Power October 2022 140th Anniversary Supplement - 44

The Evolution of Power Business Models
The birth of the modern electric utility
began when Thomas Edison invented
the practical lightbulb in 1878, and, to
spur demand for the novel invention,
developed an entire power system that
generated and distributed electricity.
While the concept caught on in several
cities in the early years, owing to exorbitant
costs, power companies rarely
owned several power plants.
Samuel Insull, who began his role as
president at Chicago Edison in 1892,
is credited with first exploiting load
factor, not only finding power customers
for off-peak times, but leveraging
technology including larger generation
systems and alternating current to produce
and transmit power more cheaply.
Crucially, he is also said to have
pioneered consolidation; he acquired
20 small utilities by 1907 to give birth
to a natural monopoly-Commonwealth
Edison.
The model was widely emulated, and
for decades, scale economies associated
with large centralized generation technologies
encouraged vertical integration
to drive down power costs, encourage
universal access, and provide reliability.
To enforce the responsibilities and rights
of these investor-owned utilities (IOUs)
and their customers, however, this approach
also spurred more government
oversight and regulation. It also gave rise
to both municipal ownership, and later,
as a New Deal measure, public power to
enable rural electrification.
Business models began to shift more
distinctively starting in the late 1970s,
as environmental policy, the oil shocks,
and initiatives to open the airline and
trucking industries to competition disrupted
the status quo. The evolution
that happened in the last 40 years,
nuclear power program at the time too.
Its scientists modified an existing graphite-moderated
channel-type plutonium
production reactor for heat and electricity
generation. In June 1954, that unit, located
in Obninsk, began generating electricity.
A few years later, on December 18,
1957, the first commercial U.S. nuclear
power plant-Shippingport Atomic Power
Station, a light-water reactor with a 60MW
capacity-was synchronized to the
power grid in Pennsylvania.
The U.S. and Soviet Union weren't
the only countries building nuclear
plants, however. The UK, Germany, Ja44
PAST,
PRESENT & FUTURE
which has left an enduring legacy, is
often categorized into two big buckets:
the introduction of competition, and reforming
the way monopoly utilities operate.
A key step to initiating reforms
in the U.S. stemmed from passage of
the Public Utilities Regulatory Policies
Act (PURPA) of 1978, which essentially
created opportunities for smaller generators
to get into the game.
The final, but just as significant,
historical upheaval was energy deregulation.
In the 1990s, holding competition
as the most effective driver of
low power costs, several states also
moved to end monopoly protections
for retail sales-though after California's
high-profile energy crisis in 2000
and 2001, many scaled back their plans
and even re-regulated their retail sectors.
Deregulation had the important
role of giving rise to new retail companies,
whose business models were exclusively
focused on delivery of power
to the customer.
If and how these models thrive,
however, is questionable. Decarbonization,
decentralization, and digitalization-as
well as the recent impact
from the COVID-19 pandemic-have
slackened or prompted a decline in
power demand. At the same time, traditional
regulatory approaches, which
have been predicated on growth, must
grapple with an increasingly complex
industry landscape. The past decades
have ushered in two-way flows of electricity,
more stringent environmental
policies, and state goals. Regulators
are
challenged
with
ensuring power
systems are operating efficiently,
complying with environmental goals,
remain reliable, and address equity issues
for low-income customers.
pan, France, and several others were
jumping on the bandwagon too. The
industry grew rapidly during the 1960s
and 1970s. Nuclear construction projects
were on drawing boards across
the U.S., with 41 new units ordered
in 1973 alone. But slower electricity
demand growth, construction delays,
cost overruns, and complicated regulatory
requirements, put an end to the
heyday in the mid-1970s. Nearly half
of all planned U.S. projects ended up
being canceled. Nonetheless, by 1991
the U.S. had twice as many operating
commercial reactors-112 units-as
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any other country in the world.
Nuclear power's history is tainted
by three major accidents. The first was
the partial meltdown of Three Mile Island
Unit 2 on March 28, 1979. A combination
of equipment malfunctions,
design-related problems, and worker
errors led to the meltdown. The second
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Power October 2022 140th Anniversary Supplement

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