There are about 2,000 municipal utilities in the United States, with many dating back to the late 1800s and the early 1900s. But only 17 municipal utilities have formed in the last 10 years—the most recent (in 2013) in Jefferson County, Washington. Private investor-owned utilities (IOUs) remain the standard, distributing the majority (about 70%) of the country’s electricity.
“Every year there are probably 20 communities across the country that consider public power, but only a few will get beyond a preliminary discussion. Many hesitate because municipalization can be a long and challenging process,” says Ursula Schryver, vice president of education and customer programs at the American Public Power Association.
The communities that do follow through reap the rewards, often lowering retail rates and improving reliability. According to 2011 data from the U.S. Energy Information Administration (EIA), in 32 of the 48 states where both IOUs and municipal utilities exist, municipal utilities offer cheaper residential electricity. During 2011, residential customers in IOU service territories paid average rates that were 14% higher than publicly owned systems.
Municipal utilities are typically run by locally elected or appointed officials, and therefore do not carry high corporate salaries. The savings in CEO salaries alone can be substantial, considering Forbes found utility CEOs earned an average of $6.1 million in 2011 (excluding stock options). Operating as nonprofits, municipal utilities do not have shareholders demanding profit-making, which means any savings can be passed directly to the customer-owners or reinvested in infrastructure upgrades. Such reinvestment is part of the reason why municipal utilities are known to have more reliable service, faster restoration of service during emergency outages, and higher overall customer satisfaction.
Most municipal utilities serve smaller communities, but now the movement is gaining momentum in bigger cities. Sante Fe, New Mexico, is considering parting with utility provider PNM and running a municipal utility, and in Minneapolis, Minnesota, a coalition of organizations is leading a municipalization campaign as the city’s contract with Xcel Energy nears expiration at the end of 2014.
Rising rates are fueling the effort in Minneapolis. Last year, Xcel asked for its largest-ever electricity rate hike in Minnesota. The state’s Public Utilities Commission (PUC), an agency that regulates utilities, approved a smaller interim rate—Xcel’s seventh rate increase since 2005. The company says it sees a need for three additional rate increases in coming years. In addition to recouping investments in nuclear and wind power projects, Xcel says the rate hikes will help absorb losses from “an erosion in sales”—a common issue throughout the power industry that has resulted from energy efficiency and renewable energy programs.
“The people of Minneapolis should not be charged higher rates for reducing their energy use and being more efficient. They should be rewarded,” says Dylan Kesti, campaign coordinator for Minneapolis Energy Options. “With the franchise agreement up for renewal, it is an energizing moment to explore our options and make some needed changes. We are willing to collaborate with Xcel, and if they are willing to meet the city’s goals to reduce greenhouse emissions and make more substantial investments in clean, local energy, then we see no reason to kick anyone out of town. However, if they can’t, then it is time for a change.”
Motivation for municipalization varies, but a common thread from one city to the next is the desire for local control and accountability. Boulder, Colorado, is making history as the first U.S. city opting for municipalization for environmental reasons. After five years of study and repeated attempts to work with Xcel to reduce the community’s dependency on fossil fuels, Boulder let its 20-year franchise agreement expire in 2010, in favor of exploring different models that could deliver clean, local energy.
“What makes the situation in Boulder so significant is that the community is taking steps to build the electricity system they want—one powered by renewable energy. What matters is that the system provides affordable, reliable electricity that is nonpolluting, creates economic opportunities, and avoids the cost risk of fossil fuel,” says Bill Corcoran, western director of the Beyond Coal Campaign for the Sierra Club, which donated $60,000 to support Boulder’s municipalization campaign.
Boulder was among the early adopters of the U.S. Conference of Mayors Climate Protection Agreement, in which cities committed to meeting or beating the U.S. emissions reduction target in the Kyoto Protocol. To help meet those targets, the city implemented the nation’s first tax on electricity carbon emissions in 2007, with revenues funding a climate action plan. Despite voluntary programs and local subsidies to promote energy efficiency and renewable energy investment, the city has not met its Kyoto Protocol goals. When the city missed its initial target in 2008, municipalization talks ramped up.
“At the time, we were doing well, but we could only do so much on the demand side alone. It became clear that more needed to be done on the supply side of the equation. With over 80% of the electricity supplied by Xcel derived from fossil fuel, mainly coal, our ability to reduce our emissions was and is limited by Xcel’s choices,” says Jonathan Koehn, regional sustainability coordinator for the city of Boulder.
Studies have consistently shown scenarios in which Boulder could sustain rates and reliability while doubling renewables and cutting emissions in half. Yet, after nearly 10 years of legal and regulatory battles, there’s still no guarantee that Boulder will build its own utility. It remains unclear as to how much the switch will cost the city. Negotiations to purchase Xcel’s assets—the poles, wires, and substations surrounding the city—are underway, but should the cost exceed the $214 million cap set by a November ballot initiative, then near-term plans for municipalization will cease, Koehn says. Some estimates show the venture topping $1.2 billion when all is said and done, but the appraisal and negotiations could take up to two years.
With customers and revenue at risk, IOUs spend funds and resources to back antimunicipalization campaigns. In 2002, Pacific Gas and Electric Co. spent $2 million to defeat a grassroots ballot initiative for a municipal utility in San Francisco. Over the past couple of years, Xcel Energy has spent nearly $2.5 million attempting to kill ballot initiatives in Boulder. Despite Xcel’s efforts, Boulder continues to clear hurdles and move forward with its municipalization plan, taking inspiration from success stories like Winter Park, Florida.
After years of frustration with unreliable service, the city of Winter Park initiated the municipalization discussions in 2000. Five years later, the city took over operations from utility Progress Energy Florida and began supplying community-owned power. Though the city lost money and raised rates in its early years due to bonds for capital improvements, the city is now turning a profit—about $5 million on $45 million in revenue—and using those funds to make system upgrades. The city has made strides in reliability, with the average customer experiencing 1.4 momentary interruptions per year, down from 22 per year with Progress Energy Florida.
Other cities embark on the process only to discover that forming a municipal utility is too costly. The city of Las Cruces, New Mexico, began working to create a municipal utility in 1991. In 2000, they abandoned the effort, choosing to sign a new franchise agreement with El Paso Electric after costs and legal fees mounted in the tens of millions, far beyond the city council’s original estimates.
“Public power is not for every community,” Schryver says. “If a community is unhappy with their utility situation for whatever reason, and if they have the opportunity to make changes—say if their franchise agreement is up for renewal—then it is worth considering the options. Municipal energy may be a good fit.”