Electricity dominates many of today’s energy systems, encompassing 35% of U.S. primary energy consumption and providing clean, safe, efficient, and reliable power. From 1920 to 2021, electricity consumption in the United States increased by more than one hundred-fold, transitioning from coal and hydro in early years to a mix that includes nuclear, natural gas, and renewables today, with natural gas dominating. With the emergence of artificial intelligence and the need for data centers to run it, U.S. electricity demand is estimated to grow by 50% by 2050.
The provision of electricity requires a complex system of generators, substations, and wires to reach consumers instantaneously and continually. The so-called grid, utilizing economies of scale and scope, transformed electricity “from a luxury good to the foundation of modern life,” as Brian Potter of the Institute for Progress notes. Even “a brief interruption in electrical power,” he explains, “is considered a serious problem in industrialized countries.”
After highlighting Ray C. Fish, the engineering leader for the pipelines that transport natural gas, oil, and their derivatives over long distances, the time is ripe to investigate the man who built the modern grid, Samuel Insull. As IER CEO and Founder Robert L. Bradley Jr. describes in Edison to Enron: Energy Markets and Political Strategies, “Thomas Edison invented the common use of electricity, but Samuel Insull, more than anyone else, distributed it to the masses.” Information in this article primarily derives from this book.
Early Life
Born in England in 1859 to Congregationalist parents, Insull emigrated to the United States in 1881 at only 21 years old to become Thomas Edison’s personal secretary, a connection he gained as a secretary for George A. Gouraud, a banker and Thomas Edison’s representative in England.
Insull received little formal education, but, taking Victorian platitudes like “[i]dle hands are the devil’s workshop” to heart, he went to work as an office boy in London at 14 years old. An avid reader, he first read of Thomas Edison in an issue of Scribner’s Monthly, an American illustrated literary periodical that ran from 1870 to 1881. Working for Gourand, Insull learned of Edison’s electricity-lighting experiments in his Menlo Park, New Jersey, laboratory.
Edison’s Businessman
Although Edison was a brilliant inventor, patenting the practical incandescent light bulb in 1880 as one of his more than a thousand patents, he needed “a confidant to attend to all the details necessary for profitability and growth.” Insull quickly proved his worth, managing the bookkeeping for three Edison-owned businesses: Edison Machine Works, Edison Lamp Company, and Edison Electric Tube Company. At only 22, he would become Edison’s chief financial officer and hold his power of attorney. “Insull was agreeable, reserved, empathetic, and honorable—and focused, demanding, and addicted to work and strong coffee,” requiring “attention to detail, execution, and all the other things behind maximum effectiveness,” writes Bradley.
In 1882, based on the “central station” Edison built to light his laboratory and neighboring residences, Pearl Street Station began operation with six 100-kilowatt “jumbo” generators, one of which lit 900 dwellings in the First District of New York City. The first commercial electricity station introduced a three-wire transmission system that required less copper and was powered by coal, becoming profitable in only two years (as compared to multiple decades for coal gas).
Edison enlisted Insull to run the Thomas A. Edison Construction Department at the same time Insull oversaw the operation of Edison’s other companies, managing cash flow. “Jumbo” generators were installed throughout New York, Massachusetts, Ohio, and several other states. Although faced with some financial difficulties, which led to the liquidation of the Construction Department after two years, jumbos increased from 12 to 58 between 1884 and 1886.
Chicago Electrification
Insull left the newly merged General Electric in 1892, believing that GE was not “sufficiently focused on central stations as the future.” He surprisingly chose the Chicago Edison company, an upstart with only 2% the capitalization of GE.
Chicago was a good spot to be at the time; a railroad and manufacturing hub near plentiful coal mines, it had the fastest growing population of major cities in the U.S. and was scarcely served by electricity. As head of Chicago Edison (later renamed Commonwealth Edison after a merger), Insull made bold decisions in his quest for increased profitability:
- pursuing horizontal integration by acquiring 14 companies between 1894 and 1898,
- vertically integrating into coal properties to ensure feedstock,
- building the Harrison Power Plant in 1894 and soon retrofitting it with a rotary converter to provide alternating current (AC) to homes and businesses that were originally fit for direct current (DC),
- implementing batteries for central stations as insurance against the “calamity” of blackouts,
- and creating a two-part rate system that charged different users fairly via a flat equipment fee (demand charge) for the cost of being available to serve a customer’s peak demand and a volumetric rate for actual power used.
