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As California officials consider a public takeover of PG&E, the concept has already shown results in other places.
As wildfires sparked by downed Pacific Gas and Electric wires have burned across California in recent years, so has public outrage with the private utility giant.
Critics say PG&E has prioritized profits over system maintenance. A federal judge found the company increased investor dividends instead of removing trees that could pull down wires, while an audit found the company diverted $123 million earmarked for burying lines underground over the last 10 years. Gov. Gavin Newsome said the company had “been caught red-handed over and over again, lying, manipulating or misleading the public.”
The revelations are fueling calls for municipalization of the beleaguered utility. City leaders in San Jose and San Francisco are already exploring how to take over PG&E’s grid. Among those pushing for a statewide public system is Loretta M. Lynch, the former president of the California Public Utilities Commission, who recently told the Los Angeles Times, “Public power is generally cheaper, safer, cleaner — with some exceptions — and more reliable.”
Similar proposals, in some cases for entirely different reasons, are also moving forward in Boulder, El Paso, Pueblo, Chicago, Pittsburgh, Maine and elsewhere.
The experience of communities where public utilities already exist suggests the model isn’t a panacea, but federal data from the U.S. Energy Information Association (EIA) does show municipal utilities generally are more reliable and have lower rates. Some in the industry, though, say they haven’t necessarily moved toward renewables or enacted more progressive policies faster than investor-owned utilities.
Still, supporters argue that public utilities are inherently better for ratepayers because they remove profit-driven investors from the equation. The model, therefore, is structurally geared toward the needs of the community it serves, which is why so many find it appealing, said Randy Knight, city manager of Winter Park, Florida. He led a municipalization effort in the Orlando suburb during the early 2000s.
“Boulder wants to do it because of renewable energy, we wanted to do it to improve reliability and get underground, and some places do it because rates are high — the community decides why, but the beauty of community electric is that it’s a community choice,” he said.
Public utilities serve about 14% of the nation’s customers, and public power supporters point to a wealth of data showing the utilities outperform their counterparts. An EIA analysis of its numbers found “municipal utility customers experienced the lowest instances of power outages in both frequency and duration” in 2016, though experts note that public utilities tend to operate in urban areas where it’s easier to maintain lines. EIA data examined by the American Public Power Association showed public utility rates are on average about 13% lower than those of investor-owned utilities.
Public utility proponents like Omaha Public Power District board member Eric Williams also contend the model is generally more responsive to ratepayers. In Omaha, residents directly elect a board of directors that develops policy at OPPD, and are therefore working for ratepayers instead of investors.
“There’s no motivation to maximize returns and extract value from the community because all [of the board’s] activities are for the benefit of people in OPPD territories,” Williams said, while noting that his opinions are his own and not representative of OPPD as a whole.
Not everyone is convinced by public utilities, however. Natural Resources Defense Council senior energy economist Ashok Gupta intervenes in rate cases in Missouri. Even if municipalization is successful, a new public utility is sometimes still stuck with legacy costs, and its policymakers are often subjected to the political winds, he said.
He added that he feels strengthening regulation through states’ public service commissions is sometimes the better option. Either way, “there is no magic bullet,” Gupta said.
Winter Park Electric Utility Department
In Winter Park, Florida, city leaders planted the seeds for municipalization in 2000 when Progress Energy approached them about renewing its 30-year franchise agreement. In previous years, residents suffered some of the state’s most unreliable electric service. Progress, an investor-owned utility, cut some of the trees that could take down lines during the state’s strong storms, but residents objected to their removal.
In response, city leaders proposed what seemed to them to be a good solution: Put the lines underground. Progress Energy agreed to do so, but at a 30% increase in rates. The utility also demanded what was effectively a permanent renewal while refusing to guarantee improved service.
That prompted a different proposal from city leaders: Municipalize the power grid, then put the lines underground without raising rates. Knight said Progress sued, but Winter Park won several legal battles and a judge set the grid’s value at just over $40 million. The city then put in front of voters a proposal for a nearly $50 million bond that would be paid down with a monthly fee included in utility bills, though the city committed to mirroring Progress’s rates for five years.
Progress’s PAC spent about $570,000 in an attempt to defeat the initiative while engaging in a disinformation campaign that included claims that the city’s new electric department would be composed of “four guys in a pickup truck,” Knight said. The city-backed PAC only spent about $50,000, but Winter Park still won the referendum with 69% of the vote.
“It was a mandate and we don’t get many mandates in our elections,” Knight added.
The municipalization process took four years, but 27 miles of Winter Park’s 50 miles of lines are now underground, and the Winter Park Electric Utility Department provides far more reliable service than its predecessor.
