From American Affairs Journal, May 2025:
REVIEW ESSAY
Democracy in Power:
A History of Electrification in the United States
by Sandeep Vaheesan
University of Chicago Press, 2024, 400 pages
The American grid is in trouble. For years, our country has been retiring reliable power plants and building unreliable wind and solar resources. Moreover, most of the country’s power gets allocated in complex power markets where decisions are made beyond the public eye. And areas without markets still fall beneath the aegis of utilities, leviathans who toss their weight around in state politics and often get caught up in corruption schemes.
These were problems when America’s power demand stayed flat for decades. Even then, potential solutions felt more like a dizzying labyrinth of rules, regulations, interest groups, and technical minutiae replete with unobvious trade-offs and bizarre political deadlocks. And now that the AI revolution has dawned, America faces a surge in power demand that it is ill-prepared to meet. This new reality has only intensified both the need for grid reform and the difficulties of even understanding what needs reformation.
Some argue that the long queues to achieve interconnection in our power markets call for the legalization of microgrids that allow data centers and other private power consumers to pave their own way. Others who identify the same interconnection problem demand reform and streamlining within the markets. Another faction points to permitting as the lynchpin issue for all power projects—resolve that and most other problems dissolve. And then there are those who argue that federal subsidies have distorted our power markets, those who say the markets are fundamentally unworkable because market failures mean blackouts, those who decry the continued existence of monopoly utilities, those who see fossil fuels as the greatest problem attached to the power grid, and so on. Even in this incomplete list of perspectives there are shifting areas of overlap and mutual disagreement.
A recent book, Democracy in Power: A History of Electrification in the United States by Sandeep Vaheesan, takes square aim at the issue of grid governance, arguing that democratic public institutions should rule the power industry, not private entities. Unfortunately, Vaheesan reveals himself to be less than thoughtful about both the power industry and democracy. Instead, his book serves as a clarion call for people who like attending stakeholder meetings about a vital piece of infrastructure: these meetings, he hopes, would lead to a proliferation of further meetings so broad and democratic that their outcomes will, by nature, result in Vaheesan’s dream of a decarbonized power grid that runs (however unreliably) on sun, wind, and batteries. Reality, physical and political, takes on an incredible malleability throughout the book. On this point, Vaheesan’s introduction is quite straightforward:
History shows that the future of the power sector is in the hands of the public it serves. It is not preordained to be one way or another. . . . These things, which are often deemed private and naturalized, are institutions created by human beings and can be remade by us.
Who can deny such a claim? Often what is old turns out not to be what is true, though it has through age acquired truth’s reputation. And yet any serious student of history must admit that in the gyre of unfolding events the freedom to mold or re-mold institutions meets with fierce external pressures. But to concede fortune’s role in history’s welter would spoil one of Vaheesan’s guiding assumptions: that the world is simple and that the simple is just. Complications thus arise solely from the behavior of the greedy and the powerful (categories, for him, of complete and mutual inclusion). To correct this, we need only expand democracy, the font of simple, truthful action. Such a plain-hearted worldview warrants admiration for its moral sensitivity if not its intellectual rigor. As a result, the thinking that emerges from this worldview, while often well-told and even better researched, falls far short of the mark.
Powering Industrial America
Vaheesan starts at the near-beginning of the power industry, when America began to shift from an agrarian republic to an industrialized power. In the early twentieth century, electricity was still a relatively cutting-edge industry. Few people had power and the people who had it lived in cities, or ran factories in those cities. But as more and more Americans began to pack into urban centers, electricity started to become more common in households and apartments. And yet, the industry was still a chaos of competition. Often, utilities pitched into competitive rate slashing that bankrupted all parties. Setting appropriate rates, especially before the advent of meters to monitor consumption, sat at the nexus of black magic and sheer guesswork.
But out of this morass, certain dynamics became clear: competition proved unworkable because it led to dangerous and redundant infrastructure, the aforementioned price wars, and an investment environment so chaotic that financiers steered clear. How to solve this issue? One of Thomas Edison’s protégés, Samuel Insull, believed that the only way forward was to accept regulation. He reasoned that if utilities didn’t benefit from fierce competition, then they were natural monopolies, i.e. “the generation, transmission, and distribution of electricity was most efficiently performed bya single, vertically integrated company.”
