‘UE encourages public ownership of utilities to promote energy efficient policies, conservation, renewable energy projects and lower costs to consumers.’

Studies show that publicly owned utilities in the United States have prices 2.5 percent lower than investor-owned utilities; residential customers on average enjoy 15 percent lower costs.

A study of electricity prices in Western Europe shows that electricity is relatively cheap where under public ownership, higher than average where privatized or deregulated.

— From a report by the International Labor Organization

Consumers in Los Angeles haven’t experienced a rolling blackout yet and probably won’t. In fact, Los Angeles has excess power it sells to other parts of the state.

While the California Public Utilities Commission approved two electric rate increases so far this year for the two largest utilities in the state, Los Angeles consumers have not seen a rate increase in nine years. None are anticipated.

Why? Los Angeles electrical needs are provided by the city’s Department of Water and Power, a municipal agency. The DWP chose not to open its doors to deregulation. As a result, Los Angeles residents and business owners have not been impacted by energy alerts or rolling blackouts.

The Los Angeles Department of Water and Power, which provides electricity and water to the city’s 3.8 million residents, is the largest of the nation’s more than 2,000 publicly owned electric utilities. Public power serves about one in every seven Americans.

Unlike investor-owned utilities, which exist to make money for investors, publicly owned utilities exist to provide electricity efficiently and inexpensively to consumers. In effect, public power generates dividends, too, but in the form of lower rates. Los Angeles ratepayers, for example, pay 19 percent less than Southern California Edison and 16 percent less than Pacific Gas & Electric.

The nation’s publicly owned electric utilities range from large city systems (Seattle, San Antonio, Memphis and Cleveland) and a few state public power agencies (New York, Nebraska, South Carolina, Wisconsin) to small communities. Most public power systems are located in small and medium-sized cities.

OLDIE BUT GOODIE

This is not a new idea. The first public power system was created in 1882; more than 300 public power systems have been in existence for more than 100 years. Many date to the early years of the 20th century (known as the Progressive era), when the abuses, corruption and inefficiency of electric companies led reformers to view municipal takeovers as the best solution.

"Public utilities can meet the unique needs of local communities," says Jerry Jordan, executive director of the California Municipal Utilities Association. "The only way all the resources stay within the community is with a publicly owned system."

Locally regulated, public utilities are not regulated by states, so they can set priorities based on community needs, Jordan says. "Public utilities are allowed to remain integrated utilities, providing electric generation, transmission and distribution. And they can continue setting rates based on the cost of their services on a non-profit basis."

LOWER RATES

"The consumers served by public power systems historically have enjoyed the benefits of lower rates," says Alan Richardson, executive director of the American Public Power Association. "Federal rate comparison records collected since the late 1940s document this fact. It is absolutely clear that public power has traditionally enjoyed a significant rate advantage over its competitors for more than half a century."

This is due in part because publicly owned electric utilities are exempt from taxes and can obtain new financing at lower rates than investor-owned electric utilities.

Almost all investor-owned electric utilities own and operate generating capacity; that’s not true of publicly owned utilities. Some (like Los Angeles) have plants that supply their customers’ needs. Others (more than half of the total number of major publicly owned electric utilities) purchase power which they transmit and distribute. These utilities are still able to offer consumers lower prices because there are no dividends to pay to investors.

In addition to bringing local control and lower rates, publicly owned utilities are better placed to promote conservation. In Los Angeles, fully 10 percent of the city government’s electricity purchases will go for new clean, renewable energy sources, effective in July. The DPW’s Green Power for a Green LA is designed as an opportunity to bring cleaner energy resources to Los Angeles.

Under California’s deregulation law, all public power systems in the state exercised their option of continuing local control. "Their customers and their communities were not asking for customer choice," says Richardson of the American Public Power Association. "They didn’t sell their generation. They didn’t abandon or divorce their communities and their customers."

California’s deregulation fiasco has meant problems for some of the state’s publicly owned utilities but has also made the public option seem more appealing.

DEREGULATION FIASCO

Deregulation of electric power was supposed to lower prices — California’s electric rates were 50 percent higher than the national average in 1996 — and boost supplies. That’s why the state legislature voted unanimously for deregulation that year. But, as everyone now realizes, that’s not what happened (see the box at right for the impact on UE members).