The new 100 MW utility is under the direction of the city manager and holds biweekly public meetings that residents are invited to attend. The city initially dug a $12 million deficit in its utility fund because of capital expenditures and costs associated with a circuit overload that melted a line during a heat wave.
But it pulled out of the hole after about three years, and Knight said its rates have since remained about 5% to 10% below that of the neighboring Duke Energy, which took over Progress Energy.
This year, Winter Park and Duke Energy’s average customers pay around $138 and $164 per bill, respectively, according to data from the Florida Municipal Electric Association.
More importantly to Winter Park’s 14,000 customers, the system’s reliability has improved. The average number of minutes Winter Park residents spend without power dropped from about 200 minutes annually to around 75 minutes in 2017; the average amount of time it takes to restore power went from 66 minutes to 55 minutes in 2017; and momentary interruptions dropped from 22 annually to 1.36 in 2017, according to city data.
That’s partly because the utility moved a significant portion of its lines underground, Knight said. It accomplished that by investing its profits — about $4 million annually — in undergrounding. When a hurricane blew through Winter Park several years ago, the city experienced about 200 outages, but only one of those involved an underground line. Once all the lines are underground in six years, “a hurricane could come through Winter Park and our outages would be minimal,” Knight said.
He added that undergrounding wouldn’t be possible with an investor-owned utility in charge of the grid: “The investors weren’t going to say ‘Great, you’re spending all my money on undergrounding.’”
Winter Park is too small to generate its own power so it purchases from several companies and pays Duke Energy a transmission fee. It offers 10 MW of solar power, and the city council is set to consider a proposal to purchase another 10 MW by the year’s end. That would bring its renewable portfolio to 20%, and Knight said the utility is friendly to rooftop solar.
Once undergrounding is complete, the city can use the $4 million in profits to lower rates, fund decorative street lighting, or pay down other debt throughout the city, Knight said.
“That’s a big advantage you have when a public utility that controls the profits,” he added.
Omaha Public Power District
During his 2018 campaign, OPPD board member Williams found a surprising development: Omaha voters wanted urgent action from OPPD on climate change.
“The more I talked with people at events and on the phone I found they said “Yes, we should move to clean energy,’ and ‘Yes, we need to address climate change now.’ Much more than I thought they would,” he said.
OPPD is responding, Williams added. The utility in November approved sending out a request for proposals for a 400 MW to 600 MW solar installation and a 400 MW to 600 MW natural gas plant as it takes one of its three coal plants offline. When the solar installation is complete, renewables will comprise 40% of OPPD’s retail electric sales. That comes after OPPD in 2010 set a goal of achieving 10% by 2020, and the board recently approved a new target of zero carbon by 2050.
To that end, OPPD is starting on an 18- to 24-month decarbonization study that will provide specific steps on how to transition.
“We are doing quite well at moving toward renewable energy, and it’s pretty well set, so at this point it’s figuring out how to bring everything online,” Williams said. The utility’s administration declined to comment for this story.
OPPD is partly able to respond quickly to its approximately 365,000 customers because of its structure, Williams added. Nebraska is the nation’s only state fully served by public power. It’s divided into several regional districts, and OPPD serves the Omaha metro area and surrounding rural regions. The district is divided into eight subdivisions that directly elect board members to set policy.
Williams said the arrangement increases accountability and allows board members “to serve without the influence of shareholders who … don’t live in the area or receive the utility’s services.”
“This also forms a direct line of communication to board members and into policy decisions,” he added.
EIA data shows Nebraska set the nation’s second lowest rates in 2017, and OPPD is in the fourth year of a five-year plan that includes no rate increases. Its average customer pays about $100 per month. EIA data also shows OPPD’s reliability numbers are better than most. Its customers in 2017 spent an average of 186 minutes without power, which is in the nation’s top quartile, while OPPD’s average number of interruptions per customer of .98 was in the top 10%.
Silicon Valley Power
During the last two years, fires ignited by PG&E’s lines and its widespread shut offs made it the poster child for the inefficiencies of investor-owned utilities. Meanwhile, Silicon Valley Power (SVP), a 600 MW publicly owned utility that serves 55,000 customers in and around Santa Clara, is an island of efficiency surrounded by PG&E territory.
SVP reported that it took an average of 86 minutes to restore power through August 2019, while its 10-year average is 109.3 minutes; its customers averaged .65 hours of outages each year over the last 10 years, while averaging only 66.3 minutes without power throughout the last decade. SVP recorded between 62 and 195 outages throughout the last 10 years, while in 2019 it hasn’t had any public safety power shut offs.
