Without the basic services provided by public utilities, industrialization would not have been possible. The urbanization that accompanied the industrialization of the developed world required that basic services needed by residents be supplied collectively to all residences, and public utilities emerged to provide these services.
The most basic of public utilities is
During the early nineteenth century, as American cities grew into communities with first tens of thousands of people and then hundreds of thousands of people living near one another, the old way of providing water to these residents ceased to be practical. At first, as in Boston at the beginning of the nineteenth century, entrepreneurs created networks of pipes, often made of wood, and buried them in the streets to deliver water to a single neighborhood. Service, however, was unreliable because the wooden pipes, especially those that were near the surface of the ground, froze during the winter.
The first serious attempt to solve the water problem occurred in Philadelphia, then the largest city in the United States. Benjamin Henry Latrobe and other civic-minded citizens put together a plan to draw water from the adjacent Schuylkill River and pump it, using water wheels as a source of power, up to a high point, from which gravity would secure its distribution through a series of pipes laid under the streets. After intense public discussion, this water system was built as a municipal system, and it served as a model for other cities that followed Philadelphia’s example.
The far more grandiose system that supplied New York City with water (and still does) was the one that created the
Boston immediately followed New York City’s example. After considering various private proposals, city officials chose to adopt municipal ownership. After the country’s three largest cities all chose the public ownership path, the pattern was set for the rest of the country. Although water was provided by private companies in some smaller towns, the rapid growth of urban centers dictated public ownership because only the government could generate the huge capital sums needed, through the sale of bonds. All systems depended on pipes laid under the streets, with individual dwellings tapping into the pipes.
In contrast to water, however, gas was provided overwhelmingly by private companies. The early pipes were sometimes made of wood (though they often leaked) or of discarded gun barrels. The first gas company organized in the United States was established in Baltimore in 1816. One emerged in 1825 in New York City, in Boston in 1829, in Louisville in 1832, and in New Orleans in 1835. Gas companies spread rapidly throughout the United States after the early companies demonstrated the feasibility of manufactured gas. Two communities created municipally owned gas systems: Philadelphia in 1836 and Fredonia in upstate New York in 1858, making use not of manufactured gas but of natural gas gathered from one of the many seeps in the area.
Not long after Edwin Drake struck oil and natural gas in Titusville, Pennsylvania, in 1859, natural gas became a rapidly growing resource often found in conjunction with crude oil. It had about twice the British thermal units (BTUs) of manufactured gas and was therefore useful for many more purposes. There were numerous sources of natural gas in the Appalachian region. Companies selling natural gas hastened to secure municipal franchises, and many cities had a multiplicity of gas companies. The city of Pittsburgh had six gas companies by the late 1880’s. The entrepreneurs had only to sink a well into a gas-bearing fracture in the ground and then to build a network of pipes to residents ready to pay for the gas. Wherever people were congregated, the companies relatively quickly acquired a group of customers. Moreover, the distribution pipes, unlike those needed for water, were small, and by that time, the metal industry had learned to produce long lengths of pipe at moderate cost.
Once natural gas became readily available, it began to be used for purposes other than lighting. The earliest known case of industrial usage was that of the Great Western Iron Company in Pittsburgh in 1870-1871. Industrial use spread rapidly throughout Appalachia. In some of these areas, it began to be used for space heating and for cooking. Throughout the middle of the country, there were easily tapped local deposits of gas, as there also proved to be in California. In those parts of the country where there were no gas deposits, manufactured gas continued to be sold.
After 1900, the multiplicity of small gas distributors with municipal franchises began to be consolidated into larger companies, in many respects following the pattern in the oil industry set by John D. Rockefeller. This helped to create local monopolies that in turn evoked popular opposition and then a demand for regulation. Massachusetts was one of the first states to create a regulatory agency for the gas industry, the Board of Gas and Electric Commissioners, in 1885-1886, which in 1913 became the Public Service Commission. Many other states followed.
Although initially this and other regulatory bodies set up in other states had no power to regulate prices, this authority was in time acquired, as one of the reasons for their creation was to respond to consumer protests over gas prices. Creating this authority was at first made difficult by the lack of federal power to control rates. After the 1911 decision of the Supreme Court that broke up the Standard Oil Company, however, it was recognized that these firms had, in effect, a natural monopoly and that if the firms were not confined to a single state, it was essential for the federal government to provide regulation.
During the 1920’s, the steel industry developed the ability to create large-diameter pipes, enabling long-distance pipelines to be laid to transport natural gas across many miles. The first long-distance gas pipeline was a 217-mile line laid between northern Louisiana and central Texas in 1925. The first 1,000-mile pipeline was laid in 1931 from Texas to Chicago. Subsequently, the country was covered by pipelines, which led to the division of the industry in terms of ownership into three parts: producers, who ran the gas wells; transporters, who ran the pipelines; and distributors, who handled the piping of gas to individual users, whether companies or households. Regulation was then divided between the federal government, which through the Federal Power Commission had the authority under the Natural Gas Act of 1938 to regulate pipeline rates, and the states, which through their public utility commissions regulated the local distributors. In 1977, the role of the Federal Power Commission was taken over by the Federal Energy Regulatory Commission (FERC), within the Department of Energy.
