Community

The power of local solutions

In the late 19th and early 20th centuries, forming a public power utility was a necessity for many communities. As larger corporations began establishing electric services in bigger cities, where the return on investment was most certain, small- and medium-sized communities across the country were left to their own devices. In many cases the pioneer spirit ran strong, and communities created their own electric utilities, commonly referred to as municipal utilities, or “munis,” because they were run by the local government.

Of the more than 2,000 public power utilities that exist today, almost 300 were established before the turn of the century, and another 1,000 were founded before the signing of the Rural Electrification Act of 1936.

These early municipal utilities were built on the core values of public power — affordability, reliability and environmental responsibility. Today, those same values are prompting other cities and towns to explore what it would take to transfer ownership of the electric utility from the incumbent shareholder-owned company to the community. Known in the industry as “municipalization,” this is a long and arduous process, often involving perfect timing, dedicated communication with stakeholders, and a delicate balancing act with the demands of the incumbent utility. While many communities have floated the idea of becoming public power, only 13 have actually made the transition since 2000.

“Throughout the year, I’m contacted by about 20 communities that are interested in establishing a public power utility,” said Ursula Schryver, vice president of education and customer programs at the American Public Power Association. “I’d estimate that there are seven to 10 in various phases of the process at any time.”

“At this moment, municipalization discussions are happening coast to coast, from San Francisco and Davis, California, and Pueblo, Colorado, to the entire state of Maine,” she said.

Though not every utility that has attempted to form a public power utility has been able to fulfill the dream, Schryver said, the process of exploring is a great way to get the word out about the value of public power and lay the groundwork for a future attempt. “And sometimes, talk of municipalizing incents the incumbent utility to provide communities concessions to keep them from continuing the process,” she said.

There are many reasons why a community might want to shed its investor-owned utility and go to community ownership, but focus almost always comes back to the same key concept: local control.

For the residents of Boulder, Colorado, local control meant knowing where their electricity came from and having a plan to increase power from renewable sources. For Decorah, Iowa, local control meant having an opportunity to keep wealth in the form of electric revenue inside the city and stimulate the local economy. For Winter Park, Florida, local control meant saying goodbye to the lackluster reliability record of the incumbent utility and making enhancements to the electric system so people in the community could be assured of having their lights on.

In all three communities, the municipalization process became a long fight with the incumbent utility. Each community has taken on the fight headlong, with different levels of success so far.

Boulder wanted to go green

According to city documents, Boulder, Colorado, first looked at municipalization of its electric utility in the late 1890s. However, more than 120 years later, the closest Boulder has ever gotten to that dream is where it is today.

At first, the talk was just about renegotiating the city’s franchise agreement with Xcel Energy as it was due to expire in 2010. “We thought that was the time to leverage those negotiations to help us meet some of our specific emissions and economic goals in Boulder,” said Emily Sandoval, communications specialist for the city. “That proved impossible because the utility was not willing to treat Boulder differently than it treated its other customers, so we found ourselves in a great place to take it a step further and explore municipalization.”

The city primarily wanted to take control of its electric utility to respond to the community’s interest in going green. In a community that features the University of Colorado, the National Oceanic and Atmospheric Administration, and multiple federal laboratories, the drive to address climate change became a central focus. Before the negotiations with Xcel Energy kicked off, Boulder was already at the forefront of emissions reductions in the residential sector, with extensive installation of solar photovoltaics across the community. But it was clear that only so much was in local control so long as Xcel was serving the city.

“When we took this to the community, three key themes emerged. The first was decarbonization, where we could put an emphasis on renewables. The second was decentralization, where we could make decisions locally and be resilient at a smaller scale. And the third was democratization, where the community could have a bigger say in how their utility runs programs and how it retains and uses the revenue it generates,” Sandoval said. “Though you could participate in the Public Utilities Commission process to get some of this, it really would be better tailored to Boulder if these decisions happen at the city council or utility board level.”

“In an active and engaged community like Boulder, you have to listen to the citizens, and they really made it clear that these are their priorities,” added Steve Catanach, the city’s director of climate initiatives. “We, of course, also want to ensure that the lights stay on and the prices are reasonable while executing all these priorities. We have a clear plan on how to make that happen.”