By contrast, PG&E’s customers in 2018 spent much more time in the dark and experienced about twice as many outages. Data from the California Public Utilities Commission shows PG&E reported an average of 288 minutes per customer to restore power last year, and an average of 170 minutes each year over the last decade. It frequently conducts public safety power shut offs.
Pineda said SVP benefits from its largely urban setting, but it has proactively trimmed trees while undergrounding 65% of its 543 miles of 12 kV distribution lines.
Even as SVP provides more reliable service than its neighbor, its rates are about 48% lower this year. Santa Clara residential electric rates are .122 per kWh while PG&E customers pay .233 per kWh along with a 5% usage tax. For SVP residential customers that translates into a roughly $49 average monthly electric bill, while an average PG&E residential customer paid about $113 monthly.
Pineda said the absence of investors likely factors into the utilities’ success with rates and reliability: “I think part of it is we’re not for profit, and we are owned by the ratepayers — the combination of those two things are important.”
The utility started in Santa Clara about 100 years ago and got into the generation business about 40 years ago. Its $500 million in sales includes large residential and industrial components — the utility changed its name to Silicon Valley Power as it began to supply power to about 40 data centers that chew high volumes of energy.
Each year, SVP generates and buys between 50% and 70% of Santa Clara’s electricity from carbon-free sources that include large-scale wind, solar, geothermal, hydroelectric, and it also captures and burns methane gas from a closed city dump. SVP is winding down its rooftop solar rebate program and considering new options, and Pineda said that it offers residential customers 100% greenhouse gas free power.
Decisions about renewable programs, rates, budget and other policy are made by the Santa Clara City Council, which gives direction to a city manager who serves as CEO.
“[That] allows the utility company to operate in alignment with the city’s policies and goals, and to also provide the best service and rates to residents,” Pineda said.
Relying on utility commissions
An analysis of EIA data by the Citizens’ Utility Board of Michigan (CUB), an intervenor in rate cases, found the state’s publicly owned utilities as a whole performed better than investor-owned utilities — municipal and investor-owned utilities respectively averaged 136 minutes and 613 to restore power after an outage.
The report’s data “clearly” shows greater reliability among municipal utilities said Douglas Jester, a partner at 5 Lakes Energy, which consults for CUB, but he partly attributed that to public utilities generally operating in urban and suburban settings where it’s easier to maintain lines.
Public utilities customers also typically see lower bills than investor-owned utilities. In Michigan, the average residential customers’ bills were between $22 and $54 cheaper than the state’s largest private utilities in 2017, CUB found. In Florida, the average municipal bill was about $17 lower than the average IOU bill in September, according to a Florida Municipal Electric Association analysis.
That’s partly because of investor obligations, which last year totaled about $650 million for DTE Energy and translated into an additional $13 for the average residential customer’s bill. A variety of other factors related to taxes, structure, and borrowing rates keep municipal rates lower, and, “It is both expected and generally true that municipal utilities have lower rates than comparable investor-owned utilities,” Jester said.
But when it comes to progressive policy making, the picture is more mixed. Natural Resources Defense Council’s Gupta said many public utilities have been as slow as private ones to move toward clean energy, partly because organizational structure and politics factor into how municipal utilities are managed.
Utilities that municipalize would also still face legacy costs and the need to chart a transition to renewables while operating on a model that partly demands large, long-term capital investments.
If a municipality has engaged citizenry, good elected leadership and strong technical managers, then the public model “can really work,” Gupta said. But, he added, weighing public and private utilities comes down to one question: ‘“How much confidence does one have in elected leaders versus unelected bureaucrats? Neither one is attractive sometimes.”
“I can live with it either way,” Gupta said. “I want the outcome, so is changing the governance model going to solve the fundamental problems? I’m not convinced it does. I think it’s fine to do it that way, but it’s still hard work.”
He pointed to the California Public Utilities Commission forcing the state’s investor-owned utilities to ditch coal as an example of that model’s success.
OPPD’s Williams said he agrees that the public model is “not a panacea,” and said OPPD is contending with legacy costs and long-term investments. But the public model is better suited to respond to the public’s growing demand for clean energy, he added, in part because there aren’t layers between the policymakers and customers, as there are with investor-owned utilities, state governments, and utility commissions.
“At OPPD, board members are directed by customer-owners to meet the needs as we’re setting policy,” he said. “Quite frankly, if the customer-owners don’t feel the board is doing what’s best, then there’s a direct mechanism for them to respond — the next election.”