A Brief History of Electric Power

On 21 July 1820, during a lecture in Copenhagen, Hans Christian Ørsted connected a battery and noticed that a compass needle sitting nearby twitched. It swung until it pointed across the wire rather than north.

For most of the previous century electricity had meant static charge, stored in a jar and released in a single spark, or arriving as a lightning strike, which Benjamin Franklin proved in 1752 to be the same phenomenon. Either way it is over before anything can be observed. Alessandro Volta, in Italy, changed that in 1800 by stacking discs of two different metals separated by saltwater-soaked cloth, producing the first source of a steady, continuous current. That is the voltaic pile, the ancestor of every battery since, and what Ørsted had on his bench.

Nobody had expected magnetism and electricity to be connected. The two had been studied for a century as separate curiosities, one involving sparks and jars and the other involving lodestones, the naturally magnetised rock that made compasses possible, and navigation more reliable. Ørsted had just shown that a current flowing in a wire produces magnetism around it. The news reached Paris within weeks, and André-Marie Ampère established that two wires carrying current attract or repel each other like magnets. Seven years after that, Georg Ohm, a mathematics teacher in Cologne, published the relationship between the three quantities an engineer actually has to work with: the current that flows equals the voltage pushing it divided by the resistance opposing it.

Those terms are key. Current, measured in amps, is how much of electrical charge passes a point each second. A phone charges faster from a three amp charger than from a one amp one. Think of current as the flow rate. Voltage, measured in volts, is the electrical pressure pushing the flow along. Sockets in the United States provide around 120 volts against roughly 230 in most of the rest of the world. This is why an American kettle takes roughly twice as long to boil as a European one. Multiply voltage by current and the answer is power, in watts, meaning the rate at which energy is being delivered; multiply power by time and the answer is energy, in watt-hours, which is what a meter counts and what every price in this book is quoted against. The plumbing version is imperfect and useful: current is flow rate, voltage is pressure, power is how fast work is getting done, energy is how much work got done.

One consequence of that arithmetic outranks the others. Heating in a wire follows the current squared, so doubling the current quadruples the heat loss, while the same power can be sent at twice the voltage and half the current. That is why transmission runs at high voltage and low current, and Chapter 3 is built on it.

An obvious question resulted from Ørsted's experiment showing that electricity generated magnetism. If electricity makes magnetism, does magnetism make electricity? Michael Faraday, an Englishman born poor and with almost no formal education but fascinated by scientific experimentation, spent a decade on it and answered on 29 August 1831. He wound two metal coils separately around and around a single iron ring. One of the coils was connected to a battery, which turned the iron ring into a magnet (as Ørsted discovered). The second coil was not connected to the battery. Faraday found that an electrical current appeared in the second coil, measured on a galvanometer, a needle that deflects when current passes, only at the instant he connected or disconnected the first coil to the battery. A steady magnetic field did nothing to generate electricity. A changing magnetic field produced current briefly.

The galvanometer was named after another electrical experimenter. Luigi Galvani, a physician in Bologna, had found in the 1780s that a dead frog’s leg twitched when he touched it with two different metals, and concluded that the electricity was in the animal. Volta disagreed. He argued that it came from the junction of the two metals and that the frog was merely detecting it, and he built his pile (battery) out of stacked dissimilar metals precisely to make the point without any animal present. Galvani lost the argument and kept the vocabulary. A galvanometer is named after him, so is galvanised steel, and so was the title of Ohm’s book, which was about the galvanic chain.

Faraday reached that experiment by an unlikely route. Apprenticed at fourteen to a London bookbinder, George Riebau, he read the books he was given to bind, and two of them did it: the article on electricity in the Encyclopaedia Britannica, and Jane Marcet’s Conversations on Chemistry, a popular account written to explain the subject to women, who were then largely shut out of scientific education. It was a debt he was still acknowledging in his sixties. A customer of the shop who belonged to the Royal Institution gave him tickets to hear Humphry Davy lecture, and Faraday took three hundred pages of notes, bound them himself, and sent the volume to Davy with a request for work. Davy hired him as an assistant the following year. The man who discovered induction (magnetism → electricity) got into science by binding a book.