The first step in the long journey began with the city council’s decision to forgo a community vote on the franchise renewal and instead offer a ballot measure to institute an occupation tax that would replace $4 million in annual franchise fee revenue. On Nov. 2, 2010, that special tax passed by a landslide, with 69 percent of voters opting to institute it. This meant the city general fund reserves and essential services wouldn’t be affected by the franchise termination and customers would see little to no effect on their overall bills.

Leveraging the powerful research bodies in the area, the city was able to deliver a number of initial reports and studies that pointed toward how it could take over the utility and increase renewable energy usage and offer new and innovative services without adversely affecting rates and reliability for all classes of customers. Armed with this information, the council again turned to the people of Boulder to decide on its next step, adding two ballot measures to the November 2011 ballot — one to allow for bonds to be issued to pay to acquire the Xcel system, and another to increase the occupancy tax to pay for feasibility studies and legal counsel to move forward with the buyout.

“Xcel immediately came out with their initial argument that the city just wasn’t capable of operating the system,” Catanach said. “They made it seem like the city wasn’t capable of running an electric utility so we had to push back by educating the community and making it clear that there are 2,000-plus city-run public power utilities out there, including 29 local electric utilities in Colorado such as our neighbors right down the road in Longmont, Fort Collins, Loveland, Estes Park and Colorado Springs. They are all recognized as really well-run electric utilities.”

“As a veteran of the utility industry for the last 33 years, 25 of which have been with municipal utilities [including Longmont and Fort Collins], I worked to assure people that these are models of how a city can run a very successful utility,” he said.

Initial messaging during the campaign leaned heavily on the “city-run is good” argument, but as Xcel pushed harder in a campaign that outspent the city by a 10-to-1 margin, the Boulder team realized that the community mainly wanted to know that this was going to be a legitimate utility operation that didn’t fall short of Xcel’s service.

“At public meetings, it became clear that we really just needed to confirm that, yes, we’d have lineworkers, meter readers, warehouses, trucks and trailers,” Catanach said. “They really just wanted to hear that they would get a real utility.”

“People didn’t really know exactly what a utility was,” Sandoval added. “We talked to the community a lot about what it means to be a utility, what services it can offer, and what is possible when it is a utility they control. And for the commercial and industrial customers, we needed to provide assurance that reliability would not only be maintained, but enhanced.”

When the dust settled, the vote was close — the issue of bonds passed with 51.93 percent of the vote, and the occupancy tax increase passed with 50.27 percent. Despite a year of negative campaigning by Xcel, Boulder was now a step closer to making municipalization a reality.

Boulder voters have been pulled to the ballot box multiple times since then to reaffirm steps taken by the city and reject Xcel-led measures that have attempted to stall or halt the municipalization movement. Each time, though often narrowly, voters have given their approval to move forward. The next big vote is expected to come in 2020 or 2021, when Boulder voters will make the final decision on whether to form the new utility.

“Right now, we are entering into good-faith negotiations with Xcel to see if we can make this happen without issue. If that fails, we’ll move to an eminent domain proceeding [the exercise of the power of government to acquire private property for public use],” Catanach said. “As that is worked out, we’ll be able to identify the complete cost of purchasing the system and offer engineering details related to the separation plan. We should have a clear picture of the price to offer the public in the first quarter of 2020. If they vote to agree to sell bonds to fund the process, we’ll start the construction and separation process.”

If all goes as planned, the public power utility in Boulder is expected to kick off operations in early 2024.

“If we pull this off, we’ll be the first to do so in Colorado since 1910, before the Public Utilities Commission even existed,” Catanach said. “We’ve already had talks with Pueblo, Colorado, as they start looking at how they can municipalize. We really hope we’re forging a path that others can use.”

Decorah sought to keep money in the community

One of the most recent attempts at municipalization occurred last year in Decorah, a city of 8,000 people in the northeastern corner of Iowa. As is the case in many communities looking at municipalizing, the effort in Decorah began because its franchise agreement with Alliant Energy was about to expire. Led by a citizens’ group called Decorah Power and the countywide Winneshiek Energy District, Decorah was looking for a way to cut ties with Alliant and spur economic development through local energy planning and revenue retention.

