1896 to 1928: Electric industry evolves—competition, consolidation, state regulation, tremendous growth

• 1879 to 1895
• 1896 to 1928
• 1927 to 1936
• 1927 to 1969
• 1970 to 1978
• 1978 to 1996
• 1999 to 2003

by Jeff Hein

(Note: This is the second of a series about the history of the U.S. electric utility industry. Hein developed this material as part of his master's thesis research.)

The Fisk Street Station uses new 1903 steam turbine technology developed by Commonwealth Edison Co. (Courtesy of the National Museum of American History.)

A major development in the electric utility industry occurred in 1903. Chicago Edison, under the guidance of president Samuel Insull, installed a turbine-generator set that produced 5 MW of AC power at Fisk Street Station in Chicago. A turbine-generator set was revolutionary because it used a new technology known as a steam turbine as the generator's prime mover. The rotating steam turbine, developed in England in 1884 by Charles Parsons, was far superior to its predecessor, the reciprocating steam engine.

Charles Parsons

The new steam turbine was much smaller, produced equal amounts of energy, and could be scaled up to produce more power for little additional capital cost. These new machines could now produce more electricity at a cheaper cost. Adjusted to 1992 terms, new AC technologies lowered electricity costs to $1.56 per kilowatt-hour in 1912 compared to a rate in excess of $4 per kWh in 1892.

The downfall of the widespread DC electricity system Edison envisioned was imminent.

Consolidation, regulation, early growth

Insull realized that a competitive market environment would not result in enough profits to pay back investment costs. He began acquiring other utilities, eliminating competition—and thus began consolidation. By 1907, Chicago Edison had acquired 20 other utility companies and changed its name to Commonwealth Edison.

Samuel Insull

Consolidation occurred in many other cities, with the local electric utility controlling the market—a natural monopoly.

Using the railroads as precedent, initially cities, then states created public utility commissions to regulate electric companies and protect consumers from price gouging. States assumed jurisdictional authority over electric utilities which was initially held by local government. Utilities were protected from competition and, in return, were obligated to serve all customers.

As a result, during the 1910s and 1920s, utilities saw tremendous growth and were able to charge their expanding customer base for all services they provided. Utility generation and transmission expanded from 5.9 million kWh in 1907 to 75.4 million kWh in 1927, while per unit costs of electricity declined 55 percent.

(Note: Hein was a substation engineer in the Design group at CSO.)