Chapter One Micropower-Thomas Edison's Dream Revived
IMAGINE A WORLD in which power flows not from on high, but fromthe masses. In such a world, important decisions would be dictatednot by the whims of grandees, but by the needs and wants of ordinarypeople. The price of meeting those desires would be set notby bureaucrats, but by the robust interplay of supply and demand.In politics, such principles are the cornerstone of democracy. Ineconomics, they are the foundation of capitalism. In the energyrealm, however, such notions are merely the stuff of fantasy.
That is because, for the better part of a century, governmentsaround the world have run the power business as a command-and-controlmonopoly along the lines of the old Soviet Union. In fact,Lenin himself once boasted that "Communism is Soviet power plusthe electrification of the whole country." Even in America, the landof the free and of the free market, electricity has long been considereda "natural" monopoly; many Americans continue to receivetheir power not from nimble local suppliers in a competitive market,but from distant power plants and local utility monopolies. Tounderstand why the world ended up with such a heavy-handed,centralized system of electricity provision, you need to go back intime.
One fateful day in 1884, two of the greatest inventors of any agemet face to face in New York City: Nikola Tesla and Thomas Edison.Tesla was a great admirer of Edison's; indeed, Tesla had traveledall the way from Europe just to meet him, armed with aglowing letter of reference. In it, one of Edison's lieutenants in Europegushed, "I know two great men and you are one of them; theother is this young man." The meeting should have been a pleasantone, but instead it proved the opening salvo in what would becomea titanic struggle of rival electrical technologies: alternating current(AC) versus direct current (DC).
At first blush, Edison would seem to have had little to fear fromthe twenty-seven-year-old Serbo-Croatian immigrant. Though onlya bit older, Edison was already a brilliant inventor and entrepreneur,with hundreds of patents to his name. He was successful beyondhis dreams, and his Edison Electric Company was growingmore powerful by the day. That was due in large part to his successin establishing many stand-alone "micropower" plants, based onhis development of DC technology, in homes and offices aroundNew York City. In a stroke of marketing genius, he built his firstcombined-heat-and-power plant in America just a stone's throwaway from Wall Street.
The trouble was that the handsome and headstrong Europeanhad come to persuade him of the benefits of an altogether differentsort of electrical technology. Tesla wanted to win Edison's backingfor his vision of electrification based on multiphase alternating current.In particular, he was excited to share his concept for somethingthat did not yet exist: a practical AC motor. The dramaticadvantage promised by high-voltage AC systems was that theymade transmission of large quantities of power over long distancessuddenly feasible. The low voltages used by Edison's DC-only approachmeant that his systems could transmit power efficiently foronly about a mile-meaning each of his plants was destined to bean island unto itself.
Rather than appreciate Telsa's innovative development or find away to co-opt it, Edison made the single greatest mistake of his life:he decided to kill it. Mistakenly believing AC power to be incompatiblewith his incandescent lightbulb (which he had developed in1879) and concerned about its safety, he derailed Tesla's ambitions:"We're set up for direct current in America. People like it, and it'sall I'll ever fool with ... Spare me that nonsense. [AC is] dangerous."Though Edison gave Tesla a job that day, the two were destinedto become enemies. Within a few years Edison would call onall the resources of his backers, including the financial empire ofJ. Pierpont Morgan himself, to prevent Tesla's technology from beingdeveloped. Edison and his British secretary, Samuel Insull,convinced New York's prison service to use AC power in the first-everelectrocution of a convict. On August 6, 1890, the murdererWilliam Kemmler was executed in the electric chair. Linking ACwith death, Edison was convinced, would prove the death of AC.
A bitter struggle broke out between rival forces that has come tobe known as the Battle of the Currents. By 1888, four years afterthe two geniuses met, Tesla had found another financial backer.George Westinghouse, a powerful businessman from Pittsburghwho had invented the railroad air brake, was convinced of the supremacyof Tesla's vision; he struck a deal with Tesla that turnedAC into a formidable force. By the turn of the century, AC hadwon the battle hands down. So decisive was the victory, in fact, thatGeneral Electric, the successor to the Edison Electric Company,embraced alternating current too. The technological war was over,and grid electrification based on AC technology became the backboneof the electricity network that eventually extended across thecountry.