Wind a wire carrying a current into a coil and the contribution of each turn of the wire adds to the next, so a hundred turns give something far stronger than one. Put iron inside the coil and the iron responds by lining up its own magnetism with the field it sits in, multiplying the result by hundreds. A coil of wire wrapped around iron, with a current in it, is an electromagnet, the same arrangement found in every generator, motor and transformer in this book. Spin one of them past a second coil and it induces a current in that coil. That is how a generator works.

The ring shape is not incidental either. Magnetism, like current, prefers a closed loop, and iron carries it far better than air does. A ring gives it an unbroken iron path from the first coil round to the second, so almost all of it stays on the iron ring rather than spilling into the room. Every transformer built since has a closed iron core for that reason.

As for the timing, connection and disconnection are the only two moments when the magnetism is changing, building up from nothing or collapsing back to it. Hold the current steady and the magnetism is steady, and a steady magnetic field, however strong, induces nothing whatever.

One flick of the switch gives one pulse. Flick it back and forth without stopping and the pulses become a wave, and how many times a second that wave repeats is the frequency Chapter 1 opened on, measured in hertz: sixty in the United States, fifty across most of the rest of the world. Nothing in a power station flicks a switch to produce it. The flipping is done by rotation.

So, what produces a current is a change (from on to off to on) in the magnetism passing through a coil, rather than the mere presence of a magnet or the fact of motion. Generators turn because motion is the most practical way to keep producing that change.

A note for any future scientist hoping to have their name electrified: there is still a prize sitting in this subject. Magnetism itself is well understood. It is what an electric field looks like from a moving frame of reference, which makes it a consequence of relativity, and the theory describing it is the most precisely tested in physics. What nobody can explain is why it only ever comes in pairs. Electric charge is found on its own, positive or negative, but every magnet has two poles, and cutting one in half produces two smaller magnets rather than a loose north pole. Paul Dirac showed in 1931 that a single magnetic monopole existing anywhere in the universe would explain why electric charge comes in fixed units, which it does. None has ever been found. A detector at Stanford recorded one candidate event on 14 February 1982 and nothing in the four decades since.

In late October 1831, two months after discovering that although everyone knew electricity makes magnetism, it could be flipped so that magnetism makes electricity, Faraday spun a copper disc between the poles of a magnet and obtained a steady current for as long as he kept turning it. The two experiments founded two different machines. The ring became the transformer, which changes the voltage of electricity that already exists and sits at every step of the network in Chapter 3. The disc became the generator, the ancestor of every one described in this book.

A spinning machine makes alternating current, and that inverts what most people assume. As a coil turns past a magnet it approaches one pole and then the other, so the voltage it produces rises, falls, reverses and rises again once per revolution. Alternating current is what the geometry produces. Getting direct current out of a rotating machine takes extra hardware: a commutator, a split ring on the shaft whose contacts swap over every half turn so that the output always leaves by the same terminal. Hippolyte Pixii built the first generator in 1832 and added one at Ampère’s suggestion.

Which is a useful thing to hold going into the 1880s. Edison’s dynamos were making alternating current internally and converting it to direct current on the shaft, so the argument about to be had was never about what the machines produced naturally.

The consequence, which is mechanical

Faraday's result carries a requirement that shapes the entire industry. To generate electricity, something must physically move a magnet past a coil of wire, and it must keep moving, because the moment the motion stops the current stops with it.

Electricity is therefore an effect produced by a machine in motion, existing only while the machine turns, rather than a substance that gets extracted, refined and shipped like the subjects of the other three books in this series. Chapter 1 argued that the product cannot be stored, and this is the physical reason: there is nothing there to store, only a process that is running or has stopped.

So the industry's founding question was never how to make electricity. Faraday had settled that. The question was what to spin the magnet with, continuously, at scale, and cheaply.

Which is why the fleet in Chapter 4 looks the way it does. Burn coal, nat gas or uranium to boil water, send the steam through a turbine, and let the turbine spin the magnet. William Rankine, a Glasgow professor, worked out the thermodynamics of that arrangement in 1859, and the Rankine cycle is still the name for what happens inside every steam power station on earth. The alternative was to skip the fire entirely and let falling water at a dam do the spinning, so hydroelectric schemes were among the earliest large stations built.

Nearly two centuries later, a modern combined cycle plant and a nuclear reactor are both, at the business end, Faraday's disc attached to a kettle.

