Why better pay means better communities

As public power utilities, you answer to your community. Chances are that your chief executive and other compensation may fall prey to criticism at town meetings — especially if others working for your city or community earn considerably less.

But remember your customer-owners are like shareholders. Shareholders are usually willing to pay for what they are earning if they know the rate of return. Similarly, your customers will be ready to pay competitive salaries to your utility personnel if they know what they get back from your utility. You need to tell them how public power gives back (see the APPA report and infographic). You need to tell them how you offer reliable electricity at affordable rates. National averages show that public power residential rates are 15 percent lower than rates offered by private, for-profit utilities.

Take a look at just how much some public power utility "shareholders" are earning in their communities.

CPS Energy, San Antonio, Texas

Back in 2007, my firm worked with Milton Lee, the then-CEO of San Antonio's CPS Energy. At the time, CPS Energy's residential customers paid a total of $672 million per year. If those customers were served by the neighboring competitor, they would have paid $882 million a year — $210 million more! On top of that, CPS Energy transferred a total of $245 million to the city's general fund in 2007, approximately $94 million of which was associated with residential electric revenues. In effect, the utility put $304 million back into its community that year.

Utility employees make the biggest contribution to a public power utility's success, enabling it to give more back to the community. And quality employees need and deserve quality pay.

Tacoma Public Utilities, Tacoma, Washington

Tacoma Public Utilities, led for 14 years by former APPA President and CEO Mark Crisson and for the last nine years by Bill Gaines, has been producing long-term and significant results for its community. In 2008, shortly after Mark left for APPA, Tacoma's residents were paying a total of $267 million in annual revenue. At the neighboring competitor's rates, those same residents would have paid $404 million.

TPU also paid $16 million that year to the City of Tacoma for shared services and $30 million for gross earnings tax — a total benefit of $183 million. If the competing utility had served Tacoma, that utility would have paid about $17 million in franchise fees and property taxes, leaving a net benefit to citizens of $166 million annually.

Six years later, in 2014, TPU electricity customers were paying a total of $315 million in annual revenue. Those customers would have paid $436 million at the neighboring competitor. TPU also provided about 20 percent of the city's total operating budget that year with a transfer of 6 percent of its own earnings — $35 million — plus $18 million for shared services.

Henderson Municipal Power & Light, Henderson, Kentucky

Henderson, Kentucky is a small community located on the south side of the Ohio river across from Evansville, Indiana. Henderson Municipal Power & Light serves part of the town of Henderson — while the for-profit utility Kentucky Utilities serves the rest. HMPL's service territory offers little additional space for development, so load growth is minimal to non-existent.

Henderson is in the famous Rust Belt dependent on the fickle aluminum industry. In 2014, the citizens of Henderson served by HMPL paid about $35.3 million for electric service. If those customers were on KU's rate schedule, they would have paid $44.5 million. So HMPL customers saved $9.2 million annually. If KU served the entire city, franchise fees would have totaled approximately $1.9 million, reducing HMPL customer savings to $7.3 million. HMPL pays $1.2 million to the city of Henderson through a transfer to the general fund. HMPL also provides $250,000 in free communication services and $430,000 in free electric service. This brings the total savings to nearly $9.2 million.

If HMPL was a for-profit utility, its dividend payout to its shareholders would be 24% of its revenues!

Better Pay Starts Now

With such a high rate of return, public power customers know they get what they pay for. Paying public power utility employees well is important and needs to happen right now.

Over the next 20 years, about 78 million baby boomers are being replaced by 50 million Generation Xers. The utility industry is disproportionately populated by baby boomers, so public power utilities face serious competition from other utilities and industries for a shrinking resource: qualified utility personnel. And even more abundant than Gen Xers are the millennials.

What millennials care about in their work is both good and bad news for public power. They differ dramatically from baby boomers. The Pew Research Center's 2012 study Young: Underemployed and Optimistic found that more than three quarters of millennials rated a high-paying career as most important or very important. They also strongly identify with careers that matter — nearly 80 percent of them said having a job or career that benefits society is most important or very important.

Public power jobs matter. Public power employees can see the direct benefits of their work right in their communities.

Compensation is an expense. Poles, conductors, and generators are also expenses but decisions to invest in them are usually based on the expected return. Equipment purchases are based on an analysis of expected lifespan and the time to recover the cost of the purchase. Your utility does not buy equipment simply because it is cheap.

Shouldn't your strategy to hire personnel be the same? Hiring requires a cost-benefit analysis rather than bringing the cheapest or average resource on board. You want to know the market rate but you can't hire less qualified individuals because they are the cheapest."