Municipal Utilities are a Good Answer to Frustration with Electric Services

Monday - November 13 2023, 21:27 UTC - 1 year ago

Maine was the latest state to debate the switch from private to public utilities, with Question 3 asking voters whether they wanted to create a new publicly owned power company and Question 1 asking whether consumer-owned electric utilities should have to get public approval before taking on more than US$1 billion in debt. Voters adopted Question 1 and soundly defeated Question 3. There are three basic ownership models for electric utilities, investor-owned, municipally owned, and cooperative owned. Five of the nine public utilities in Maine charge less than 15 cents per kilowatt-hour for residential customers, showing how a municipal utility could provide for cheaper power.

Frustration with electric utilities is universal today. Whether it’s concerns over high rates, poor service or a combination of both, people are constantly looking for a better answer to the systems that serve them.

In the Nov. 7, 2023, election, voters in Maine had a chance to consider a new model for electricity service that would replace the state’s two widely unpopular private utilities, but they balked in the face of multibillion-dollar cost projections.

This decision took the form of two ballot questions. Question 3 asked whether voters wanted to create a new publicly owned power company, dubbed Pine Tree Power, to take over the existing assets of Maine’s two privately owned utilities. The related Question 1 asked whether consumer-owned electric utilities should have to get public approval before taking on more than US$1 billion in debt. Voters adopted Question 1 and soundly defeated Question 3.

Municipal ownership of utilities is not new: Across the U.S., about 2,000 communities have public power utilities. In Nebraska, all electricity providers are publicly owned.

But private utilities often fight against public takeover attempts – and Maine was no exception. The parent companies of Central Maine Power and Versant Power spent nearly $40 million campaigning against the ballot measures, compared with $1.2 million on the pro-public power side.

At the University of Florida’s Public Utility Research Center, I work with utilities and regulators around the world to assess different ways of structuring power companies. Questions about what kinds of utilities best serve the public have intensified in recent years. As the Maine vote shows, people want different and sometimes competing things from their utility systems.

Three basic structures .

There are three basic ownership models for electric utilities. Investor-owned utilities, or IOUs, are owned by private shareholders, who might live next door or halfway around the world. Their stock is publicly traded, and their CEOs have a fiscal responsibility to shareholders as well as to serve their customers.

Municipally owned utilities, often known as munis, are owned locally, generally by the government of the city they serve. Some municipal utilities also serve customers in surrounding areas.

Cooperative utilities are owned entirely by their customers, much like housing or food co-ops. Initially, cooperatives tended to be located in more rural zones. Some of these areas, such as southwest Florida, have grown so rapidly that the term "rural cooperative" no longer applies.

Both munis and cooperatives operate as nonprofits. There is no consistent nationwide link between rates and ownership structure, but it is notable that five of the nine municipal and cooperative utilities in Maine charge less then 15 cents per kilowatt-hour for residential customers, compared with 27 to 30 cents for Central Maine Power and Versant. This may have influenced voters’ perception that a municipal utility could provide power at lower prices.Municipal utilities do return a portion of their revenues to their investors, but a muni’s investor is the city it serves. According to the Ameren Corporation – an IOU, which operates in four states – municipalities pour a total of about US$1 billion into their cities’ general funds each year.