From Edison to Enron: The Business of Power and What It Means for the Future of Electricity

Published by EH.NET (January 2008)

Richard Munson, From Edison to Enron: The Business of Power and What It Means for the Future of Electricity. Westport, CT: Praeger, 2005. v + 207 pp. $40 (cloth), ISBN: 978-0-275-98740-X.

Reviewed for EH.NET by David B Sicilia, Department of History, University of Maryland, College Park.

This book ? by Washington D.C.-based electric industry policy analyst Richard Munson ? is a hybrid. In the first half (approximately), the author provides a concise history, focused chiefly on economics and regulation, of the U.S. electric power industry from its beginnings to 2004. In the second half, he moves onto firmer ground to offer his recommendations for making the nation’s largest industry (assets: $600 billion) more efficient and innovative. For Munson, the answer, in a word, is competition. Stated more fully, “regulators and lawmakers must challenge vested interests and eliminate the outmoded regulatory, financial, and environmental barriers to competition and entrepreneurs” (p. 132).

As a work of history, From Edison to Enron, although chronologically ambitious, is derivative. Most historical industry studies focus on the industry’s formative decades of the 1880s through the 1930s, out of which emerged the dominant paradigm of central station, alternating current power and incandescent lighting. Few works span the industry’s 125-year history, as this book does. Munson does a competent, if occasionally repetitive, job of summarizing this long story, yet he offers no new interpretations based on fresh theoretical thinking or archival research. And there are too few source citations and some blunders. Passage of the Sherman Antitrust Act was not “prompted” by price-fixing attempts by Charles Coffin and Henry Villard (p. 22). Samuel Insull did not organize the National Civic Federation (p. 56).

Munson’s tour through electric power history lays the groundwork for his policy recommendations. In this account, lively competition among industry founders came to an end when “Monopolists” (the title of Chapter 3), especially Samuel Insull of Chicago Edison, built enormous regional electric supply systems and holding company empires and devoted considerable resources to lobbying and public relations in order to retain power. (Munson says nothing of Insull’s great insight about load factor.) Government actors are the next set of villains, for abetting monopolization, blanketing the industry with stifling regulations, and building their own sluggish systems (such as the TVA and the Bonneville Power Administration). The nuclear power story carries the theme forward. Without federal government largess ? heavy investment in R&D, indemnification of private investors against risk, and generous private-sector subsidies ? industry would not have gone down what proved to be an economic path best not taken. The monopolists’ heyday came to an end in the 1960s and 1970s, when the industry confronted serious challenges: “blackouts, protests, embargoes, accidents, and defaults” (p. 83). By this time, utility managers had lost any spark of innovation, while environmentalists misguidedly lobbied the state for new controls.

The hinge-point in the story was the beginning of competition. Munson first says that the U.S. Supreme Court’s 1973 Otter Tail decision (which required a private utility to allow several municipals to transmit power over its lines without cost) “marked the onset of competition” (p. 89). Later, he confusingly states that lobbying by a New Hampshire-based cogenerator (Wheelabrator-Frye Corporation) in 1978 ? which led to passage of the Public Utility Regulatory Policies Act (PURPA) that year ? represented “the opening of utility monopolies to limited competition” (p. 104). Munson carries the story through the 1992 Energy Policy Act, which deregulated further; through the colossal bankruptcy of the Washington Public Power Supply System (a.k.a. “Whoops”) in 1983; and through Enron’s collapse and the 2001 California “electricity disaster” (p. 122) it had helped engineer. The narrative chapters conclude on a more positive note, with vignettes of entrepreneurs and municipalities experimenting with new conservation, generation, and transmission and distribution (T&D) technologies.

In the policy chapters, several of Munson’s recommendations seem reasonable and are supported by history. T&D is currently a greater regulatory conundrum than power plants. Electricity has long moved across state lines and therefore should be subject to more federal and less state regulation. Better system interconnection and load shifting would increase both efficiency and reliability. The grid should be opened to greater competition, although Munson is not specific about how original T&D owners should be compensated for their heavy investments. Central station utility managers (especially in the South) should devote more resources to innovation, and less to fending off the rising tide of competition.

