While actual utility buyouts are few and far between, the option gets explored often — by outside entities that may approach a public power community with a buyout offer for the electric utility, or the city leadership deciding to evaluate the utility to consider future ownership options. In recent years, private equity firms have also approached public power utilities about concession lease agreements, which would limit the city or town’s local decision-making abilities.
Public power communities big and small face the threat of having their community ownership called into question. Communities that have had to face this issue in recent years include both smaller towns and villages as well as large cities, including Jacksonville, Florida, and Lafayette, Louisiana.
When Privatization Gets Explored
Evaluations can come about when a private interest targets a well-run municipal utility as a significant lucrative opportunity. The private interest often will make efforts to position the utility as in need of “rescue.” Utilities might also be targeted because of fiscal pressures on local government, the expansion of traditional competitors, or new market entrants. The idea to sell a utility — or explore the feasibility of doing so — often only elevates to a serious level when at least one of two things is true: Some stakeholders are not aware of the true value that the public power utility offers a community, or there is some dissatisfaction with the current utility service.
It follows, then, that the best defense against a buyout attempt is a well-run utility and customer-owners who understand the value of public power ownership.
10 Protective Factors
Public power utilities are more protected from buyout when they:
- Provide superior customer service.
- Deliver value through a diverse power supply that limits price volatility.
- Focus on distribution system efficiency and reliability.
- Invest in technology and innovation.
- Continually communicate the benefits of public power to the community.
- Optimize community infrastructure.
- Prioritize community values, like environmental stewardship.
- Build consensus through transparent, democratic governance.
- Invest in the workforce to be an employer of choice in the community.
- Engage and educate local policymakers.
Know and Communicate Your Value
The value of a utility is much more than the price tag attached to its poles and wires. That value includes the cumulative benefits a utility brings the community, including:
- Financial support for local government (e.g., general fund transfer).
- In-kind contributions (e.g., holiday light displays).
- Savings through more efficient municipal operations.
- Lower rates and local input in ratemaking.
- Local, stable employment opportunities.
- Support of local businesses.
- Community sponsorships and engagement.
- Energy efficiency and customer programs.
- Support of economic development activities.
- Local decision-making.
- Reliable service, including fast response times in the event of an outage.
- Accessible, friendly customer service.
- Dedication to community improvements.
- Responsible vegetation management.
It’s not enough for utility management to know the full value the utility brings to the community — board members and city leaders, employees, residential and commercial customers, and local media need to know that value as well. Ensuring that stakeholders know the value of the utility can help prevent a sellout or takeover attempt from emerging and can help build the goodwill needed to defend the utility if the situation arises.
The more leadership can distill the values the utility brings to the community down to simple, direct statements, the more effective the message will be. This is not about “selling” the utility to customers but offering regular reminders about the value of the utility through available customer touchpoints. This can include having a small sentiment or tagline, such as “[name], your community-owned utility,” in employee email signatures or displayed on utility trucks; placing a brief value statement or fact, such as how many local jobs the utility provides, onto bill stuffers or the utility’s website; highlighting participation in community events — and posting that participation on social media or sharing photos from these events in community newsletters. Utilities might also create a fact sheet highlighting what community ownership means for the community — including what sets it apart from neighboring options — and include that in any information sent to new customers and online.
Communicating the value of the utility must be an ongoing effort. There is turnover in stakeholder groups, and many other issues compete for an audience’s attention. Utilities need to make the information easy to understand and accessible — and available when people are ready to hear it. Communication should also extend to employees, as they are all ambassadors for the utility within the community. Sharing reminders on the value the utility brings to the community not only helps employees should they get questions from neighbors and family members, it also can reinforce their decision to work with the utility.
Keeping track of specific instances in which community ownership of the utility has led to a public benefit can also be helpful should a sellout threat arise. This can include any efforts where the utility went above and beyond, projects coordinated with other city departments around infrastructure, or even when community members offered their kudos for a job well done.
Alternatives to a Sale
Even when a utility is having some difficulty managing its system, selling to another owner type isn’t the only option.
In May 2022, voters in Barton Village, Vermont, elected to retain community ownership of the village’s electric department instead of selling to nearby Vermont Electric Cooperative, a plan which the board of trustees had voted to advance in March 2022. The vote was the latest in a series of options explored for the utility, which had experienced a financial crisis years earlier and subsequently lost staff. In 2020, Barton struck a deal with VEC to manage and operate the municipal utility’s distribution lines and engaged the Vermont Public Power Supply Authority, or VPPSA, to run office operations. In 2021, another nearby municipally owned electric department, in the village of Orleans, explored the potential for buying Barton’s utility.
Instead, VPPSA will be stepping in to offer additional assistance and services to support Barton.
“VPPSA exists to deliver exceptional service and value to community-owned utilities such as Barton by providing affordable, professional consultation in all areas related to running a local electric utility. This includes management of electric portfolios, financial support, IT support, rate planning support, and legislative and regulatory representation,” said Ken Nolan, VPPSA’s general manager.
Leading up to the vote on the sale, “voters dedicated themselves to learning as much as possible about the electric utility industry so they could make an informed decision,” he said.
Residents have since seen an increase in rates, which was anticipated due to recent fuel costs and system maintenance needs.
As noted in Understanding and Evaluating Privatization in the Power Sector, a guide from the nonprofit In the Public Interest, utilities may be approached about entering a long-term concession agreement or lease instead of a buyout. The paper cautions that such agreements could run counter to public interest if not weighed carefully and offers a lengthy list of questions for evaluating any such proposals. The questions — which can also help utilities identify alternatives to entering these types of public-private partnerships — examine current problems and potential solutions, how well the current rates reflect the utility’s financial position, what other services might be affected by any level of privatization, and if any existing contracts would be affected by a new contract.
There aren’t many examples of these types of arrangements in the power sector, perhaps because communities have been able to recognize the value of their community ownership. There have been several such arrangements within the water sector.
In New York, the Long Island Power Authority is now looking at sunsetting its contract with PSEG Long Island, which expires at the end of 2025, to transition back to directly owning and operating its system. A draft report released in April this year found that LIPA can save between $50 million and $80 million a year by insourcing its operations, even after paying one-time transition costs between $16 million and $59 million.
LIPA has been in contract with PSEG Long Island since 2014 to provide dedicated services and system management. In 2020, LIPA filed a complaint against PSEG Long Island related to its performance leading up to and following Tropical Storm Isaias. An ensuing task force came up with nearly 100 recommendations for PSEG Long Island to improve its operations and storm restoration processes, including how assets are managed.
A Smooth Operation
It takes a lot of time, money, and other resources to support a well-run utility. A greater understanding of the value of the utility to the community can help convey a need for these resources should they be called into question.
Run a utility efficiently, remain accountable to customers, identify strengths and weaknesses, and be on the alert for warning signs of a potential sellout before it comes. Act to address any problems at the utility and have a strong communication plan to educate and engage the community on core public power benefits.
Typically, these benefits include community ownership, competitive rates, high reliability, local control, responsive customer service, and accountability to the community. The relative importance of each of these benefits will vary from utility to utility and will likely evolve over time to meet changing needs. Be sure to regularly reevaluate the utility’s strategies to ensure they align with the community’s needs and preferences.
For help in addressing a potential sellout and to get a copy of The Future of Your Utility: Positioning Your Community to Succeed in a Sellout Evaluation, contact us at [email protected].