The Electric Current War

Thomas Edison Uses Direct Current for his Lighting System

Thomas Edison’s wanted to grow rich while “lighting the world.” He could not, however, achieve his goal until he fought and won the Electric Current War.

On September 4, 1882 Edison flipped a switch and lit 400 electric light bulbs in an office building in New York’s financial district. He had beaten all other inventors that were trying to develop a usable incandescent light bulb.

Thomas Edison used a direct current system to power his light bulb
Thomas Edison
Source: renewableenergyworld.com

Edison was already known as the “Wizard of Menlo Park” for his work with the phonograph and the kinetoscope. But Edison wanted to be more than just an inventor. He wanted to be one of the industrial titans of the age.

Edison lit his first 400 bulbs with electricity generated at a dynamo located just across the street from the bulbs. Edison had no choice but to place his generator close to his point of use. His system used direct current in which electricity flows in a single direction. Direct current electricity operates at very low voltages and low voltage electricity loses its effectiveness over short distances. If he located his generator too far from the point of use the generated electricity would be too weak to light the bulbs. 

None of this bothered Edison. He just sold lighting systems that relied upon generators located close to the point of use. Each time that Edison wanted to light a factory or an office building he had to install a new generator for that facility. 

George Westinghouse Uses an Alternating Current System to Compete with Edison

George Westinghouse made his fortune off of his invention of the train air brake system. While Edison was expanding his lighting business George Westinghouse was living in his Pittsburgh mansion looking for his next business opportunity. He well understood the inefficiencies of Edison’s direct current system.

George Westinghouse competes with Edison in the Current War with his alternating current system
George Westinghouse
Source: westinghousenuclear.com

Westinghouse learned that some European inventors had invented something called a transformer. He knew transformer could be used to increase the voltage of alternating current and transmit it for many miles. Westinghouse developed an alternating current system consisting of large central station generating plants, transformers and high voltage transmission lines. The following video explains the differences between direct current and alternating current:

There was, however, a problem with Westinghouse’ system. The motors of the day were designed to operate on direct current rather than alternating current. Westinghouse teamed up with an eccentric Serbian genius named Niclola Tesla to develop motors that could operate on alternating current.

Nicola Tesla designs a motor that helps Westinghouse compete in the Current War.
Nicola Tesla
Source: nationalmaglab.org

Beginning in the mid-1880s Edison and Westinghouse engaged in a competition for customers with their respective direct current and alternating current systems. Their competition was well publicized. The press called it the Electric Current War.  

The End of the Electric Current War

Westinghouse’ system was more efficient and less costly than Edison’s. Edison could have acknowledged the benefits of Westinghouse’ system and adopted a form of the alternating current system for himself. In fact, Edison’s investors encouraged him to abandon his direct current system. But Edison stubbornly fought for his direct current system. To try to defeat Westinghouse he engaged in a public relations campaign that accused Westinghouse’ high voltage system of endangering the public. 

The Electric Current War ended in 1892 when, without Edison’s knowledge,  J.P. Morgan engineered a merger of Edison’s company with another firm that was already using a form of the alternating current system. The merged firm was renamed the General Electric Company. Those who like cinema may also like to know that this story has been made into a major motion picture called The Current War in which Benedict Cumberbatch plays Thomas Edison.

Author

I. David Rosenstein worked as a consulting engineer and attorney in the electric industry for 40 years. At various times during his career he worked for utility customers, Rural Electric Cooperatives, traditional investor owned regulated utilities and deregulated power generation companies. Each of his posts in this blog describes a different aspect of the past, present or future of the electric industry. 

What is an Electric Utility?

Direct Current vs. Alternating Current

In the late 1800s and early 1900s there was no such thing as an electric utility. Anyone could become an electric and lighting service provider. A provider could serve one customer, a few customers or a large community of customers. Prices for service were set by private contract between supplier and consumer.

The first arrangements, pioneered by Thomas Edison, used direct current – meaning electricity flowed in one direction on the circuit. In Edison’s business model the direct current flowed a very short distance from a small generating unit to the electric lighting fixtures.

But Edison’s business model proved to be very inefficient. George Westinghouse pioneered a more efficient service model. He used alternating current and transformers to deliver electricity many miles from a remote central station generating station to multiple points of use.

The competition between Edison and his direct current system and Westinghouse and his alternating current system came to be known as The Current War. Westinghouse ultimately won the Current War and his remote central station generating facilities became the standard in the industry

The Emergence of the Monopoly Utility

Well financed suppliers built large efficient central station generating plants and reduced their operating costs. They undercut the prices of smaller suppliers and forced them out of business. And by the early 1920s most communities were served by a single monopoly electric supplier. The monopoly supplier owned the generating stations that produced electricity and the transmission and distribution facilities that delivered the electricity.

