The Evolution of Joint Action
Originally published December 11, 2013
The joint action movement in the public power industry took hold in the 1960s, when local, publicly owned electric utilities recognized they were at a competitive disadvantage with large investor-owned utilities in the power supply arena.
Many public power utilities either produced power to meet their own needs at small power plants or purchased wholesale power from large investor-owned utilities. Large generating stations offered economies of scale to utilities, but very few municipally owned electric utilities could afford the cost of building a large plant. The solution, therefore, was to form consortia that would allow small utilities to join forces to finance and build larger generating stations—or to purchase large blocks of wholesale power at a lower cost.
Joint action discussions emerged in the 1950s. In his 2003 memoir, Public Power-Private Life, Alex Radin, APPA’s chief executive officer from 1951 until 1986, credited Leland Olds for bringing the vision of joint action to public power utilities. Olds had been chairman of the Federal Power Commission from 1939-1949, then worked as a consultant during the 1950s. At the APPA National Conference in New York City in June 1957, Olds spoke about the importance of “giant power,” which he envisioned as “great regional power reservoirs, created and constantly expanded through cooperation of federal, state, municipal, private and cooperative electric power agencies.”
Later that year, Olds spoke to the American Economic Association and described a plan for developing four or five large regional power supply agencies that would serve private, public and cooperative utilities. The agencies would be set up as nonprofits entities, jointly owned by the electric utilities they served and financing would be achieved by issuing bonds.
Olds died in August 1960. His vision for “giant power” was touted for a time by the Electric Consumers Information Committee, a coalition of public power, farm and labor interests chaired by Alex Radin. Legislative proposals to carry out the giant power vision were debated through much of the 1960s, but died by 1969, after Richard Nixon became president.
When he was chairman of the Federal Power Commission, Joseph C. Swidler directed his staff in 1964 to undertake a national survey that would guide electric utilities in planning for future power supply. Rapid load growth and the promise of nuclear power fueled a focus on the economies of scale of large generating stations.
That same year, APPA’s Legislative and Resolutions Committee appointed a subcommittee to study joint action, recognizing it as public power’s avenue to economies of scale. The subcommittee members were Chairman Dean Barline, director of utilities in Tacoma, Wash., who died before the panel published its report; Frank King, manager of the Gas and Electric Department in Holyoke, Mass.; and Gus Norwood, executive director of the Northwest Public Power Association. The APPA committee published its report in April 1964, before the FPC finished the National Power Survey.
The APPA panel was encouraged by Chairman Swidler’s remarks at the American Power Conference that year. The commission’s survey’s purpose, he said, was “to reduce the cost of power so that it can be made more widely available than ever and at constantly lower cost, and thus to strengthen the energy base of the nation.”
Public power utilities worried the emphasis on large generating facilities might lead to an acquisition feeding frenzy among investor-owned utilities seeking to buy up small municipal distribution systems. Swidler helped allay those fears in his remarks to the American Power Conference. “Size is a great advantage,” he said, when the economic task is production and transmission of electricity.
“When the task, however, is to bring the power from a central point to individual homes and shops, the evidence indicates that the way to reduce unit costs is to build up high average use per consumer, which can be achieved in small systems as well as in large,” he said. He also spoke of the need for large suppliers to make bulk power available to small distribution utilities at a true wholesale rate, not at rates higher than those charged to retail customers.
During the 1960s and 1970s, APPA worked with its members to encourage formation of state-authorized joint action agencies. Grand River Dam Authority in Oklahoma is the nation’s oldest joint action agency. It was created by the Oklahoma Legislature in 1935. The Washington Public Power Supply System was formed in January 1957 in Washington state. Public utility districts in Washington were formed and began selling electricity during the 1940s, as the federally owned hydroelectric projects on the Columbia River began producing power. But leaders in the state knew they could not count on the federal government to meet their electricity needs indefinitely. The joint action agency enabled the member utilities to work together to meet growing power supply needs independent of the federal government. Today, that agency is known as Energy Northwest.
Two APPA staffers, Larry Hobart and Herb Blinder, traveled to many states to promote development of joint action agencies to public power utilities during the 1960s and 1970s. Hobart handled congressional relations for APPA during the 1960s and succeeded Radin as CEO of APPA in 1986. Blinder was an electrical engineer and former planning engineer for the Sacramento Municipal Utility District in California who joined APPA as director of technical services. According to Radin, the task proved a tough sell.
