin, Neil. Edison: Inventing the Century. Chicago: University of Chicago Press, 1995, 2001.

Bernstein, Mark, et al. Developing Countries and Global Climate Change. Washington, DC: Pew Center on Global Climate Change, June 1999).

Buffalo Morning News, January 13, 1897, front page. Reprinted in Jill Jones, Empires of Light: Edison, Tesla, Westinghouse, and the Race to Electrify the World (New York: Random House, 2003.

Chandler, Alfred. The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Harvard University Press, 1977.

Dunn, Seth, and Christopher Flavin. “Sizing Up Micropower,” In State of the World 2000, edited by Lester Brown, 142—61. New York: W.W. Norton, 2000.

Grissey, Forrest. “Story of the Commonwealth-Edison Company,” 1922. Loyola University Chicago Archives and Special Collections. Samuel Insull Papers, 1799—1970. Box 50. Folder 6.

Hogan, John. A Spirit Capable: The Story of Commonwealth Edison. Chicago: The Mobium Press, 1986.

Hammond, John. Men and Volts: The Story of General Electric. New York: J. P. Lippincott, 1941.

Hughes, Thomas. Networks of Power: Electrification in Western Society, 1880—1930. Baltimore: Johns Hopkins University Press, 1983.

Insull, Samuel. “Problems of the Edison Central-Station Companies in 1897” (1897). Reprinted in Insull,Central-Station Electric Service. 1—7. Chicago: Privately Printed, 1915.

Insull, Samuel. “Elucidation of Electric-Service Rates for Business Men” (1908). Reprinted in Insull, Central-Station Electric Service, 54—64. Chicago: Privately Printed, 1915.

Insull, Samuel. “Stepping Stones of Central-Station Development through Three Decades” (1912). Reprinted in Insull, Central-Station Electric Service, 427—44. Chicago: Privately Printed, 1915.

Insull, Samuel. Letter to Frank Sargent of April 6, 1914. Loyola University Chicago Archives and Special Collections. Samuel Insull Papers, 1799—1970. Box 2. Folder 6.

Insull, Samuel. “Service” (1915). Reprinted in Insull, Public Utilities in Modern Life, 7—25. Chicago: Privately Printed, 1924.

Insull, Samuel. “Developments in Electric Utility Operating” (1917). Reprinted in Insull, Public Utilities in Modern Life, 108—132. Chicago: Privately Printed, 1924.

Insull, Samuel. “Some Personal Experiences in Getting a Start in Life.” December 9, 1925, Chicago. Loyola University Chicago Archives and Special Collections. Samuel Insull Papers, 1799—1970. Box 21. Folder 5.

Insull, Samuel. The Memoirs of Samuel Insull. Polo, Ill: Transportation Trails, 1934, 1992.

Jonnes, Jill. Empires of Light: Edison, Telsa, Westinghouse, and the Race to Electrify the World. New York: Random House, 2003.

Klein, Maury. The Power Makers: Steam, Electricity, and the Men Who Invented Modern America. New York: Bloomsbury Press, 2008.

Mom, Gijs. The Electric Vehicle: Technology and Expectations in the Automobile Age. Baltimore: Johns Hopkins University Press, 2004.

Simon, Julian. “Introduction.” In The State of Humanity, edited by Julian Simon, 1—28. Cambridge, MA: Blackwell, 1995.

Smil, Vaclav. Energies. Cambridge, MA: The MIT Press, 1999.

Smil, Vaclav. “The Energy Question, Again,” Current History, December 2000.

Wasik, John. The Merchant of Power. New York: Palgrave, 2006.

Zimmermann, Erich. World Resources and Industries. New York: Harper & Brothers, 1951.