The exception matters now because Chapter 6 depends on it. A solar panel has no moving parts at all. It produces direct current straight from light, with nothing rotating and nothing in step with anything else, which is a genuinely different way of making electricity and the first one that does not descend from 1831.

More names that became electric

James Clerk Maxwell, born in Edinburgh in 1831, the same year Faraday found induction, published four equations in 1865 that unified electricity and magnetism into a single phenomenon, showed that light is itself an electromagnetic wave, and predicted radio decades before anyone transmitted anything. Einstein called the result the most profound physics had experienced since Newton. Heinrich Hertz produced and detected those waves in the laboratory in the late 1880s, which is why the unit of frequency carries his name and why a grid is described as running at sixty hertz.

The people in this story are still in daily use, which is easy to miss. Volta gives the volt, Ampère the amp, Watt the watt, Ohm the ohm, Faraday the farad, and Heinrich Hertz the hertz, the unit of the sixty cycles a second that Chapter 1 opened on. Every quantity in the rest of this book is one of them. A plant is sized in megawatts, a line is described by its kilovolts, a wholesale price is quoted in dollars per megawatt-hour, and the system runs at sixty hertz. An electricity market has no units of its own: it trades in the ones the physics arrived with.

Maxwell and Rankine were born in Edinburgh eleven years apart, William Thomson taught at Glasgow for over half a century and left his name on the kelvin, and Joseph Black, whose work on latent heat is what Watt was actually applying, held a chair at the same university. For a country of roughly a million and a half people at the time, Scotland occupies a conspicuous share of the names attached to heat, work and electromagnetism.

Three things stack up to explain it. Legislation of 1696 required a school in every parish, and by the middle of the following century a majority of Lowland men could sign their own names, against something nearer half in rural England. Scotland had five universities while England had two. And the Scottish ones taught applied natural philosophy alongside industry rather than at a distance from it, and Watt was employed as the instrument maker at Glasgow, working down the corridor from Black, in a city building steam engines and ships.

England produced a remarkable share of the experimentalists. Scotland produced a remarkable share of the people who worked out why the experiments came out that way, which is a convenient inheritance for a book arguing that the physics determines the market design.

What the current war actually settled

The 1880s dispute between Thomas Edison's direct current and the alternating current promoted by George Westinghouse and Nikola Tesla is usually told as a story about showmanship and electrocuted animals. Its consequence was economic.

The American industry has a start date. On 4 September 1882 Edison’s station at 257 Pearl Street began supplying the First District of lower Manhattan: six dynamos, about eighty-five customers, four hundred lamps, and a service area of a quarter of a square mile.

Why does the United States use 120 volts when almost everywhere else uses around 230? Those four hundred lamps around Pearl Street set the American answer, and it has not moved since. Edison was aiming at 100 volts, because a carbon filament worked best there and burned out above it, so he supplied 110 at the dynamo to leave room for the drop along the wires. Every American wall socket is still that number, nudged up to 115 and then 120 over the following century as regulation improved. Nothing about 120 is fundamental. It is a lamp specification from 1882 with an allowance for voltage drop added to it.

Europe electrified later, and by then the filament had changed. Metal filaments tolerated much higher voltage, and doubling the voltage halves the current needed for the same power, which halves the copper in the street. Berlin’s electricity utility switched to 220 volts in 1899 and paid for converting its customers’ equipment out of the copper it no longer had to buy. Most of the world followed, and Europe later harmonised on 230. Japan, electrifying at the same time as Europe but buying American, took 100 volts and kept it.

By the time the arithmetic clearly favoured the higher number, America had too many lamps and too much wiring to change, which is the same reason anything survives in this industry. The compromise is in every American house, and the topology is Edison’s as well as the number. No transformer sits in the panel. The transformer is outside, on a pole or in a green box at the kerb, and its output winding is tapped at the middle, which gives three wires into the building: two live ones at 120 volts each against that middle tap, and 240 volts across the pair. Nothing indoors converts anything. A socket breaker takes one live wire, and the breaker for the dryer, the range or the car charger takes both.

Edison patented that arrangement in 1882, for direct current, to halve the copper in the street. The patent specifies 120 volts between the neutral and each of the two live conductors and 240 volts between them, which is the wiring diagram of an American house a century and a half later, running on the current he lost the argument about.