The following depicts utility owned facilities and how they were used to deliver electricity from a generating plant to the end-user customer:

The Need for Government Involvement

The existence of a monopoly electric supplier caused some angst for both consumers and suppliers. Consumers wanted to prevent the investor-owned monopolies from charging exorbitant rates. And the investor-owned monopolies wanted to make sure that they did not lose their monopoly status.

The investor-owned electric providers knew that they could not get away with charging excessive rates for long. So they considered giving up some control over pricing in exchange for some protection for their monopoly status. In other words, under the right conditions, they were willing to operate under government regulation.

The Regulatory Compact

Policy makers came up with a concept that balanced the interests of the investor-owned electric suppliers and their customers. They called it the Regulatory Compact.  

The Regulatory Compact is basically an agreement between the utilities and the government.  That agreement deals with both service and rates. The investor-owned electric suppliers agreed to use their facilities to provide service to the public under terms regulated by the government. They became public utilities.

In exchange for the suppliers’ agreement to provide service the government agreed that it would guarantee the utilities a protected monopoly service territory and that it would approve rates that covered the utilities’ operating costs plus a reasonable return on investment. 

Virtually every state has now incorporated a form of the Regulatory Compact into its state Public Utility Act. Each of those Public Utility Acts creates a state agency known as a Public Service Commission or a Public Utility Commission. †

Utility regulatory commission in session
Source: alsace.org

Those state agencies establish utility service territories and rates for retail electric service. The service territories protect the utilities’ monopoly. And the rates for service enable the utility to recover just and reasonable rates defined as their operating costs plus a reasonable return on investment. See Post entitled How Do Regulatory Agencies Set Just and Reasonable Rates? for an explanation of the regulatory rate setting process.

The state public utility acts deal solely with service between utilities and their end-use retail customers. In 1935, with passage of Title II of the Federal Power Act, Congress gave the Federal Power Commission (now named the Federal Energy Regulatory Commission or FERC) authority to set just and reasonable rates for wholesale sales between utilities. Between the state public utility acts and Title II of the Federal Power Act all activity of the electric utilities are subject to some level of utility regulation.

Who Owns the Electric Utilities?

Most of the early electric service providers were owned by private investors. Today, approximately 75% of the electric service is still provided by investor-owned utilities.

In many communities, where there was no private investor providing service, municipalities created their own electric systems. Today, approximately 12% of electric service is still provided by municipally owned utilities.

Electric service was available in most urban areas in the early 1900s. However, by the 1930s, most of the rural areas of the country still did not have electric service. Rural residents were operating their farms just like their parents and grandparents did in the nineteenth century. In 1935, with passage of the Rural Electrification Act, the Federal Government made low cost loans available for customer owned Rural Electric Cooperatives. Those Cooperatives used the borrowed funds to build the infrastructure needed to gain access to electricity. Today, the Rural Electric Cooperatives provide approximately 13% of all electric service.

Source: Sierrclub.org

By the 1990s policy makers determined that there was no longer any reason for the generation component of electric service to be considered a part of the regulated service. Therefore, in 1995 FERC issued its Open Access Orders requiring all utilities to unbundle their generation service from their transmission service and to provide non-discriminatory transmission to all generation owners. Since that time many utilities have sold their generation facilities and now own only transmission and distribution facilities. The transmission and distribution services, sometimes referred to collectively as the “wires service,” remains subject to regulation under the regulatory compact.

Who Owns the Generating Facilities?

photo-plant-gas

Source: sceg.com

Most of the country’s generation facilities are now owned by non-utility Independent Power Producers (IPP). The IPP industry expanded rapidly after 1995 when FERC issued its Open Access Orders. Members of this industry built new facilities and purchased the power plants that were being sold by the utilities. The members or the IPP industry are not utilities and are not governed by regulatory compact. They do not have monopoly service territories and their rates are not regulated by any government agency. Instead, IPPs sell their generated electricity into competitive power exchanges. See Post entitled Electricity Sales in the Power Market for an explanation of sales to these exchanges.

Author

I. David Rosenstein worked as a consulting engineer and attorney in the electric industry for 40 years. At various times during his career he worked for utility customers, Rural Electric Cooperatives, traditional investor owned regulated utilities and deregulated power generation companies. Each of his posts in this blog describe a different aspect of the past, present or future of the electric industry.