“Some smaller utilities that operated their own generating stations were skeptical of the joint action concept because they felt it would lead to a loss of their autonomy,” he wrote in Public Power – Private Life. In one instance, the APPA representatives arrived for a noon meeting with local utility officials from several cities in Missouri. Upon arrival, they encountered an empty room. Eventually about a dozen men showed up and Hobart and Blinder made their presentation. The small audience listened, but asked no questions, Radin said.
But the evangelists persisted. The June 1968 issue of Public Power magazine was devoted joint action. In the issue’s lead article, Blinder reported that APPA staff had observed “a new dynamic spirit” in support of joint action. “We see unmistakable signs of a major trend,” Blinder wrote. He observed "a firm determination among municipal power systems to have control over their own fate; to develop their own power supply; to stand as a strong, independent force in the electric utility industry; and to bring more benefits to their communities by doing so."
Blinder pointed to burgeoning joint action activities in Massachusetts, Vermont, North Carolina, Iowa, Florida, Pennsylvania, Texas, Utah, Wisconsin and elsewhere.
Disque D. Dean, a partner at the Wall Street firm Lazard Freres & Co., addressed the financial aspects of public power in that 1968 issue of Public Power magazine. Regions of the United States with the lowest electricity rates are those served by public power, he noted. There are five reasons for this, he said: public power utilities are nonprofit; debt securities issued to finance public power projects are exempt from federal tax and thus have an interest rate that is typically 1.5 to 2 percent lower than taxable bonds; projects are secured by a revenue stream, not taxes; surplus revenues are not taxed, since local governments own the assets and depreciation is a function of economic reality, not rate base considerations; and public power utilities are permitted to finance 100 percent of capital costs.
During the 1960s, demand for electricity was growing by 7 percent or more a year. Dean warned that public power utilities would need to use their financial advantages to take advantage of economies of scale.
Some of the earliest joint action ventures were undertaken to battle high wholesale rates. In Florida, 10 cities contributed money to a legal fund and hired Washington, D.C., attorney George Spiegel and the consulting engineering firm R.W. Beck & Associates to take on Florida Power Corp. over the issue of high wholesale power rates. In 1965, the Florida cities sought, to no avail, an amicable settlement with the investor-owned utility. The power company offered to reduce rates for some cities, and to buy the electric distribution system of two smaller cities in the state—Bushnell and Newberry, both still in the electricity business. Early in 1966, Spiegel filed a complaint with the Federal Power Commission, alleging discriminatory practices in Florida Power Corp.’s treatment of municipal utilities and excessive and arbitrary rates.
The Federal Power Commission reduced rates for the Florida cities by about 5 percent, but the investor-owned utility continued to sell bulk power to rural electric cooperatives at a lower rate than it charged the municipal utilities. Ostensibly because the co-op loads were larger, the power company charged them rates that were 4 to 5 mills-per-kilowatt-hour lower than rates for the municipal utilities, wrote Wallace E. Sturgis, city attorney for Ocala, Fla. The power company pursued a “divide and conquer” strategy and tried to negotiate separate power sales agreements with each of the 10 cities, offering lower rates to the larger cities. But the cities stood firm as a group and negotiated rates that satisfied all. The resultant aggregate savings of $500,000 for the 10 cities were huge at the time.—it was the ‘60s.
“We have learned what can be accomplished through a united effort,” Sturgis wrote in Public Power magazine in July 1968. “But this is just the beginning. We must think big and from such thinking, big results will come.” Individually, municipal utilities are small, he said, “but collectively, we are large and growing larger, despite all obstacles.”
Missouri Basin Municipal Power Agency and its members pooled funds and political willpower in the 1960s and 1970s to assert the legitimacy of municipal electric utilities by challenging Otter Tail Power Co.’s refusal to transmit federal power to the city of Elbow Lake, Minn. (See sidebar article, “The Landmark Elbow Lake Open Access Case.”)
During the 1970s, the era of 7 percent annual load growth faded away; utilities experienced growth closer to 2 percent a year. The ‘70s were the golden decade for joint action—29 agencies were established during the 1970s and another 23 in the 1980s. The opportunity to build or buy an interest in large generating projects often spurred utilities to form the agencies. But some states were guided by the Florida experience. In Delaware, the state’s municipally owned electric utilities secured enactment in 1978 of a state law that authorized the utilities to form an agency and issue debt jointly. They formed Delaware Municipal Electric Corp. in 1979.
Throughout the 1980s, DEMEC operated as an advocacy group for its members. Utilities worked together on state legislative issues and to challenge wholesale transmission rate filings before the Federal Energy Regulatory Commission. It was the early 1990s before the agency began handling power supply for its members.