Europe has voltage transformers outside its houses just like the US. There are far fewer of them, and the reason is the same argument one level further down. An American pole transformer serves about six houses. A European one is many times larger and serves dozens of customers up to roughly 300 metres away. At 230 volts the low-voltage cable can run that far before the drop starts to matter, and at 120 volts it cannot, so the transformer has to come to the house instead. North America pushes its medium-voltage network almost to the door and keeps the low-voltage part down to a few tens of metres. Europe runs a real low-voltage network and puts the transformer at the end of the street.

Which raises the question of why anybody stopped at 230, when the same arithmetic would favour 500 or 1,000. The ceiling on a socket is a human body rather than an economic calculation. International safety standards treat 50 volts of alternating current as the boundary below which the design risk is fire rather than electrocution, and above a few hundred volts skin stops offering any protection at all, so the gap between 230 and 1,000 is a difference in kind. Higher voltage also jumps bigger gaps, so every switch, socket and plug would need larger clearances and better insulation, and that cost falls on hundreds of millions of devices in order to save copper on a twenty metre run that was never losing much.

The world did choose thousands of volts. It does not deliver them to the socket. Chapter 3 follows the chain down from transmission at hundreds of kilovolts, through distribution at tens, to the transformer on the street that drops it to Edison’s number for the last few tens of metres, which is precisely where the saving stops being worth the danger.

The modern trend runs in both directions at once. At the device the voltage is falling, because a phone wants five volts and the fast-charging standard stops at 48, chosen for sitting under that safety threshold. Inside equipment nobody touches it is rising quickly, for the reason this chapter has just given: electric car packs went from 400 volts to 800, and data centre racks have gone from 12 volts to 48 to 400, with 800 volt direct current now being specified for the densest AI hardware. Delivering 400 kilowatts at 48 volts takes about 8,000 amps. At 800 volts it takes about 500. That is Edison’s arithmetic, in a server rack, and Chapters 25 and 26 are about what it is now being asked to build.

Direct current at the voltages of the period could not be transmitted far, so an Edison system needed a generating station every mile or so, each serving its own small district. Alternating current can be stepped up and down by a transformer, which means Chapter 3's argument applies: send it at high voltage, lose little, and the generator can sit a long way from the customer. That device arrived just in time to matter. Lucien Gaulard and John Dixon Gibbs built an open-core version in 1882, the Hungarian team of Zipernowsky, Bláthy and Déri at the Ganz works in Budapest produced the efficient closed-core design in 1885 and coined the word, and William Stanley used the result to light Great Barrington, Massachusetts, for Westinghouse in 1886. Westinghouse lit the 1893 Chicago World's Fair and the Niagara Falls project followed.

Once power could travel, one large station could serve an entire city more cheaply than many small ones. The industry acquired enormous fixed costs, a falling cost per unit as it grew, and no sensible way for two competitors to serve the same street without each building a full set of wires. Electricity became a natural monopoly for physical reasons rather than legal ones.

Why sixty, and why fifty

Frequency went the same way. In the late 1800s engineers were still trying many alternating current frequencies, and the tradeoff ran in both directions. Very low frequencies made lamps flicker visibly and needed larger transformers, because the iron in a transformer scales inversely with how often the field reverses, while higher frequencies suited the motors and power equipment of the era less well. Westinghouse engineers settled on sixty around 1891 as the practical compromise, the number that would run both lighting and alternating current motors off the same wires.

Once Westinghouse and the other manufacturers had built enough sixty cycle generators, motors, transformers and appliances, changing the whole system became far too expensive, and sixty entrenched itself as the North American standard. The American grid still runs at a nominal sixty today. Germany followed the same path to a different number: AEG built fifty cycle machines and, holding most of the German market, made fifty the German standard, after which it travelled with German equipment across Europe and much of Asia and Africa.

Although Edison’s DC lost the AC/DC battle, Con Edison, the New York power company, went on supplying direct current to parts of Manhattan for another century and a quarter, mostly to elevator motors in Tribeca lofts and Garment District blocks that were cheaper to feed than to replace. In January 1998 there were still more than 4,600 direct current customers. The last cable was cut on 14 November 2007 at 10 East 40th Street. By then Con Edison was making the direct current out of alternating current with rectifiers, so an elevator with a faded Edison Electric DC plate on it had ended up running on Westinghouse’s system after all.