“We saw our mission as protecting our energy prosperity here,” said Winneshiek Energy District Director Andy Johnson, who has been consulting locally on energy planning and assistance through the district since 2010 and had a leadership position in Decorah Power. “When we pay Alliant [150 miles away in Madison, Wisconsin] for our energy, that creates a drain on our local dollars. Wherever we can plug those leaks, that’s local wealth creation and retention. A Decorah municipal utility would do just that.”

In Decorah, there is increasing interest in innovations including distributed generation and net metering, but Alliant has proved to be an unwilling and, at times, hostile partner in those initiatives, Johnson said. It has even gone so far as to repeatedly try to close the door on net metering in the state before the Iowa Utilities Board.

Johnson noted that even when Alliant rolled out requested programs, it struggled to meet the needs of a rural community far from any major cities. “We have fantastic energy efficiency programs led by the state that are funded by customers, but Alliant relies on technical assistance and efficiency audits by faraway or out-of-state contractors who cannot easily make the two- to four-hour drive to us,” he said.

By 2016, frustrations over this situation had intensified among local business and city leaders, who recognized that they’d have an opportunity to take back control in two years, when the franchise expired.

“We took all of this to the city council and presented them with options and a potential road map towards a muni,” Johnson said. “We emphasized that we wanted to take a ‘study first’ approach, where Decorah Power would take on the burden of getting a feasibility study done and look into what was possible for our community.”

The citizens of Decorah raised $100,000, putting $75,000 toward the feasibility study, which gave a clear picture of how they could move forward with a public power utility. Resources and speakers from the Iowa Association of Municipal Utilities and the American Public Power Association got the ball rolling on the educational component of the campaign, laying the foundation for a referendum.

However, Decorah’s citizens weren’t the only ones crafting a game plan. “Once it became clear that we were thinking about this, and before we even had a chance to get the city council’s blessings, you could already see the Alliant lobbying effort ramp up, with a push to renew the franchise years early to close off this possibility before it could even start.”

“The campaign [Alliant] put forward was about how unreliable and unaffordable municipal utilities are,” he said. “We turned out spending much of the early period just pointing out that the reverse is true in Iowa: Our municipals have, on average, lower rates and better reliability, especially among our peer group based on size.”

Things got more heated once the council approved the plan for a referendum for May 2018. Though the referendum would not establish a new public power utility outright, it would give authorization to the city to seek approval from the Iowa Utilities Board to allow for the creation of one. That step alone could prove to be problematic, as the board had rejected multiple requests for municipal utilities in the last decade.

“Even though there was still a long process ahead, once the referendum campaign started, Alliant went into a divide-and-conquer mode, stoking existing political tensions and splitting the community to try to get people to oppose the referendum,” Johnson said. “We took a pro-community campaign rather than an anti-Alliant one. For three months, we educated community members about the savings and the value of having a municipal utility. But it was hard to counter some of the scare tactics the other side used.”

At one point, Alliant released its own report to dispute the Decorah Power feasibility study. Whereas Decorah Power’s study said the buyout would cost $7 million and reduce rates by 30 percent, the Alliant study said the cost would come in at $50 million and increase rates by 30 percent.

“Ultimately, I cannot fault anyone who voted against it because they were told the whole municipalization prospect was a big unknown and that it was complicated — because it was,” Johnson said. “For people in the heartland living on a low- or fixed-income, when you’re told a major change might raise your rates, you understandably worry that it’s not worth the risk.”

That worry turned out to win the day, though just barely. The final count was 1,382 votes in favor of municipalization and 1,385 against.

“When you lose by three votes, you start thinking of all the things you could have done differently just to close that small gap,” said Johnson. “But I cannot help but still be proud of what we did and how we got it that close. They outspent us, by some estimates, by a 5-to-1 margin, and we still got to really get out there with the community and raise their awareness of how a utility can and should work.”

Iowa law states that a referendum cannot be re-held until four years have passed. Decorah Power is still considering its options, though the city council has begun the process of negotiating a new franchise agreement with Alliant.

“At this point, as we look to the future, we just hope that any new franchise agreement isn’t permanent or long-term,” Johnson said. “We hope we’ll still have that door open.”

Winter Park wanted reliable power

The decision to bring public power to Winter Park, Florida, a community of 30,000 people near Orlando, started with the city commissioners asking some questions.

