Edison's Legacy Lights the Way for GE

The rise of electricity has brought new luxuries, new problems and, now, new competition for utilities.
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Consider electricity for a moment -- that miraculous current of energy that answers to the flick of a switch.

Almost a century ago,

H.G. Wells

prophesied that "the family of the future probably will not keep a servant." He reasoned that electricity, which had just been harnessed, would revolutionize housekeeping, relieving servants of duties like heating and cleaning the house.

Cooking, Wells envisioned, would no longer require an open hearth or wood-burning stove but "a neat little range, heated by electricity and provided with thermometer, with absolutely controllable temperatures and proper heat screens." Indeed, Wells speculated, cooking would be so effortless as to become "a pleasant amusement for intelligent invalid ladies."

When Wells made those predictions, the use of electricity was relatively new and almost entirely attributable to the genius of one person,

Thomas Alva Edison

.

In 1877, Edison had confidently predicted to the

New York Sun

that he would light lower Manhattan. By 1879, he accomplished part of his promise by inventing the incandescent lamp bulb that could burn for 40 hours.

But before he could illuminate New York -- much less the world -- Edison had two Herculean challenges ahead of him: He had to produce lamps cheaply and in sufficient volume to sate what would immediately become a vast marketplace. Then, somehow, he had to distribute electricity to people's homes to light the lamps.

To the first end, he formed the

Edison Electric Light

, taking on such partners as

Western Union

and

J.P. Morgan

. Edison Electric built a factory to manufacture lamps, and by 1880 its 133-man workforce was turning out a thousand lamps a day. And this without a single customer!

Nonetheless, Edison had yet to figure a way to get power into peoples' homes to illuminate them. He quickly scaled that hurdle as well, designing and building in 1882 the world's first central electric-light power station with steam-driven generators. On Pearl Street in downtown New York, just a few blocks north of Wall Street, the station's wires, buried in trenches used to distribute gas, successfully brought electricity to 800 light bulbs in a half-mile square area of lower Manhattan. Within a year, 13,000 New Yorkers had electric lights, and by the end of the decade electrification had spread across the U.S. The world hasn't been the same since.

The 1890s was a time of huge business expansions, mergers and the amassing of great wealth by a few industrialists. The Edison Electric Light Company increasingly fell under the control of financiers Morgan and

Henry Villard

and, in 1889, was consolidated with Edison's companies that manufactured his other inventions -- the phonograph, flexible celluloid film, and the movie projector -- to form

Edison General Electric

. Three years later, the company merged again with a smaller firm and the new entity that emerged -- with almost $10 million in capital -- became

General Electric

(GE) - Get Report

.

Today, a diversified GE continues to make light bulbs as well all those labor-saving household appliances that Wells foresaw for the "family of the future." In 1998, GE boasted equity of almost $39 billion, revenue for the year exceeded $100 billion and shareholders saw a $9.3 billion profit.

CEO Jack Welch says he expects 1999 to be another record year for GE. This pronouncement should come as no surprise: In a Feb. 12 letter to GE shareholders, senior management reported that not only was the total return of a share of GE 48% in 1998, but that "GE has averaged a 24% per year total return to shareholders for the past 18 years."

The U.S. electric power industry also still bears the Edison stamp. The central power station on Pearl Street -- which he invented virtually

in toto

from the turbine to the copper wires -- was the forefather of some 3,100 modern utilities.

From the get-go, the electric utility industry was intensely competitive. But gradually -- as was happening in railroads, oil and steel -- mergers and trusts caused the utilities to become bigger and bigger. In some industries, this concentration of economic power in the hands of a few so frightened and angered citizens that antitrust laws were enacted to increase competition, and lawsuits to break up monopolies like the

Standard Oil Trust

proliferated.

Surprisingly, however, this wasn't the case with the electric utilities. Instead, progressives reasoned that a monopoly, not bothered by competition, logically could provide electricity to consumers at the lowest cost -- that is, as long as well-meaning government regulators held its robber-baron instincts in check. Thus, free competition in the electric industry began to fade in 1907 when Wisconsin and New York created commissions to regulate electric utilities within their jurisdictions -- a move that the other states and the federal government followed. The result of this move was that single electric utilities covered certain areas and consumers had no choice of electricity provider.

But now the competition is back: The 1992

National Energy Policy Act

brought deregulation to the utilities. With competition, hopefully, will come better prices for consumers as well as the elimination of costly and inefficient regulatory supervision.

Were he alive, what would Wells foresee for the next century? Electricity might be cheaper, if deregulation ultimately works. How it's generated may also change. According to

Probable Tomorrows

, by Marvin Cetron and Owen Davies, conventional power plants today produce about 67% of the electricity in the U.S., but at a terrible cost, consuming nearly 170 million barrels of oil and 100 million tons of coal a year and becoming a major cause of global warming.

Some believe the best alternative is nuclear power. More than 100 nuclear power plants produce about 23% of U.S. electricity. But the American public in general doesn't like the idea of more plants because of the

Chernobyl

and

Three Mile Island

incidents, so it's probably not a viable alternative.

The cleanest source of electricity is hydroelectric power, the product of 3,362 dams on the nation's rivers. This source, which accounts for some 10% of the electricity, isn't the answer, however, because it doesn't produce enough. Costly solar-, wind-, geothermal- and even tidal-generated power likewise aren't practical replacements to the burning of fossil fuels.

If the future doesn't witness a new source of electricity, it will see a better use of what it does produce, according to Cetron and Davies. A victim of long-distance transmission lines, nearly one-third of electricity disappears in transit from power stations. But after decades of theorizing and experimentation with different metals and plastics at extremely low temperatures, companies have developed special superconductor cables that promise to carry electricity without any resistance loss at all. The resulting dramatic increase in useable electricity, though it won't solve the problem, certainly will help reduce it.

Then GE can continue to bring good things to life, much to the glee of consumers and shareholders alike.

Richard B. Marrin has practiced litigation and corporate law for nearly 30 years and is a partner in New York City law firm Ford Marrin Esposito Witmeyer & Gleser. He is the author of several books and a number of articles on American history. He can be reached at

rbm68@aol.com.