Therefore, utilities should accept regulation at the state level in return for monopoly status. Public commissions would make sure they charged their customers fair rates while guaranteeing just and fair returns on capital invested. Insull hoped that regulated monopoly status would stabilize the investment environment, allowing utilities to secure the financing they needed to grow. Consumers simply had to sit back and watch their bills drop as the efficiencies took root. When Insull first pitched this idea to his industry peers they scoffed. But eventually, they came around. So did the Progressives, who saw in Insull’s vision a valuable proving ground for the belief in “scientific management” and “apolitical regulation.”
By 1907, states began granting monopoly franchises and establishing utility commissions. Insull was vindicated on all counts: bankers opened their wallets, customers saw low rates, and the industry rapidly consolidated.
Drawbacks abounded, however. As Vaheesan explains, the regulatory rationale essentially meant that the more money utilities spent, the more money they could make to recoup costs. Utility commissions often found themselves outgunned and outmaneuvered by utilities when it came to rate-making. Technically, a CEO could redecorate his office, write it off as an expense, and turn a profit. Worse has been done, which Vaheesan chronicles well. Insull and his pals turned their trade group, the National Electric Light Association (NELA), into a propaganda arm that ensnared media outlets, political bodies, and educational institutions. The scale and scope of this endeavor staggers the mind—and customers paid for much of it, as utilities folded these expenses into their arcane, self-serving rate-making calculus.
Monopoly status also laid the foundation for the financial house of cards that disgraced the utility industry when it fell in 1929. Public utility holding companies were formed to expand utilities, because they could “own the securities of other corporations instead of owning plants and facilities.” Over the course of the 1920s, competition for acquisitions and thus the growth of holding companies exploded. Holding companies solved an important financial difficulty.
This framework, however, was riven with problems, as Vaheesan explains:
Each company within a holding company was usually a separate corporation, which meant that its owner (including other corporations) had limited liability. In practical terms, the holding company was ordinarily not liable for the debts and other obligations of its operating companies and subholding companies.
Thus, a utility don could own and control a bunch of smaller companies with little capital invested. Even worse, he could headquarter the company in one state, allowing him to skirt the utility commission in the other states in which his subholding companies operated.
But holding companies also added “watered stock,” or non-voting shares to their list of financial benefits. Everyday people could “own” a part of these utilities by investing, but they could exert no control over how the company operated, nor could they glimpse its inner workings. Utilities who paid for NELA to advertise investing in nonvoting shares charged their customers for the privilege, thus double-dipping on people’s bank accounts. These byzantine firms were over-leveraged and top-heavy.
When the market crashed at the end of the 1920s, the utility industry crashed with it. Hundreds of thousands of common stock owners watched their investments plummet. Vaheesan doesn’t mention this, but even into the 1990s, it was common to hear old-timers in Chicago grumble that they’d lost a lot of money with Samuel Insull.
But for Vaheesan, those aren’t even the greatest crimes of the early monopoly framework for private utilities. His main criticisms of the monopoly utilities have to do with how they crushed municipal power and left rural Americans in the dark. Municipal power systems were the public alternative to monopoly utilities, though they were soon outcompeted by the private sector thanks to regulated monopoly status, which allowed private companies to scale-up faster, and thus crowd out opportunities for public power. Naturally, those in private industry tried to stamp out potential municipal power competitors and public takeovers when and wherever they could.
To the benefit of these tycoons, regulation ripped democratic control out of the peoples’ hands and placed authority in the palms of technocrats. Ostensibly, that outcome was regulation’s guiding rationale. “The aim was to replace local democratic control with technocratic management at the state level,” Vaheesan argues. This is a stretch. Municipal power always struggled for a whole host of reasons. Namely, for the financial reasons mentioned above, and the economies of scale.
What’s most puzzling about this section is that he omits one of the most important rationales for natural monopoly in the utility sector, at least for Samuel Insull, state regulation’s primary champion. True, Insull realized that monopoly reduced the dangers of redundant power line infrastructure and stabilized a hair-raising investment environment. Even more importantly, regulated monopoly status delivered greater economies of scale.
Insull’s drive for lower rates required larger power plants that could drop the unit cost of power, thus expanding the market for electricity. As that brought more customers in, even larger plants could be financed to begin the process over again. This approach required regulated monopoly status and became the industry’s standard playbook up until the 1970s. The entire premise was to make power more affordable to more people, because it was good for their business.....
....MUCH MORE
