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The Electricity Industry Sees the Light

Thomas Edison started the world’s first electric power company in New York City in 1880. In a Wall Street warehouse, he connected a coal-fired boiler to a steam engine and dynamo, then linked the plant by underground wire to a block of nearby office buildings. When he flipped the switch, 158 light bulbs (also designed by Edison) flashed on, and the Edison Electric Illuminating Co. made converts of its carefully chosen first customers – J. P. Morgan and the New York Times.

Edison envisioned electricity as a competitive, service-oriented business with numerous suppliers. He would hardly recognize the vast monopolies that dominate the U.S. power industry today. Yet that very industry – long known for its fierce resistance to change – is now poised for a transformation that may bring it closer to Edison’s original vision.

The winds of competition are roiling the power business. Since the early 1980s, a new breed of independent power companies has emerged to challenge protected utilities by building cleaner, more innovative, and more efficient plants. The Energy Policy Act of 1992 has heightened competition by giving these companies access to new markets. At the same time, miniaturized generators such as fuel cells and photovoltaics promise to transform the economies of scale that have shaped the industry, opening up a new era of decentralized power generation – perhaps even allowing individual homeowners to generate their own power. And new telecommunications technologies may link millions of these small generators and even household appliances into one “smart” power system.

Like the telecommunications industry of the early 1980s, the electricity industry is confronting increased competition and rapid technological change. These pressures could pave the way for a much more efficient and environmentally sound power system. But to get there, electric utilities will have to undergo a radical restructuring much like the one that transformed Ma Bell.

Christopher Flavin and Nicholas Lenssen (May/June 1995)

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