“It was 2000, and our franchise agreement with Progress Energy, now Duke Energy, was set to expire the following January. A couple of our commissioners looked at the agreement’s right-to-purchase clause and asked us to explore it before we renewed the franchise,” said City Manager Randy Knight.

At that point, Progress had informed the city that any future franchise agreement wouldn’t have that right to purchase. “The commission looked at that as a creating a permanent franchise, so we knew we needed to do due diligence to make sure we were making the right decision,” Knight said.

After years of lackluster electric reliability from Progress, Winter Park leaders felt the pressure from their community members to find a solution. At that time, Winter Park’s system average interruption duration index (SAIDI), a reliability indicator for how long customers go without power after an outage, was well above 300 minutes a year. The industry average SAIDI for a utility without a major event is 142 minutes, and the average for public power is 65 minutes.

“We have a tree-lined community, and that’s one of the things people love about it,” Knight said. “It goes without saying that trees and power lines do not mix. For that reason, we wanted to look at undergrounding our lines, but that wasn’t something Progress was willing to do. We in Winter Park were unhappy Progress customers with such horrendous reliability. So, we made having control of reliability a big part of our campaign, because we knew that is what people wanted.”

To make matters worse, the community felt it was getting an insufficient response from Progress crews when storms rolled through. Given the size of Progress’ service territory and the large areas affected by storms in the region, crews would only fix a small part of a larger outage in Winter Park before moving on to the next Progress community. They did not stay until all of Winter Park was up and running.

Armed with customer frustrations and the buy-in of key local officials, Winter Park kicked off its municipalization process with a feasibility study that showed a path to local control. From there, a referendum was set for September 2003, and the battle began.

“Progress used everything in their playbook to stop us during the campaign,” Knight said. “They rolled out billboards, television ads, newspaper ads and flyers that said we were too small, that we’d be five guys and a pickup truck trying to put the system back together after a storm. Their main argument was that if we left them, we’d be out there alone, incapable of delivering even the level of service they provided. We heard over and over again that we’d be a disaster.”

Progress tried to win the referendum by “going straight to the pocketbooks of the voters,” Knight said. “They estimated how much the purchase of the system would cost and divided it by the number of customers so that they could scare people into thinking they’d be on the hook for $30,000 a year in new taxes.”

As the September referendum approached, the community worked to counter Progress’ claims by talking about the new revenue municipalization would bring and highlighting the excellent city services people already enjoyed in Winter Park. They also emphasized that 2,000 other public power utilities proved the degree to which the business model can thrive.

“The support from the other public power utilities in the state was great in putting out the message of how this could all work,” Knight said. “At one rally, we even had most of them show up, each bringing one bucket truck.”

All hands were on deck in the community to make sure Progress couldn’t find any loopholes ahead of the referendum, Knight said.

Ahead of the referendum, Progress was required to disclose its financial report so people would know what the company had invested in the campaign. “They put it in the mail at midnight the Friday before the vote so that they could meet the deadline and hope that it wouldn’t be reported on until it was too late,” Knight remembered. “So, we went to the local postmaster on Saturday and asked him to go through the stack of mail for the city and get that out as soon as possible to the [Orlando] Sentinel. When they reported on Sunday that Progress had put $523,000 — 10 times what we were able to spend — into a campaign they argued would have limited profitability, it became clear to a lot of people that municipalization was a good option.”

On election night, the campaign for municipalization paid off — 69 percent of Winter Park residents voted in favor of creating the new electric utility. After negotiating the buyout, on June 1, 2005, five years after first starting to look at the prospect of municipalization, Winter Park joined the national public power family.

The years since have made it clear that the decision to municipalize was worth it, Knight said. The muni has been able to continue giving 6 percent of revenues to the city general fund, as had been the case in the franchise agreement with Progress. The not-for-profit utility has then used its excess revenues to make some major capital improvements, including the underground lines that kick-started interest in municipalization. “We are now well along in the undergrounding process, with an eye toward having the entire system underground in 2026,” Knight said.

“After that, we’re excited to see what’s next with the $3.5 million to $4 million per year in revenue that we’ll now be able to use on something else. Will it be decorative lighting around the community? Lower rates? It will be the community’s decision,” he said. “That’s the power of local control.

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