The supremacy of gaslight as the preferred form of illumination was challenged and rapidly overtaken with the invention of the incandescent
Because Edison used direct current in his first generating station, he was limited in the scope of its operation–the maximum distance direct-current electricity can be transmitted at a reasonable price is about one mile. Other inventors, notably William Stanley, believed that a system of transformers in the generating facility and the use of alternating current instead of direct current could overcome the distance limitations. With the financial encouragement of George
Westinghouse and the corporate inheritor of Edison’s inventions,
Electric motors were essential to another major factor in the spread of electricity:
Additional technological improvements were made to the central generating station courtesy of Samuel
From Edison’s Pearl Street Station supplying direct-current electricity to businesses and a few homes in its immediate vicinity, the electric industry grew greatly, especially during the 1890’s and the early twentieth century. It repeated the pattern of the gas industry, starting from a single generating station in one city and growing largely by consolidation, as single-city generating stations joined with others in their area. Because electricity, even more so than gas, involves heavy capital expenses at the outset but very little capital investment once the generators are in place and the lines to individual users have been built, there was a strong tendency for the central stations to be merged into ever-larger companies.
Financing of expansion was easier when an existing company provided the start-up costs, and the industry soon, through amalgamations (including with natural gas distributors), had facilities all across the country. The building of high-voltage transmission lines encouraged consolidation. Some of the companies were part of trusts, and when trusts were found illegal by the Supreme Court, the industry turned to the holding company. Insull built his original holdings at Chicago Edison into Middle West Utilities and then into even larger corporate “pyramids,” using the holding-company structure, in which a business could be purchased by owning just a small percentage of its stock. Before he was challenged in the courts, Insull controlled electric and gas companies with more than 4 million customers, selling them around one-eighth of all the gas and electricity sold in the United States.
Because these companies had no local competition, they were effectively natural monopolies. This enabled them to use monopoly pricing, which initially enriched them but led to political protest, seeking governmental control of their rates. The populist movement, which opposed the power of the trusts and holding companies to charge what they liked for the public service they rendered, got its first great boost from the progressive orator and politician Robert M.
Although the New Deal broke up many of the private holding companies supplying electricity and gas to Americans, there were large parts of the population that did not receive electricity. These areas began to be served by the creation of monster hydro-electric systems powered by dams on the country’s numerous rivers. The prototype was the
Besides the big dams, the country needed a method of supplying electricity to rural customers, who lived too far apart to be profitable for a private business to reach. The Roosevelt administration filled this gap by creating rural electric cooperatives, which covered most of the parts of the country not served by the urban utilities. Their rates were heavily subsidized by the federal government, which supplied them with electricity from federally funded dams.
After World War II, another technological development boosted the creation of big systems: the development of
In the latter part of the twentieth century, the growth of companies to ever-larger sizes resumed, and globalization, the hallmark of the developed-world economy during the 1990’s and into the twenty-first century, saw many national companies becoming part of international firms, often in effect holding companies on a global scale. Many of these were created in the wake of the antiregulatory policies that had become established in many governments.
Castaneda, Christopher J. Invisible Fuel: Manufactured and Natural Gas in America, 1800-2000. New York: Twayne Publishers, 1999. Traces the development of the gas industry, from the start with manufactured gas through the extension of natural gas pipelines throughout the United States. Edwards, Brian K. The Economics of Hydroelectric Power. Cheltenham, England: Edward Elgar, 2003. Looks at hydroelectric development from an environmental point of view. Hausman, William J., Peter Hertner, and Mira Wilkins. Global Electrification: Multinational Enterprise and International Finance in the History of Light and Power, 1878-2007. New York: Cambridge University Press, 2008. Three specialists in the field of international business look particularly at the evolution of electrical utilities throughout the world, with special attention to international developments. Lesser, Jonathan A., and Leonardo R. Giacchino. Fundamentals of Energy Regulation. Vienna, Va.: Public Utilities Reports, 2007. An extensive look at the regulation of energy, particularly gas and electricity, with attention to aspects such as cost measurement and allocation, market power, environmental regulations. Examines regulation as an economic concept. Nye, David E. Electrifying America: Social Meanings of a New Technology, 1880-1940. Cambridge, Mass.: MIT Press, 1990. A good analysis of the process by which the United States became fully connected electrically. The author has a particular interest in technological history. Peebles, Malcolm W. H. Evolution of the Gas Industry. New York: New York University Press, 1980. Covers the evolution of the gas industry in both the United States and western Europe. Wasik, John F. The Merchant of Power: Samuel Insull, Thomas Edison, and the Creation of the Modern Metropolis. New York: Palgrave Macmillan, 2006. This story of Insull’s climb to power covers the development of the power grid and the excesses of corporate power.
Colorado River water
Dams and aqueducts
U.S. Department of Energy
Energy crisis of 1979
Nuclear power industry
Tennessee Valley Authority
Three Mile Island accident