To increase electricity sales during periods of low demand (increase the average load factor of sunk-cost infrastructure), Insull energized streetcars and elevated trains, appliances (such as steam irons), and entertainment (movie projectors and amusement parks) as part of his “gospel of consumption.” Insull constantly pushed for better technologies — such as the reciprocating steam turbine — to produce more, affordable electricity, an approach he called the “massing of production.”
Insull went from the cities to the suburbs to the countryside, recognizing that “rural life’s summer peak [complements] the suburbs’ winter peak, improving load diversity,” benefiting farming, mining, and manufacturing. He also interconnected grids to improve load factors with less investment. As Bradley notes, “What was happening in and near Chicago—and now across the nation thanks to Insull’s leadership—was part of the American dream.”
By creating the business model for a commodity that had to be produced and consumed instantaneously, Insull joined the ranks of the greatest U.S. entrepreneurs. His election as head of the Association of Edison Illuminating Companies and the National Electric Light Association, predecessors of today’s Edison Electric Institute, allowed Insull to further industry-wide reforms, such as equipment standardization.
After World War I, Insull continued his business strategy of diversifying and growing loads and reducing costs and rates. He increased the scale of generation through “mega-complexes,” which hosted units generating up to 50 megawatts of electricity, compared to five megawatts at Fisk Street built in 1903.
Greater scale more than paid for itself due to Insull’s strategy of “cut-and-try” rates that led to more demand, thereby flattening the load factor (the average utilization of generation and transmission equipment) and increasing revenue. According to Bradley, “Mass conversion and scale economies created a virtuous cycle of electricity improvement for all.” Achieving this success required strong salesmanship, enabled in part by “electric shops peddling the latest gadgetry.”
Insull’s allegiance to creative destruction, meritocracy, imagination, and admonition to “keep out of politics all you possibly can” was overwhelmed by the politics of the day. Faced with corrupt and populist politicians in Chicago on one side and calls for municipalization on the other, Insull pragmatically advocated for state-level public-utility regulation of entry, rates, and terms of service.
Viewing utilities as a “natural monopoly,” Insull saw public-utility regulation as a necessary compromise to avoid municipalization, convinced “that public-service commissions would be apolitical and able to objectively ascertain just-and-reasonable rates.” “Yet no person more than Samuel Insull made formal cost-of-service regulation ‘inevitable,’” explains Bradley, noting that “[t]he father of modern electricity was also the father of public-utility regulation of the industry.” In 1898, Insull created a Committee on Legislative Policy to promote his statewide regulation model in his capacity as National Electric Light Association president.
Boom and Bust
Insull’s successes made him “the Babe Ruth, the Jack Dempsey, the Red Grange of the business world” in the 1920s as he expanded from Illinois. By 1924, his Middle West Utilities Company covered virtually a third of the U.S. in terms of electricity service, reaching from New England to Nebraska, and the borders of Mexico and Canada. He had a substantial stake in the utility sector; 17 of his companies, with a total capitalization of $2.2 billion in 1930, represented 12% of national utility investment. In today’s dollars, Insull was a billionaire.
The pyramid Insull built, largely on debt during the 1920s bull market (backed by the Federal Reserve’s expansionary credit), began to crumble during the Great Depression. On April 8, 1932, the banks, following instruction of J. P. Morgan, called in a $10 million note of Middle West Utilities, which resulted in receivership. Insull’s other companies lost significant stock value.
Insull resigned from all his corporate posts in June of that same year, eventually becoming a political scapegoat during the 1932 elections and being tried for fraud, a trial in which he was found not guilty. Moving to Paris after the trial, and living off suitcases of cash brought to him by his son, Insull succumbed to a heart attack in 1938.
Conclusion
Insull’s fall reflected late-life hubris and a bet that the Great Depression would end much sooner than it did. His advocacy for statewide regulation remains a legacy that has resulted in the very politics he had hoped to avoid. Still, he was a titan of industry who was instrumental in making electricity an essential product for millions of Americans, creating the prosperity that we enjoy today.
“The Insullization of companies and regions was Adam Smith’s invisible hand in action,” Bradley concluded.
Falling costs, declining rates, expanding markets, and reliable service spoke for itself. But behind the success was a remarkable suite of business advances accompanying—and driving—technological progress.
Edison and Insull’s early decades provide a case study of undesigned order where profit/loss incentives created an industry that otherwise could not have been designed by government and experts. For building the modern electricity industry through the forthright pursuit of profit, Samuel Insull deserves the rare title of U.S. energy pioneer.