Business lobbyists pushed for deregulation; manufacturing and agricultural companies figured they had the muscle to negotiate better rates for themselves. The big electric utilities saw a chance for bigger profits.

The utilities devised the deregulation plan, which split the electricity business into two sectors: one consisting of companies that generate power, the other companies that deliver power. The big utilities controlled both sectors; the restructuring plan allowed a handful of corporations to consolidate the generation business. "When the generators charged too much, they were essentially overcharging themselves," writes San Francisco-based journalist Rachel Brahinsky (The Progressive, March 2001). "As a result, while one arm of each corporation suffered, another posted record profits."

Both Southern California Edison and Pacific Gas and Electric paid dividends to stockholders during the crisis months of the past winter.

BAILOUT BOONDOGGLE

The deregulation plan artificially froze consumer rates above the price of energy for a fixed period so that the utility companies could "recover" so-called "stranded costs" — mostly debt from bad nuclear investments. What happened to the $22 billion bailout handed over to the big utilities before the crisis has never been fully explained, but it is likely that some of it flowed to Indonesia and Australia, where both SoCal Edison and PG&E have investments. (PG&E has filed for bankruptcy.)

Although deregulation was supposed to increase competition, the big utilities clobbered potential competitors. This, of course, did nothing to increase supply. As recently as the early 1990s, SoCalEd fought successfully against construction of new power plants, fearing competition.

During the transition to deregulation, the big companies failed to negotiate long-term supply contracts. "The utilities were left dependent on a spot market where short-term prices could soar without notice," writes Harvey Wasserman. "That, in turn, left the public at the mercy of a handful of out-of-state energy speculators, most notably Duke Power of North Carolina, and Dynergy, Reliant and Enron, all of Texas." (The Texan firms have ties to George W. Bush.)

Sharp increases in natural-gas prices and low hydro power because of low levels of rain last year combined to collapse the structurally flawed system.

PUBLIC POWER STANDS OUT

Thirty-one publicly owned electric utilities in California belong to the American Public Power Association. "Most of them are doing quite well," says APPA Director Richardson. But all, he says, have been affected. "Some of them had enough generation to meet their own loads. Those that didn’t had a significant amount of generation combined with long-term power supply arrangements. These generation resources and contracts provided a bumper against the price volatility that we’ve seen in California."

Due to the way the grid is constructed, some public power systems in northern California have been affected by rolling blackouts — even though they have adequate capacity to meet their needs. "It isn’t really fair that the consumers in these public power communities have not been part of the problem but are required to pay a price to be part of the solution," Richardson says.

Overall, the publicly owned utilities in California look good, certainly in comparison to the utility giants. "I can tell you that the experience of the public power systems in California, the way they’ve been able to weather the storm and the fact that they continue to look after the communities that they serve has created quite an interest in public power within that state," Richardson says.

SOLUTION

James McClatchy, publisher of The Sacramento Bee, is among those calling for public ownership as a solution to California’s energy crisis. "Electricity, natural gas and water systems are natural monopolies," he wrote in a Feb. 18 column. "They are so essential to the very life and well-being of our citizens and economy that they should not be subject to the vagaries of free-market speculation. Deregulation of the electricity monopoly is a failure. The monopoly should be returned to the tax-paying consumers who support it and depend on it."

In Massachusetts, another state that has restructured, consumers are paying higher rates except in public power communities. The Boston Globe observed how communities served by publicly owned utilities largely can be sure of secure sources of power, stable prices and good service.

"We can look at a well-run municipal utility district and see there are models staring us in the face," says Medea Benjamin, who ran for the U.S. Senate in 2000. "These things aren’t pie in the sky," says Benjamin, currently spokesperson for Public Power Now. "These are real, and these are working."

• More:
  "The Strategy for Electricity is Democracy" - thoughts and recommendations on the California "energy crisis" by Richard Grossman, co-director of the Program on Corporations, Law & Democracy (POCLAD). (This link will take you to the POCLAD website.)

UE News - 05/01