Powering Strong Communities

Municipalization Resources

Resources for Establishing a Publicly Owned Electric Utility

Legal Issues

Model City Charter Provisions for a Public Utilities Authority – These provisions are designed to assure an adequate legal and organizational basis for efficient, reliable, and financially sound performance by municipally owned utilities.

Survey of State Municipalization Laws - This Survey of State Municipalization Laws examines and summarizes each of the 50 state’s laws on the issues of whether municipalities have the legal authority to acquire, own and operate an electric utility, and, in the case where a municipality acquires the facilities of an incumbent utility, the laws that determine the price to be paid.

Case Studies

Jefferson County negotiates a purchase of the electric system

In November 2008, Jefferson County, Washington, voted 54-46 percent in favor of authorizing the public utility district to become an electric utility. Under state law, public utility districts have the right to use eminent domain to acquire private electric utilities, but Jefferson County’s PUD commissioners were determined to try to negotiate a purchase first, even though Puget Sound Energy was opposed to selling the system.

The first meeting after the vote brought together Puget Sound President and CEO Steve Reynolds and PUD Commissioner Wayne King. When Reynolds started to discuss the cost of a potential condemnation suit, King responded “We had hoped we could sit down and talk about this over a cup of coffee.”

This initial conversation set the tone for the negotiations; a year later, the two sides agreed to a purchase price of $103 million for the electric system in east Jefferson County. The commission felt the negotiated terms would provide customers a smoother, more efficient and potentially lower transfer cost than if they pursued condemnation. The new public power utility is bringing more jobs to the county. The PUD already employed eight people to operate its water and sewer systems; operating the electric utility requires another 20-30 full-time employees, including lineworkers, engineers, and office staff. The PUD is committed to running the new utility strictly with its own employees.

Commissioner Barney Burke said, “One thing almost everyone in Jefferson County can agree on is the need for more family-wage jobs.” The new utility jobs boost the local economy by adding such jobs. This economic advantage is boosted by the PUD’s commitment to purchase supplies locally whenever possible. Local hiring also means faster response times in case of an outage, as lineworkers will no longer be based in another county.

 

Winter Park chooses to focus on reliability

Winter Park, Florida, formed a public power utility in 2005 after a six-year struggle to take over the electric distribution system. Winter Park’s effort was sparked by persistent problems with Florida Power Corp. City leaders were barraged with complaints about outages. The private utility’s franchise was nearing expiration. The franchise agreement included a clause allowing the city to buy the distribution system at the end of that period. In 2003, residents turned out in droves and voted overwhelmingly–by 69 percent–in favor of the city’s plan to form a municipal electric utility.

The utility began operations in 2005. The city contracted with ENCO Utility Services Inc. of California to operate the utility under a 12-year contract and committed to use all of the revenues from its electricity sales–except for a contribution it has agreed to make to the city’s general fund–for capital improvements. The city committed to undertake a strong program to improve the reliability of electric service, in part by putting a significant portion of the power lines underground.

 

Hermiston takes control to improve rates, customer service

Hermiston, Oregon, formed a municipal utility in 2001 following a four-year effort that began after the investor-owned utility closed its local customer service office and citizens experienced a decline in service. Citizens approved a plan to take over the electric distribution system. The investor-owned utility fought Hermiston’s condemnation proceeding, but a court ruled in favor of the city. Subsequently, the utility agreed to sell the system to the city for $8 million, about twice book value.

The switchover on October 1, 2001, went smoothly for customers and the local newspaper, East Oregonian, which had opposed the formation of the city-owned utility, reversed its stance after the new utility started operations.

Hermiston Energy Services reduced customers’ rates in its first year of operation and the utility’s average rates for both residential and commercial customers remain well below the average rates that its former investor-owned utility charges its customers in Oregon.

 

Long Island forms one of the largest public power utilities

Long Island Power Authority (LIPA) replaced the investor-owned Long Island Lighting Co. in Nassau and Suffolk counties in New York and now serves well over a million customers. In May 1998, after LIPA purchased the investor-owned utility’s transmission and distribution system, it reduced electric rates across the board by an average of 20 percent.

In addition, LIPA put special attention on the distribution system’s safety and reliability. Employee morale improved dramatically with LIPA’s fresh start due to its nonprofit, public-service outlook and its new emphasis on safety.

LIPA has a special relationship with its business and industrial customers, taking an active role in business and civic organizations. LIPA provides qualified businesses with the opportunity to obtain rate incentives and energy efficiency audits. More than 300 companies have taken advantage of LIPA’s economic development program, creating nearly 50,000 jobs.

 

Clyde constructs its own distribution system

When Clyde, Ohio, decided to pursue formation of a municipal utility, the initiative was entirely supported by Whirlpool, the town’s largest employer. Citizens of the town of 6,000 voted “yes” in a referendum and the town borrowed $11 million to install its own poles, wires, transformers and electric meters to compete head-on with the incumbent utility, Toledo Edison.

Five years after the municipal utility began operations, its electric rates were 30 percent lower than those of the investor-owned utility, and most people in town (except Toledo Edison’s employees) had switched to public power. The town succeeded in doing exactly what Toledo Edison said it never could: it created a fully functioning public power utility with significantly lower rates.

Clyde’s success has also benefited its neighboring communities that are still served by Toledo Edison. Losing Clyde’s customer base motivated the investor-owned utility to do some belt-tightening to ensure it retained its other customers. As cited in 1994 comments to the Federal Energy Regulatory Commission: “Since losing Clyde [Ohio] retail load, Toledo Edison has entered into dozens of new incentive ‘contract’ arrangements with many of its industrial, commercial, schools and other governmental customers, providing rate discounts to retain load and encourage new load growth. Since losing Clyde, Toledo Edison has also cut its dividend, cut its internal costs, frozen executive salaries, foregone pre-approved retail rate increases, frozen base rates, implemented new marketing programs, reduced debt, written down or off assets, and announced a general creed that it would do whatever possible to avoid ever again losing a customer due to high rates. These are the appropriate ways to respond to competition…”