“Americana” (definition): “materials concerning or characteristic of America, its civilization, or its culture broadly: things typical of America.” (Source: Merriam-Webster).
I truly love our country. While not perfect, the ideals we strive to embody are precious, even with the inevitable tensions that come with our constitutional democracy. The stair-stepped system of government within our vast geography is one place where tension occurs – and was even anticipated by our founders. Local versus state versus federal governments and their Venn diagrams of interaction and jurisdiction can be messy but are also effective ways of enabling individuals, businesses, and groups to have a voice in their governance at a much more granular and targeted level than would be enabled by a remote federal government alone.
In addition to governance structures that are hallmarks of our unique democracy, capitalism is a key tenet. It has enabled productivity, created a robust middle class, and spurred ongoing investment in marketplaces that have diversified our economy. This system depends heavily on the private sector – from small businesses to multi-national corporations and everything in-between. I am an avowed supporter of that sector. But as an equally avowed supporter of the public power business model, I see the significant need for and value in the public sector’s involvement in certain activities, especially related to infrastructure and essential services.
Publicly owned utilities have been around since the inception of central station power in the 1880s. In fact, the first public power utility was born on the evening of March 31, 1880, in the farm community of Wabash, Indiana. Shortly after 8:00 p.m., mechanics hitched a threshing machine engine to the west wall of the Wabash County Courthouse and sent motive power to a generator in the basement. Within minutes, lights atop the courthouse bathed downtown Wabash in brilliant light. One eyewitness account described the scene in Wabash that night as follows:
People stood overwhelmed with awe, as if in the presence of the supernatural. The strange, weird, light, exceeded in power only by the sun, rendered the square as light as midday. Men fell on their knees, groans were uttered at the sight and many were dumb with amazement. We contemplated the new wonder in science as lightning brought down from the heavens.
(Museum of Electricity, Brush Arc Lamps, Wabash, Ind. 1880, citing an excerpt from a newspaper account in Men and Volts: The Story of General Electric).
(To learn more fascinating facts, read APPA’s “Celebrating America’s Public Power History.”)
Just a hundred years into our country’s inception, and well before Irving Berlin wrote “God Bless America,” public power became part of the fabric of this nation at the very same time that private power companies came on the scene. Since that day 141 years ago, debates have raged about whether private power or public power is best. Both co-exist in this country, along with privately owned, not-for-profit, rural electric cooperatives that came into being in the 1930s. Why is there a debate and what are the arguments? While an in-depth answer to these questions would require a book, I’m going to take an (admittedly biased) stab at an overview.
- Electricity is an essential service, often defined as a utility in state and federal statutes. Even by 1931, when Thomas A. Edison died, then-President Hoover declined to order electric utilities to stop the flow of electricity for even one minute to honor the great inventor because the service was so essential that doing so could result in harm or even death.
- The provisioning of electricity tends to lend itself to a “natural” monopoly. Think of commodities as being on a spectrum – there are certain goods and services that are easily replaceable while others are not replaceable at all. Electricity is on the latter end of the spectrum. In addition to the commodity/service itself not being replaceable, the infrastructure needed to deliver electricity on a large scale is generally immovable and limited in terms of where it can be sited.
- Given the above, electricity service has been rate-regulated almost since the beginning. And this is where the governmental structure of our country comes into play – that regulation of electricity exists at all levels of government. Retail rates are regulated at the state and local levels, while wholesale rates, considered interstate commerce, are regulated at the federal level (with some nuances).
- As a capital-intensive industry, access to capital markets for investments in things like power plants and transmission lines is important.
Now, back to public versus private power within the context above.
- Publicly owned (public power) utilities are regulated at the local level by mayors, city councils, and locally elected or appointed boards. Decisions about whether to sell the utility are often made by a referendum of the voting populace being served by the utility. Private utilities are rate-regulated at the retail level by state public utility commissions (typically appointed by the governor, but sometimes elected).
- Public power utilities are not-for-profit, so any excess income goes back into the utility in the form of maintenance or expansion/improvement of the system, to help pay for other city/town services, to reduce rates, or put into an emergency reserve fund. Private utilities get a regulated “rate of return,” which is often between 9% and 10%, over and above operation and maintenance investments and expansions. Such regulated profits go to shareholders.
- Private utilities finance capital investments with both debt and equity: debt from the issuance of taxable bonds; equity supplied by shareholders. These costs are included in a utility’s rate base, on which investors are granted a rate of return. Public power utilities generally finance larger capital projects with debt—allowing the cost of the project to be repaid over time by the customers benefiting from the investment. While public power utilities generally issue tax-exempt bonds to finance such projects, in some instances they can – or may be required to – issue taxable municipal bonds.
- Public power utilities are mostly divisions of municipal governments – run like government enterprises. They can also be subdivisions of states, such as irrigation districts and public utility districts. As such, they cannot be owned by foreign entities. Private utilities are often part of larger holding companies that can be headquartered in other states or countries. Private utilities are often large, covering several states. While this may give them an advantage in terms of economies of scale, it can also mean that individual communities don’t get an immediate response during large-scale outages or issues. Public power utilities are in cities and small towns where they are first and foremost dedicated to local citizens. When there are outages, their citizens are their top priority. If needed, such towns can form consortia and pool their resources to gain economies of scale.
As this shortlist demonstrates, there are significant advantages to both public and private options for electric utilities if discussed in the abstract. Once we look more closely at the affordability and reliability of public versus private utilities, however, there is a clear winner, and that is public power.
- On average, residential public power customers pay 13% less than customers of privately owned utilities (Source: Public Power Statistical Report).
- Public power customers benefit from less time in the dark – with about half the average outage time as customers of privately-owned electric utilities (Source: U.S. Energy Information Administration).
- And, when it comes to making choices about rates and reliability upgrades, public power customers have a voice in the decision-making process, whereas customers of privately owned utilities do not. As communities continue to debate the merits of each, as they have done for over 140 years, I encourage clear-eyed and unemotional analysis of the data that has been accumulated ever since.
But looking beyond data analysis, it’s clear that in less than a century and a half public power has become baked into the American story. Public power harnesses both the progress of capitalism with the necessity for promoting the common good. It serves local communities even as it empowers them (literally!).
Public power is true “Americana.”
(Photo by Paulette Wooten on Unsplash)