But on several key issues, Munson is either inaccurate or unpersuasive. Consider, for example, the crucial issue of economies of scale. While it is true that the rate of growth of central station thermal efficiency leveled off in the late 1960s, Munson asserts that thereafter “economies of scale didn’t apply any longer” (p. 85), and again later, that central stations “lost” (p. 177) their economies of scale in recent decades. To read Munson’s account, decentralized power is always more efficient than centralized generation. While it is true that cogeneration captures significant efficiencies through dual-tasking and by minimizing line losses, most residential and commercial electricity customers do not require enough ambient or manufacturing-process heat to make cogeneration less costly than central station power ? which continues to capture enormous economies of scale.

Utility regulation is another problematic topic in this book. While acknowledging that utilities should remain under minimal regulation, Munson seems quite prepared to let markets work their wonders to supply the nation’s power needs. Enron, in this telling, was an unfortunate episode in an otherwise well-functioning, efficiency-maximizing energy market. Munson is brave enough to acknowledge that Enron and California’s faux blackout were precisely the outcome predicted by critics of aggressive electric utility deregulation, but he’s not persuaded that the securitization of energy introduces unacceptable levels of risk. In his view, the Enron debacle was separate and apart from energy trading (p. 120).

Hostile to the notion of natural monopoly, this book does not consider the notion that electric power is a utility “affected with a public interest.” In the final chapter, Munson points to railroad, telecommunication, and airline deregulation to argue that competition led to greater efficiency and lower prices in each case. He does not mention the degradation of service that has accompanied the rate cuts. Airline competition hasn’t led to more plane crashes, but service is deplorable, and the oligopoly is shrinking by the month. These are, of course, issues that political economists debate in church as well as between the covers of monographs. So to keep the focus on this particular industry: Would our society tolerate more frequent electrical outages? Munson acknowledges the greater financial risks that come with energy markets, but not the connection between financial and technological risk. This is not to say that deregulated electric power is less reliable than competitive power. But because Munson informs us that today’s high-tech customers are damaged by services interruptions measured in the billionths of a second, the question deserves attention.

One hopes that the roster of energy-efficient technologies briefly profiled in this book ? compact fluorescent lamps, back-pressure steam turbines, microturbines, biomass-powered turbines, wind turbines, combined-cycle gas turbines, fuel cells, superconducting transmission lines, semiconductor-based switches, remotely readable meters ? will proliferate, and the sooner the better. They are making headway, although Munson gives inconsistent evidence about their progress, first deriding “the present system’s virtually total reliance on large plants and long lines” (p. 178), then reporting that nearly a third of the nation’s electricity comes from independent power producers (p. 187).

Earth Day was first observed thirty-seven years ago. We now know that our energy future will be powered by a variety of increasingly renewable sources. In that sense, this book ? by leaning so hard against a technology (central station power) that for much of the century achieved the greatest economies of scale of any industry ? seems overreaching. Dismantling all those giant power plants anytime soon is no more plausible than ending our dependence on fossil fuels on the near horizon. Will deregulation help us get more efficient energy faster? Not across the board, and even Munson acknowledges that regulation is needed “to enforce market rules and protect against abuses” (p. 174). I doubt our society is prepared to expose what is arguably the most essential component of the economy’s infrastructure to the gales of creative destruction.

Which readers will find this book most useful? Business and technology historians won’t find engagement with key concepts such as path dependence, technological determinism, system-building, and first-mover advantage. Students of economics and business could use the book as an industry case study to explore notions about natural monopoly and deregulation, although the approach would have to be largely anecdotal because the book lacks systematic data. Regulators ? accused of “having an identity crisis” (p. 162) because regulation is no longer warranted ? are improbable fans. Central station utility managers will find it too partisan. But the “hustling entrepreneurs” (p. 101) who are chipping away at the energy establishment and who are the heroes of this book are likely to embrace it as their version of history.

David B. Sicilia is Associate Professor in the Department of History at the University of Maryland, College Park. He is co-author or co-editor of six books and many articles, including studies of electrification, and is currently working on a history of post World War II U.S. political economy.