Samuel Insull: The Man Who Lit Up Our Nights | This Is How Our Lives Were Designed

He built a monopoly to push electricity prices down, brought time-of-use billing to America, and finally put electric light in ordinary homes — then became the scapegoat for the Great Depression.

The man who freed millions of American households from candlelight was not, in fact, Edison.

The incandescent bulb, invented in 1879, did bring light to the world, but it did not reach every home right away. Without power stations and a grid, electricity was a luxury only the rich could buy.

That same year, Samuel Insull — the 22-year-old son of a British milkman — sailed to America to become Edison's private secretary. Edison was then pushing a central power system to replace the small generators that could serve only a single building, and to finish off the gas-lighting business for good. The Edison Electric Light Company was founded in 1880, and three years later, financed by J.P. Morgan, it built the first central power station in American history: the Pearl Street Station in New York.

Most power-company owners of the day believed electricity belonged to the few, so there was no point pouring money into a grid. Edison, who cared about what a technology cost and what it could do, thought otherwise: he wanted to "make the electric light so cheap that only the rich will burn candles." But as he began laying out stations across the country, the weakness of direct current showed itself — one station could cover a radius of only a mile, nowhere near enough to supply electricity in bulk. By 1884 Edison had built just 18 stand-alone stations in the entire United States.

In the "War of the Currents" that gripped the scientific and business worlds at the end of the 19th century, Edison and Nikola Tesla, a champion of alternating current, traded public insults and undercut each other at every turn; we told that story in The War of the Currents. As it became clear that alternating current travelled farther, cost less, and earned more, Edison's electric company steadily lost market share and its finances fell apart. Insull had helped build those stations and had seen how efficient alternating current was and how far it could scale. In 1891, after Edison's company finished a string of mergers and emerged as General Electric, he left for a small utility in Chicago: Chicago Edison. There was nothing remarkable about it — one of 30 power companies in the city.

Call it ambition, a taste for risk, and a strain of idealism he meant to live out. If Insull took anything from his years with Edison besides industry experience, it was a strategy he would believe in for the rest of his life: running the grid at large scale was the only way to get electricity into every home. Only scale could bring production costs down and efficiency up, put appliances in ordinary houses, and open an age when everyone could afford to switch on a light.

He needed a starting point of his own, one where he controlled the plan and could build out alternating current on the scale he had in mind.

Chicago Edison was still in the direct-current business, so switching sides to alternating current became one of Insull's first decisions.

Then came the price cuts, down below cost. He accepted an absurdly low bid from the newly opened Great Southern Hotel, and though his peers criticized him for it, the deal brought the company a long contract and a great deal of business. Not until Christmas 1894, though, did he work out how to charge little and still make money. Visiting Brighton, England, he was astonished to see every lamp still burning inside shops that had closed for the night — unthinkable in America, where few shopkeepers could afford the electricity bill. He put the question to the local utility's manager and learned the secret: instead of simply adding up how much electricity a customer used, the company charged two different rates depending on whether the power was drawn at peak or off-peak hours. This is what we now call time-of-use, or peak-and-valley, pricing.

From then on Insull's stations had a new job: to go looking for when their customers used power. After more than two years of study and calculation, the flat rate that Edison and other suppliers charged was thrown out and a two-tier schedule put in its place. By 1898 many ordinary residents found their bills had fallen by 32%. In effect, this was a drop in ARPU — average revenue per user.

Edison's influence had stuck, and Insull's goal never wavered: get electricity into as many American homes as possible, including the rural areas everyone else ignored. "Electricity should be as common as the automobile," he said. Even if a customer had nothing but a single 25-watt bulb, he would find a way to light it.

He did well out of it himself. Hunting for customers who used power outside the usual hours widened the company's base, and cheaper electricity made people willing to buy more appliances, which made them use more electricity.

Peak-and-valley pricing arrived alongside a wave of mergers and acquisitions that swept everything before it. Years in the business had taught him exactly how the natural monopoly in power worked, and it matched the creed he had held all along: large scale, high output, low cost.

Serving the public and making money at the same time depended in part on adjusting how much of a station's capacity was actually in use. A power station lives not on load volume — the total electricity it sells — but on load factor, the share of the system's capacity sold at any given moment. The higher the load factor, the harder a station's equipment and investment work, and the lower the cost of each unit of electricity.

An industry scattered among small firms could not raise its load factor. A crowd of little utilities meant waste, because each one duplicated the others' spending on distribution, transmission, and generating equipment; high costs meant high prices, which put electricity out of reach of ordinary families and small businesses; and the financial uncertainty of too much competition made projects hard to finance. Merge those companies, expand hard, and you could cut costs and, because prices fell, sell more electricity — a circle that fed itself.

So there was only one road: monopoly. The best service at the lowest price could come only from a single supplier. Put plainly, he married his belief in public service to monopoly. He swallowed his competitors not to charge more for electricity but to charge less.