From laboratory to franchise

In 1910, Samuel Insull stood in front of an audience of utility executives and delivered an address arguing that the obligations of monopoly must be accepted. He was, at the time, the most successful electricity monopolist in the United States, and he was arguing that men in his position should submit to government regulation of their prices.

Understanding why he wanted that, and what he received in exchange, explains the structure of the industry for the following seventy years and most of what Chapters 14 and 17 have to describe.

The bargain

Insull, who had been Edison's private secretary before running Chicago Edison and then building Commonwealth Edison into the largest electricity producer in the world, understood the position this created. Cities were granting franchises to multiple competing companies, which duplicated capital and produced no benefit, and public anger at private utility profits was pushing toward municipal ownership.

His proposal was a trade. The utility receives an exclusive franchise over a territory, and in 1907 he obtained precisely that in Chicago, a forty-year grant covering the city and its future limits. In return it accepts anobligation to serve anybody who asks, a duty to connect, and a regulator who sets its prices and permits it a return on the capital it has prudently invested.

The collapse that wrote the rules

Insull then did something separate from the operating business, and it destroyed him. He assembled more than eighty companies into a pyramid of holding companies, each owning controlling stakes in the ones below, which allowed a small amount of equity at the top to control a vast quantity of assets at the bottom. It worked while values rose. On 8 April 1932 the debt came due, and the structure collapsed. It took his own fortune with it, and left him personally in debt.

He was indicted, left the country, was eventually extradited back to the US, stood trial for seven weeks alongside sixteen co-defendants, and was acquitted of every charge after about two hours of jury deliberation. He died in 1938 in a Paris Metro station, and his pockets were empty when he was found, and the newspapers reported that the man who had built the largest utility system in America had died penniless. His biographer put his estate nearer ten thousand dollars and noted that Insull habitually carried several thousand on him, which somebody evidently took off the body.

He also reached the cinema. Orson Welles said that Charles Foster Kane, who builds a Chicago opera house for a wife who cannot sing, drew partly on Insull, who built the Civic Opera House, and partly on Harold McCormick, who financed the operatic career of his wife Ganna Walska. Kane is usually described as William Randolph Hearst, and he is a composite of four men, one of whom ran the electricity system of Chicago.

The legislative response arrived in 1935 and remains the frame around everything in this book. The Public Utility Holding Company Act, or PUHCA, broke up the pyramids and forced disclosure. The Federal Power Act, passed the same year, gave federal regulators authority over wholesale sales and transmission in interstate commerce, while leaving retail rates and generation siting with the states. The regulator it charged with setting just and reasonable wholesale prices was the Federal Power Commission, created in 1920 to license hydroelectric projects; in 1977 it was folded into the new Department of Energy and renamed the Federal Energy Regulatory Commission, or FERC, which is the body issuing the orders quoted throughout this book. The standard it works to is still the one written in 1935, which is why Chapter 13 can quote a 2024 order finding a charge unjust and unreasonable.

That division of authority is the one Chapter 17 describes as the source of most current American difficulty. It was drawn in 1935, in response to a financial scandal, by legislators solving a problem of corporate structure rather than designing a market.

The obligation had an edge

The duty to serve all customers in a geographic area was mandated by government to utilities. However, rural America was outside these locations. Running miles of line to reach a handful of farms did not pay, so by the early 1930s the great majority of American farms had no electricity while cities had been lit for a generation.

The federal answer was the Rural Electrification Administration, created in 1935 and put on a statutory footing the following year, which lent money to cooperatives owned by the farmers they served. The consequence survives in the map: American electricity is delivered by investor-owned utilities, municipal systems and several hundred rural cooperatives, and the third category exists because the private industry declined the business.

Why a working arrangement stopped working

The bargain held for roughly forty years, until efficiency gains stalled.

Regulated monopoly is comfortable while unit costs fall. Bigger turbines were more efficient, so each new plant lowered the average cost, and a regulator reviewing the utility's spending was approving investments that reduced bills. Everyone was content.