Electrifying the Public
This centralized approach has had undeniable success. Most ofEurope, Japan, and North America are now wired up, and near-universalaccess to power is taken for granted everywhere in the developed world. America's National Academy of Engineering goesso far as to proclaim grid electrification the greatest engineeringachievement of the twentieth century, putting it ahead of morecommonly celebrated advances like the television, the radio, thetelephone, the computer, and even the Internet.
Most people don't give a second thought to the inner workingsof the electricity network. Most folks probably have not ponderedthe topic at all, except when the occasional jolt of static electricityhits them shuffling across thick carpeting, or when they rememberto jump out of the swimming pool during a lightning storm. Indeed,most people think of electricity simply as something that appearsmagically out of the walls of our homes and offices, at littlecost and requiring no more effort than the flick of a switch.
In fact, Herculean efforts and mind-boggling investments ingeneration, transmission, and distribution allow us to commandelectricity with the authority with which the mighty Zeus himselfwielded his bolts of lightning.
Any youngster might explain to you that making and distributingelectricity is actually a very complicated process that takes aninevitable toll on human welfare. After all, the hugely successfulanimated film Monsters, Inc. starts with the premise that in order toproduce electricity, scary (if well-intentioned) monsters frightenlittle children in order to harness the energy released by their anxiousscreams. While monsters aren't really involved in electricityproduction, monstrosities certainly are: nuclear stations that producedeadly radioactive waste, giant hydroelectric dams that chokethe life out of rivers, and coal-fired plants that spew out all sorts ofnasty pollutants that are working their way into your lungs andbloodstream right this minute. The reason most people do notthink about these things when they flick a power switch is thatpower usually comes from many miles away. When you turn onyour television or stereo, an electric current that may have had itsorigins in a big plant tens or even hundreds of miles away starts toflow into the device. Think of the steady stream of electrons flowinginto your TV from the wall socket as akin to the steady streamof water flowing into your glass from the kitchen faucet: both havetheir origins far away, and both must flow through elaborate systemsof interconnected "pipes" to get to your house.
The world's electricity system has evolved as a hugely centralizedhub-and-spoke system, in which power is generated at distantlocations and then shipped through an elaborate transmission anddistribution system of heavy-duty wires, transformer stations, andso on before reaching our homes and offices. In fact, the NorthAmerican electricity network, with its tens of thousands of miles ofintertwined and insulated copper and steel, is one of the world'slargest man-made structures. That power network and its foreigncounterparts have played a crucial role in the world's economic development;indeed, such grids make our modern lifestyle possible.
Even so, the shortcomings of such a top-heavy approach to energyprovision are now becoming apparent. It has largely failed developingcountries, where more than a billion and a half people stilllack access to grid electricity. If they are to keep darkness at bay,these unfortunates must walk miles a day to fetch wood, or theymust use dirty and unhealthful fuels such as cow dung. Even urbanelites in poor countries that have grid connections frequently endurepower outages.
Concern over the reliability and cleanliness of central-stationpower generation has made the grid's limitations clear in the industrializedworld as well. Lured by the promise of economies of scale,the power industry has built ever bigger power plants far from theconsumers of electricity. It has too often been blind to the low efficiencyrates and environmental costs of those central plants. (Manyof America's giant coal plants, for example, are well over thirtyyears old and barely manage an efficiency rate of 30 to 40 percent;in comparison, the best combined-heat-and-electricity micropowerplants can achieve double that efficiency.) The power industry hasalso ignored the losses dissipated as heat incurred in transportingpower over wires to distant consumers, which typically amounts tomore than a quarter of the cost of delivered electricity in developedcountries. The government and local monopolies that have longcontrolled the generation, transmission, and retail distribution ofpower never had much incentive to encourage innovation or investin new approaches to power delivery. Since market forces weresuppressed, the gross inefficiency of energy utilities did not seem tomatter terribly much.
