CASE-0005 · M01 Invention is not innovation · 1892–1932
Samuel Insull and the invention of the utility business model
- What happened
- Insull arrived at Chicago Edison in 1892, aged 32, after being passed over for the presidency of Edison General Electric. He concluded that the cost of electricity was governed less by fuel than by load factor — the ratio of average to peak demand — and therefore by who the customers were and how they were charged. On a visit to Brighton in 1894 he found Arthur Wright's demand meter, which recorded not only how much a customer used but how fast. Insull licensed it and introduced two-part rates in Chicago: a fixed charge for the capacity held open, and a very low charge per unit consumed. He then deliberately assembled customers whose peaks fell at different hours — streetcars in the morning, factories through the day, homes at dusk — and pursued industrial users who were self-generating. In 1898, to the National Electric Light Association, he argued that exclusive franchises should be traded for state rate regulation, at a time when most of his peers opposed it. In 1903 he committed Chicago Edison to a 5,000 kW Parsons steam turbine at Fisk Street, far larger than anything then in service, against a reluctant board.
- What the popular story gets wrong
- There is barely a popular story to get wrong, which is the point. Edison and Tesla are household names; the man who designed the industry's commercial and regulatory structure is not. Where Insull is remembered at all it is for the 1932 collapse of his holding-company empire and the fraud trial that followed — he was acquitted after two hours of jury deliberation — rather than for the forty years of structural design that preceded it.
- What it bears on
- Supports SRC-0002 (Drucker) on industry-structure change as a source of opportunity — Insull created the structure rather than responding to it. Supports SRC-0014 (Breznitz) on the stages after novelty being where value is captured: he invented almost no technology and captured an industry.
- Implication for us
- Almost every structural feature of the business we work in was designed by one operator between 1892 and 1912, which means those features are choices and not physics. When we treat tariff design, the obligation to serve, or the demand charge as fixed background, we are treating a hundred-year-old commercial decision as a law of nature. The two-part tariff in particular was invented to solve exactly the problem flexibility products face now.