In the 1970s that reversed. Thermal efficiency gains flattened out. The oil shocks raised fuel costs. Inflation raised the cost of capital on an industry that is almost entirely capital. And nuclear construction programmes ran catastrophically over budget, with the resulting costs arriving in rate cases as prudency disputes about spending already committed. Regulators who had spent decades approving cost reductions were now approving cost increases.

A protected monopoly that raises prices invites the question of whether the protection is earned.

Three cracks, twenty years apart

The dismantling happened in stages, and each stage tested whether the next was safe.

The Public Utility Regulatory Policies Act (PURPA) of 1978 required utilities to buy power from qualifying independent facilities at the utility's own avoided cost, meaning whatever the utility would have spent producing that power itself. It was framed as an energy security measure rather than a market reform, and its effect was to prove that somebody other than the incumbent could build and operate a power plant, and that the lights stayed on.

The Energy Policy Act of 1992 created a class of wholesale generators exempt from the holding company restrictions written after Insull, and gave federal regulators power to order utilities to carry other people's power on their wires.

Orders 888 and 889 in 1996 made that access general, and are what the industry means by open access. A transmission owner had to offer competitors the same terms it gave its own generation, and post the available capacity publicly. Order 2000, in 1999, encouraged the regional operators that Chapter 14 describes. The theory was complete: if the wires were open to everybody on equal terms, generation could be competitive while the network stayed regulated.

California

Government stepping into markets is always fraught with danger. Most commodity markets operate smoothly due to light government regulation and simply letting the free market operate. Because of the way electricity markets sit with monopolistic components, regulation is inevitable, but regulations can be good and bad. When they are bad, they provide incentives with disastrous consequences. California’s power market is the poster child of this so it is called out here.

California's Assembly Bill 1890, passed in 1996, restructured the state's industry and created a power exchange and an independent system operator, a body that runs both the grid and the market while owning no generation itself. Four features of the design mattered.

The utilities divested most of their generation, so they had to buy electricity rather than produce it. They were pushed to purchase almost entirely through the short-term exchange, with long-term contracting effectively discouraged, which left them buying a volatile commodity at spot with no hedge. Retail rates were frozen, so no customer saw a price signal and no consumer had reason to use less. And the same freeze meant the utilities could not pass through what they were paying.

Then conditions turned. Drought reduced hydro output across the West, nat gas prices rose, demand grew, and little new generation had been built during the years of restructuring uncertainty.

Traders discovered that a market with inelastic demand, no forward contracting and a price cap applied only at retail was exploitable. Enron and others withheld power generation capacity, bid strategically, and moved power around to capture congestion payments.

The episode got its lasting image from the traders themselves. Enron recorded its own phone calls as a trading record, and when a Washington State utility district obtained the tapes and published transcripts in 2004, one exchange had a trader asked about the money being taken from Californian grandmothers reply “Yeah, Grandma Millie, man”, before adding that she was the one who could not work out how to vote on the butterfly ballot, a jibe at the Florida presidential ballot of 2000. Grandma Millie became the shorthand for the customer at the far end of a market whose participants had stopped regarding her as a person at all. The federal regulator’s own conclusion: supply and demand imbalance, flawed market design and inconsistent rules made significant manipulation possible, and without the underlying regulatory dysfunction the attempts would not have succeeded.

Rolling blackouts ran through the winter and spring of 2001. Pacific Gas and Electric went into bankruptcy. The state stepped in to buy power and signed long-term contracts at the top of the market. Estimates of the total damage run to 40 or 45 billion dollars.

The pattern

Read in a sequence, this history of power has a shape.

Competing franchises produced wasteful duplication, so the industry accepted regulated monopoly. Regulated monopoly produced financial pyramids, so Congress wrote PUHCA and the Federal Power Act, both in 1935. The regulated bargain stopped delivering falling prices, so competition was introduced in stages. Competition introduced carelessly in one state produced a catastrophe, so the rest of the country stopped. Seven states halted or delayed their own restructuring in the years immediately after, and California suspended the retail competition it had just created.

Every arrangement in this book is a correction of the previous failure, written by people who could see what had just gone wrong and could not see what would go wrong next. The institutions left standing are now being asked to handle demand growth none of them was designed for. Hold that while reading Chapters 16 and 23, where the current arguments are being had with the same confidence and the same limited visibility.