Community Engagement

Municipalization: setting the record straight

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. In California, two consecutive disastrous fire seasons have led to serious proposals for municipalization in several cities.

At the American Public Power Association and the California Municipal Utilities Association, we’ve been involved in many conversations, over the years, about cities buying or selling their electric utilities. The circumstances are unique in each case and we respect the right of every community to examine the pros and cons and make its own informed decision. However, there are some questions and myths about the process and outcomes, so we want to set the record straight.

First, it is important to understand what distinguishes municipal utilities. 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. In contrast, rural electric cooperatives are owned by their member-customers and governed by boards elected from the membership. While they are customer-owned, they operate in private. Investor-owned utilities are private, for-profit entities.

You can learn more about the public power business model, see where in the U.S. public power utilities are located, and dive into stats and facts comparing offerings between public power and other types of utilities.

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.

Some municipalization endeavors have been turned into long, expensive battles – primarily because private power companies spend enormous resources to block the formation of a new public power utility – no matter how much a community wants it – and may use intimidation and threats of long, expensive legal battles to achieve their goals.

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.

Even when communities consider municipalization but eventually decide to forego the change, it brings to light the good that public power can do. President Franklin Roosevelt described public power as a “yardstick” against which to judge private utilities’ rates and service. “The very fact that a community can, by vote of the electorate, create a yardstick of its own, will, in most cases, guarantee good service and low rates to its population,” he said.

The benefits of municipalization – such as reduced prices for residents and more choices for the community in power generation sources – have been seen time and again.

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.

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.

In Sacramento, California, the municipal utility SMUD has committed to achieve net zero greenhouse gas emissions through expansion of renewables and significant investment in electrification of vehicles and buildings. Responding to its customers’ desires, SMUD’s greenhouse gas reduction goals go above and beyond mandated requirements and incorporate a holistic view of source emissions in the region. SMUD is focusing on expanding its renewable portfolio, allowing customers to install rooftop solar and battery storage, and investing in disadvantaged communities where environmental burdens may be more pronounced.

Public power utilities 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.

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.

At the end of the day, each community must decide what is best for itself. The process of municipalization offers citizens transparency and accountability about their electric utility. Municipalization allows citizens a choice – collaborate with their neighbors to control their community’s future – or pay into a corporation focused on personal financial gain.