Walt Patterson, an energy thinker at Britain's Royal Institute ofInternational Affairs, has for many years been pointing out thefrailties of this "bigger is better" approach. He explains that therest of the world has avoided some of America's power pitfalls, butnot the problem of excessive centralization: "In many ways, theU.S. was the odd man out. Its ideological fixation on buccaneering'free enterprise' and hostility to government was almost unique.Elsewhere in the world, electricity systems frequently emerged asdirect responsibilities of government-civic, municipal, and soon-or as shared responsibilities with private owners. Every localand subsequently national system was its own model, for decades.The German and Japanese systems were re-created in the 1950s asprivate monopolies at U.S. insistence, as part of postwar reconstruction."The common thread, he adds, is that most of the rest ofthe world has also set up a centralized, hub-and-spoke power systemthat is hostile to micropower.
The irony is that things need not have turned out this way.When Thomas Edison set up his micropower plant near WallStreet more than a century ago, he thought the best way to meetcustomers' needs would be with nimble, decentralized power plantsin or near homes and offices. So what happened? After the toughtechnological battle between AC and DC came an even bloodiercommercial battle. The market abuses of that swashbuckling eraled to a popular backlash and sweeping reforms that were entirelyjustified. However, by entrenching monopolies and codifying thecentralized approach to electricity provision, those new laws wouldneedlessly snuff out micropower.
Monopoly in the Making
By the end of the nineteenth century, as rival factions led by Edisonand Tesla raced breathlessly to set up operations and sign up customers, crisscrossing power lines began to spread across the easternseaboard of the United States. Tempers flared, and dirty tricks proliferated.Things got so nasty that thugs hired by one camp wouldgo so far as to cut down the power lines of the other. Such skulduggerywas but a foreshadowing of dirtier deeds to come.
Not long before his death, Edison had said to his trusted aideSamuel Insull, "Whatever you do, Sammy, make a brilliant successof it or a brilliant failure. Just do something. Make it go." He didjust that. Embracing AC technology, Insull set his sights on imitatingthe trick that Andrew Carnegie had earlier managed with steel:he wanted to gain control of America's electric supply system. Inthe process, he built a business empire that was arguably as despisedas Carnegie's was in its day.
On one hand, Insull was a gifted business thinker who did muchto modernize the industry's archaic and even amateurish practices.He took over Chicago Edison (which eventually became today'sCommonwealth Edison), one of the numerous small regional franchisesof the Edison empire. Insull quickly understood that therewere too many firms scrambling around after electricity customers,and he came up with several clever innovations. First, he figuredout that expanding the overall size of the pie would mean he couldgrab a bigger share; that led him to stimulate electricity use in variousways, including offering discounts at "off-peak" periods fornew sorts of customers, such as farmers. He also recognized that hecould reduce his per-unit cost of power by taking advantage of theeconomies of scale offered by AC motors; that led him to buy everbigger motors from firms like General Electric and thereby undercuthis rivals on price.
However, he found that he could not squeeze the maximum outputand profit from his giant motors, because there were so manypesky competitors buzzing around, offering customers alternativesources of energy. If he could eliminate those rivals, he could havethe whole pie for himself. He kicked off a major consolidation inthe industry by gobbling up nearly two dozen utilities within a fewyears. He also argued publicly against competition, insisting thatelectricity was a "natural monopoly" in which it made no sense tohave competitive suppliers: "Every home, every factory, and everytransportation line will obtain its energy from one common source,for the simple reason that that will be the cheapest way to produceand distribute it."
All this led to a concentration of power in the new electric utilitiesthat greatly worried many Americans who had recently enduredmuch pain at the hands of unscrupulous railway operators.Progressive politicians began a campaign to rein in the new ogre ofthe age by cracking down on electric utilities.