While power supply and the opportunity to capture the benefits of economies of scale drove creation of many joint action agencies, the agencies evolved to provide a wide range of services. Today, many plan and implement energy efficiency and demand-side management programs for their members.
Some agencies hire “circuit riders,” representatives who work on-site for member utilities one or two days a week, then spend another part of the week at other member utilities. Wisconsin Public Power hires energy services specialists who fulfill this role. Indiana Municipal Power Agency has lineworkers who are on the agency payroll, but perform work on distribution systems owned by member utilities. The arrangement enables the agency and its members to recruit and hire highly qualified personnel whom cities individually could not afford.
American Municipal Power in Columbus, Ohio, has tree-trimming crews that support member needs. In places where significant state-level regulation of publicly owned electric utilities remains in effect, joint action agencies like Vermont Public Power Supply authority offer significant regulatory and legislative services to support member utilities.
The growing complexity of the electric utility industry and increasing cost pressures on locally owned utilities have spurred joint action agencies to fulfill new roles.
Many agencies pay the dues for all of their members to belong to the American Public Power Association and its research and demonstration program, the Demonstration of Energy & Efficiency Developments program known as DEED The agencies support their members’ efforts to comply with or steer clear of reliability standards for the bulk electric system administered by the North American Electric Reliability Corp. Agencies coordinate their members participation in regional transmission organizations.
Among other services, many agencies support their members in economic development, rate design, fuel purchasing, training, telecommunications, lobbying, information technology, engineering, project management, finance and equipment testing.
The ballooning range of joint action agency services and the increasing complexity of the industry have given rise to what some call the super joint action agency.
American Municipal Power, based in Columbus, Ohio, fits this definition. Established in 1971, the agency was originally known as American Municipal Power-Ohio. For its first three decades, its focus was on helping Ohio’s 83 municipal electric utilities meet power supply needs.
AMP’s membership has grown to include utilities in seven states. It counts among its members another joint action agency, the Delaware Municipal Electric Corp. AMP is the largest single owner of the Prairie State Generating Station in Illinois. While the agency’s role has grown in ways never imagined at the outset, it has hardly strayed from its original mission; AMP is deeply engaged in assessing and building generating projects to support its members’ power supply needs.
Nebraska Municipal Power Pool is another candidate for the super joint action agency moniker. Born in Nebraska in 1975, the agency known today as NMPP Energy serves members in six Midwestern and Rocky Mountain states. As member needs evolve, the agency expands its operations to provide a full range of joint action agency services. The agency today is a conglomerate of sorts. It has a separate business unit that secures wholesale natural gas supplies for municipally owned gas utilities and another unit that sells natural gas to retail customers. Another developed a billing software package that is used by agency members and sold to international customers.
Joint action agencies today have grown in sophistication in a way likely never imagined by the evangelists of the 1960s. The entities are the lifeline for public power utilities that want to retain the benefits of owning and operating their own electric system while not losing out on the economic advantages of a larger organization. The agencies facilitate the best of both worlds—small and large—for their members and their customers.
“A sense of freedom, independence and security, a spirit of community pride, cooperation and solidarity, freedom from exploitation and political corruption at the hands of private monopolists, a means to promote the growth and improvement of the community, escape from the blight of bureaucratic public regulation, experience in self-help and self-government. These are social values [that] transcend all engineering calculations and considerations of technical efficiency. They are vital to human and community welfare, and to the preservation of a free, democratic society.”
From a paper presented to the APPA National Conference, May 1964, by Horace Gray, Professor of Economics, University of Illinois
Small Agency Takes on Giant IOU in Test of New Transmission Law
Blue Ridge Power Agency in Virginia was one of the first public power entities in the nation to take advantage of open access transmission provisions of the Energy Policy Act of 1992. In 1993, Blue Ridge and four of its member cities (Bedford, Danville, Martinsville and Richlands) filed an application for transmission with the Federal Energy Regulatory Commission. On July 1, 1994, FERC ordered American Electric Power Co. to provide transmission services to the cities. On Aug. 1, 1994, AEP, former full-requirements power supplier to the cities, began wheeling power from PSI Energy (which later that year merged with Cincinnati Gas & Electric Co. to become Cinergy). The transaction brought immediate, significant savings in wholesale electricity costs to the Virginia communities. First-year savings were $1.6 million.
The case was the first fully litigated transmission case following issuance of FERC’s Order 888. American Electric Power asked the U.S. Court of Appeals for the District of Columbia Circuit to overturn the commission’s transmission order but the court ruled for Blue Ridge Power Agency.
