MUNICIPALIZATION

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Today, 2,011 communities in the U.S. own their not-for-profit electric utility, which the local government runs on their behalf. More communities are exploring whether they should take control of their utilities from private, for-profit entities.

Municipal electric utilities are not-for-profit, owned by the communities they serve, and run by local government. They are governed by a city council or an elected or appointed board. When a community is interested in taking on ownership of its electric utility from an incumbent private company, how long does it take for the process – known as municipalization – to be completed? While some of the most hard-fought municipalization campaigns took eight to 10 years to complete, those that were negotiated amicably were completed in a year or two.

Since 1973, 88 electric utilities have been municipalized – 20 of those since 2000. Communities that have won the fight to gain local choice and ownership of their utility have demonstrated the payoff for customers.

 

  • The city of Massena, New York, municipalized after taking about seven years to overcome legal hurdles erected by the incumbent private utility. Massena saved its customers $25 million in the first 10 years of operation and millions more since.
     

  • The Long Island Power Authority replaced the investor-owned Long Island Lighting Co. in Nassau and Suffolk counties in New York in 1998 and now serves well over a million customers. LIPA reduced electric rates by an average of 20 percent. The municipal utility shored up safety and reliability, and took an active role in supporting local business and community development.
     

  • Emerald People’s Utility District in Oregon municipalized in 1983 to counter the poor customer service and reliability offered by an investor-owned utility. The new municipal utility created customer payment assistance, conservation, energy savings, and community outreach programs. Emerald PUD has won multiple customer service awards and the support of its citizens.
     

  • Winter Park, Florida, formed a public power utility in 2005 after a six-year struggle, as city leaders were barraged with persistent complaints about outages, many on bright, sunny days. The incumbent private utility refused to fix the poor electric reliability. The city used all revenues from electricity sales — except for a contribution to the city’s general fund — for capital improvements such as undergrounding lines, to reduce outages.

Traditionally, municipal utilities across the country have offered the lowest rates to residential and business customers. 2018 national averages show that municipal utilities charge 11 percent less than private utilities. Not-for-profit municipal utilities invest any excess revenues they earn directly back into the community instead of funneling profits to remote shareholders.

Public power utilities also have a better track record when it comes to reliability because their operations and personnel are local and can address outages quickly. Outside of major disasters, municipal utility customers are on average without power for only 75 minutes a year compared to investor-owned utility customers who lose power for an average of 142 minutes.

Municipal utilities make decisions in the best interests of their communities, not nationwide shareholders. This means that when their customers want the benefits of technology, they can decide to invest in this technology. Municipal utilities across the country have collectively reduced emissions by 33% between 2005–2017, a rate that well exceeds the reductions by the rest of the electric sector.

Austin Energy in Texas is one example of a municipal utility focused on innovation and renewable energy to meet customers’ evolving needs. The utility plans to incorporate 200 megawatts of local solar and 10 megawatts of battery storage by 2025. The utility is supporting transportation electrification by establishing public charging infrastructure, integrating electric vehicles with the grid, offering lower rates to customers to charge at off-peak hours, and electrifying fleet vehicles.

The utility enjoys low borrowing costs and no requirement to generate excess revenue for dividends to distant shareholders. Austin Energy transfers $100 million annually to the city’s general fund, which is allocated to police, fire, parks, and other vital community services.

Over the years, municipal utilities have found creative ways to leverage economies of scale. Electricity distribution, as opposed to large-scale generation and high-voltage transmission, is local. Municipal utilities keep costs down through local scrutiny of operations. They partner with other utilities in the region to make joint purchases, taking advantage of wholesale power supply rates without merging into large, profit-driven companies.

Under home rule and existing state statute some of the largest communities in New Mexico could municipalize right now with the passage of a local ordinance. 

Legal Pathways to Municipalization in NM

  • Existing state statute (NM Stat § 3-24-1 (2019) provides for municipalization, but the law was crafted to apply only to Las Cruces. Under the statute:

    • Municipality has the power to purchase or condemn existing grid so it could own the infrastructure

    • Municipality would own the utility and all its assets

  • Under home rule other jurisdictions in NM such as Santa Fe or Albuquerque could achieve municipalization through an ordinance, in which case:

    • Municipality could act independently and immediately

    • Municipality would own the utility and all its asset

Steps to Municipalize an Electric Utility

 

Engaging and uprooting corporate interests makes the process of municipalization complicated quickly. An outline of the basic process, by the American Public Power Association, follows as:

  1. Start with a lead person or organization

  2. Feasibility study to determine potential savings

  3. Legal analysis to ensure there are no insurmountable legal impediments

  4. Study of the value of the electric distribution system

  5. Community education to keep citizens informed and counter private utility opposition

  6. Referendum to authorize establishing a public utility

  7. Price negotiation for a purchase of the private utility’s facilities, if they refuse to sell then jurisdiction may consider condemnation or construction of alternate distribution infrastructure.

OR

  1. Public service commission proceedings as some states need a public service commissions’ authority to purchase an electric distribution system

  2. Evaluation of financing alternatives to acquire and establish operations

  3. Prepare to begin operations

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Image from Every’s Pittsburg, Kansas Feasibility Study