Samuel Insull’s Argument for State Regulation of Monopoly Electric Utilities

Michael Giberson

In the course of making a point about current political actions pursued by some in the electric power industry, Rob Bradley points to the views of industry pioneer Samuel Insull:

Where did the drive for automatic pass-through of  “reasonable” costs begin? For the electric industry, it began in Chicago in June 1898 in a then-controversial speech by Samuel Insull, the head of Chicago Edison Company and the president of the major trade association of the industry, the National Electric Light Association.

Insull did not want regulation for its own sake. He believed that franchise protection was worth giving authorities control over rates. Insull believed that this quid-pro-quo — exclusive franchises for cost-based rate maximums — would lower interest costs (a huge cost item for public utilities) and thus lower rates. Insull also saw statewide public utility regulation as a better alternative to local politics and to municipalization.

Insull’s political program was ahead of its time. Most of his fellow electric utility heads were opposed when Insull first gave his speech. But he would win them over in the next years, and state-after-state would implement formal cost-of-service regulation for electricity.

Bradley then publishes in full Insull’s 1898 speech to the National Electric Light Association (the organization which became today’s Edison Electric Institute).

Check out Bradley’s post to see the speech, most of which is given to contrasting private and public management of resources and well worth reading.  For example, Insull asks, “Is the administration of municipal affairs in the various cities throughout this country so economical, as compared with the management of private industries, and the class of service rendered so efficient, as to justify the increasing of the burdens already imposed upon municipal government?”

It is a perhaps understandable failure of Insull’s analysis that he asserts the superior capabilities of private management in a competitive market setting to advocate private management in a state-regulated monopoly setting. Insull was, after all, able to expand his business and reduce cost and reduce prices pretty consistently throughout his career as a utility industry tycoon – both as a competitor and as a monopolist.