The Landmark Elbow Lake Open Access Case
By Roger King
More than 40 years ago, a long-running dispute between the village of Elbow Lake, Minn., and the investor-owned utility Otter Tail Power Co. moved all the way to the Supreme Court. The dispute of open access to transmission service, decided in Otter Tail Power Co. v. United States, ultimately led to an out-of-court settlement in which Otter Tail agreed to pay Elbow Like $1.325 million.
The financial settlement came based on a lawsuit Elbow Lake filed against Otter Tail to recover costs of generating facilities the town was forced to install while the dispute between the two entities dragged on. The real basis of the dispute stemmed from Otter Tail’s refusal to sell wholesale power to Elbow Lake or to wheel power purchased from the U.S. Bureau of Reclamation (which, at that time was in charge of marketing federal hydroelectricity from the Missouri River dams in the region) after Elbow Lake had established its municipal electric system.
Elbow Lake was one of Otter Tail’s earliest retail towns. Electric customers in the community began purchasing electricity at retail from Otter Tail in 1913.
Over the years, Elbow Lake officials and Otter Tail management had fallen into a contentious relationship that included a disagreement over who would bear the cost of lighting for Elbow Lake’s main street. In 1962, Elbow Lake residents voted to establish a municipal system. Otter Tail refused Elbow Lake’s request to supply wholesale power or wheeling services for Bureau of Reclamation power.
By 1966, Elbow Lake had installed its own diesel generators to supply its power needs, but Otter Tail continued to refuse to provide wheeling or to make wholesale power available for times when the generators weren’t capable of meeting all of the town’s needs. After that, the petitions and lawsuits began.
Elbow Lake petitioned the Federal Power Commission to order Otter Tail to provide wheeling services. In 1968, Elbow Lake became a member of the Missouri Basin Municipal Power Agency, which then joined the fight in support of Elbow Lake. In the spirit of joint action, Missouri Basin’s members voluntarily contributed funding through special assessments to back Elbow Lake’s effort.
The Federal Power Commission took up the case and ordered Otter Tail to provide wheeling services. Otter Tail began a series of appeals that ended in 1973 when the U.S. Supreme Court made the 4-3 ruling that required the company to provide wheeling service for federal power.
Otter Tail’s reasoning for fighting so long and hard was that it feared that if one town could leave its system and force the company to deliver federal power, others could and would do the same. But, according to Otter Tail, only one community left the company after the Supreme Court’s decision, and that didn’t occur until 1978.
Robert Pflueger, an attorney from Ortonville, Minn., and one of the early leaders of the Western Minnesota Municipal Power Agency offered his observations about the case in Missouri Basin’s 25-year history book, They Said It Couldn’t Be Done, published in 1990. Western Minnesota was formed to provide financing for generation, transmission and other facilities on behalf of Missouri Basin. Western Minnesota is made up of Missouri Basin’s members in Minnesota.
After the Elbow Lake v. Otter Tail case was resolved, “Otter Tail and other investor-owned utilities in the region recognized that municipal utilities as a group were on a par with them,” said Pflueger. “They were aware the environment changed and when Missouri Basin started supplying supplemental energy, that’s when it really hit them . . . it was here to stay.”
“People are dedicated to joint action,” Pflueger said. “In Minnesota, that goes back to Elbow Lake because that hardened all of us and pushed us. All those who contributed never wavered or never, at any time, thought we would leave or go someplace else. We were on a straight course and we stayed it.”
The tenor had changed, and within a few years, Missouri Basin and Otter Tail developed a cooperative relationship that led to joint ownership of transmission. In 1986, Missouri Basin completed a $14 million transaction and acquired ownership of about 11 percent of Otter Tail’s transmission system – the portion used to serve several Missouri Basin members. In the system, Missouri Basin, which has since begun doing business as Missouri River Energy Services (MRES), has seven substations, 170 miles of 115-kV transmission line, and 11 miles of 230-kV transmission line. MRES uses this integrated transmission agreement to serve 130 megawatts of member load. The agreement calls for Otter Tail to provide operation and maintenance for the facilities until Jan. 1, 2016.
In the middle of the first decade of the 21st Century, MRES and Otter Tail began working together along with other regional utilities to develop a large jointly owned coal-fired generating facility. Regulatory hurdles and mounting costs eventually brought that effort to a close, but it reinforced the fact that Otter Tail and other regional utilities had come to recognize the legitimacy of municipal joint action agencies.
Roger King is public communications coordinator for Missouri River Energy Services.
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