He had, in fact, talked the board into buying up rivals as soon as he arrived in Chicago. By 1893 Chicago Edison's two largest competitors were both inside the company. From that year on, Insull bought every competing central station in Chicago's business district and built the largest station in the country, Harrison Street Station. In 1897 he founded another utility, the Commonwealth Electric Light and Power Company, which merged with the first one ten years later to form Commonwealth Edison.

Through the last decade of the 19th century and the first years of the 20th, Insull was busy expanding and swallowing. His reach spread steadily across 32 states. By the end of 1920 the company's annual revenue was approaching $40 million and it was worth close to $3 billion; its four pillars — Commonwealth Edison, Peoples Gas, Public Service, and Middle West Utilities — served more than 4 million customers.

By the eve of the 1929 crash he was the most powerful businessman in America, supplying an eighth of the country's electricity and gas, as much energy as any single European nation used in total.

Along the way, Insull made an enemy of Wall Street. He liked selling utility bonds, and they became a rich source of money for him. That was the thing Wall Street watched most closely and liked least: the firms led by the Morgan group were in a hurry to organize the utility business on their own terms and resented his open defiance. When he took control of two power systems serving 14 eastern states in 1928, the Morgan group treated it as an invasion of their territory.

Those quarrels helped bring the Insull empire down during the Great Depression. But Insull made fatal mistakes of his own.

In 1926, worried about a hostile takeover by a competitor, he set up a new holding company, Insull Utility Investments (IUI), and watched its shares climb from $12 at the IPO to $80 by the spring of 1929. His other companies rose too: Middle West Utilities went from $169 to $529. That success led him to form a second holding company, which gathered up large blocks of stock in the four pillars. In the months before the crash, the rising prices lifted his personal fortune to $150 million.

Then, without warning, the market crashed and the Depression came, and he made the move that ruined him: he refused to sell his stock short, which would have bankrupted the New York banks holding it, and instead kept expanding while prices were low, paying for it by issuing bonds and buying his own shares to hold the price up. The market never came back. The new bonds only piled up debts he could not repay, and he had to borrow $20 million from Wall Street to buy back the stock that had been the target of the takeover attempt. Morgan took the chance to push the price down again and again, and finally forced him into bankruptcy. The collapse of his holding companies cost more than 600,000 investors $700 million.

His fall, and the rumors that he had "stolen the people's money," carried him from a national idol of unquestioned character to a criminal everyone cursed. The government opened a fraud investigation, and Insull, 73 years old and surrounded by public hatred, fled to Paris, Italy, and Greece with less than $3,000 on him. A year later he landed in Turkey and was handed over to the United States. He was acquitted at trial and the charges were dropped, but in a country then seething against finance and big business, it is not hard to imagine how wretched his position was. Franklin Roosevelt even called him a devil capitalist, "an Ishmael who defied the will of the people."

The charge was absurd, because Insull piled up little personal wealth even when his company was at its height. As Maury Klein writes in The Change Makers, he took little interest in making money and put most of his fortune back into keeping the business running. Before he set up the holding companies his personal net worth was about $5 million — not what you would expect of the country's mightiest monopolist.

What Roosevelt left out was that this "devil capitalist" was the man who gave millions of Americans cheap electricity. During the Depression he raised $100 million to pay the wages of Chicago's teachers, police officers, and firefighters, and his companies spent $500 million reviving the city's transit system, saving countless businesses large and small along the way. Later, on the edge of bankruptcy himself, he still pledged stock from his own holdings to guarantee the jobs of workers hired during the years of overexpansion.

In 1897, after becoming president of the National Electric Light Association (NELA), he gave a speech proposing a mechanism to balance the interests of taxpayers, investors, and consumers: franchise holders should be regulated by the states and should price at cost plus a reasonable profit; anyone should have the right to buy a power plant, so that a monopoly could not abuse its position; watch out for opportunist politicians; and so on. After the Depression the U.S. government adopted this framework more or less whole.

The man who had done so much for American prosperity in the 1920s ended as the scapegoat for a financial crisis. Conservatives had once treated him as a cash cow; supporters of the New Deal, needing propaganda of their own, recast him as a monopolist who endangered democracy. The real work he had done to spread the use of electricity, and his call for regulation that would keep utilities healthy, were drowned out by the government's condemnation. It also meant he could no longer live in the country he had given his life to, and he went into exile in France a second time.

"I owe America nothing. This country did only one thing for me — it gave me an opportunity. I did the rest. I gave America far more than it ever gave me."

On July 16, 1938, Insull was found dead in a Paris metro station; his heart had given out and he had fallen down the stairs. His wife, Gladys, had told him not to take the subway, afraid it was bad for his heart, but he insisted: "I'm a poor man now." For several hours nobody recognized him. He died without a cent on him. Contrary to the newspapers that reported he had "died in poverty," Insull was still drawing a $21,000 annual pension from his old company. Many suspected someone had taken his wallet after he died.

Forrest McDonald, who wrote Insull: The Rise and Fall of a Power Tycoon, put it this way: "Samuel Insull was robbed in death as he was in life, and no one has ever been able to tell his story straight."

Cover image from Wikimedia, Pixabay