Cape & Islands News

Municipally-owned utilities offer service and lower rates

Long shot investment of 100 years ago pays big benefits today
But can it be duplicated in this century?

By Teresa Martin

The wind howls. The snow blows. The hurricane spins through. Trees and branches litter the ground. Three days later, there's still no power. What's a community to do?

Patrick Mehr of Lexington points to his neighboring town, Concord. "Ten years ago we in Lexington were unhappy with our service and there was also strong interest in moving wires underground. We called Concord and said 'how come NSTAR does such a good job in Concord?' And they said, they don't. We do. And that's when we learned about muni utilities," he said.

"We called Concord and said 'how come NSTAR does such a good job in Concord?' And they said, they don't. We do." - Patrick Mehr of LexingtonMehr became such a believer that he currently leads the Massachusetts Alliance for Municipal Choice which advocates for legislative reform to allow new municipal utilities to form.

High service, lower rates

Municipal utilities - owned and operated by the towns - provide a high level of service at typically lower rates than an investor-owned utility (an IOU, in energy-speak). Proponents, including some on the Cape, point to munis as the way to go.

There are 251 publicly-owned electric and gas utilities in the US; 41 of those are in Massachusetts including Concord, Hingham, Hull, Middleborough, Mansfield, Taunton and Braintree.

But there's a rub. Those 40-some munis in Massachusetts were set up a century ago, when power was young, populations were sparse, and infrastructure meant a small number of poles and a bit of wire.

A smart bet

For the towns that took the leap, providing municipal service played out as a great bet.

Mehr articulated three key reasons that munis can outperform investor-owned utilities (IOUs), but they can all be summed up in two words: community investment.

Investment in infrastructure

The muni track record, he said, shows that locally-owned and run utilities invest decade after decade to make their networks sturdier. Instead of squeezing out every last possible moment of spark in a transformer, munis tend to upgrade and update their infrastructure.

That directly translates into more reliable power, he said. With fewer undersized transformers and more underground wires there is less loss to begin with - whether from storms or rodents munching on wire.

Investment in staffing

Munis also invest in staffing. He shared statistics showing that muni utilities have 47% more lineman per population served than IOUs. When power goes out in a storm that make a big difference.

"They were good workers. But that's not the issue. For two days they didn't show up at all because they didn't have enough workers." - Patrick Mehr"When NSTAR did show up, it [the outage] was fixed fast," he admitted. "They were good workers. But that's not the issue. For two days they didn't show up at all because they didn't have enough workers."

Investment in local knowledge

The third differentiator between munis and IOUs lies in local knowledge. In a muni, he explained the workers know every street. When something happens, they know where to go and what they will find. But with an investor-owned utility, people are moved around as outages and issues arise and don't have that level of very specific and very local knowledge of place.

When you combine the elements, you end up with a system better equipped to keep the lights on and bring them back on fast.

A Cape muni?

Joe Soares, senior power supply planner at Cape Light Compact agrees with all that. He even says the Cape would be wonderful for a municipal lighting plant, something that could only work as a regional entity.

"Here we're at the end of the line and physically we have water all around us," he noted. "From a geographic standpoint it would be perfect."

But we can't replay history

But -- and herein lies the issue -- municipal utilities were set up in the early days of power. Back when poles and wires were being strung for the first time.

"Small communities didn't want to get left by the wayside," he said. "They could negotiate to buy poles and wires in their town."

And they could make the purchase, because numbers were small and the owner was likely to be a smaller local business. It was logistically and financially possible.

Just over forty towns in Massachusetts made the decision to manage electrical infrastructure. The most recent town to make the leap was the Town of Chester in 1927, when it acquired the Chester Electric Light Company.

What makes a muni?

Munis own their own power wires, provide electricity, and are responsible for maintaining their distribution systems. They range from large cities to small communities. All have a lighting board overseeing the activity. Middleborough Gas & Electric is one nearby example.

"It is public power in the truest sense in that the people in the town own the poles and wires." Joe Soares, Cape Light Compact"It is public power in the truest sense in that the people in the town own the poles and wires," explained Soares.

Future for more muni pending

Current legislation, H3087 and S1525, wants to open the doors for new munis in this century.

The legislation is supported by many municipalities, MASSPRG, and groups like Patrick Mehr's Massachusetts Alliance of Municipal Electric Choice. The bills attempt to remove barriers to municipal ownership of power.

High points

The bills touch on several issues that have limited the launch of munis over the past century.

Currently, if a town wanted to go into the utility business, the current provider can just say no. So the bills stipulate that a fair value can be determined for existing power infrastructure, that the Department of Public Utilities would confirm the values of a utility's assets if a municipality proposed purchasing them, and if a town put forth a valid offer, the IOU would be required to accept.

The proposals also change franchise zones, enabling a municipality to purchase franchise rights within its geographic boundaries.

By ensuring a utility is fairly compensated and can't just turn down an offer outright, says Mehr, critical barriers to munis moving into the utility business will be eliminated. The result, he said, will be lower prices and better services.

Not so simple

Soares, however, pointed out that the reality could be quite different. First, of course, the municipality and the utility would have to agree on a value.

"Bridging that gap is not easy and it would likely take years," he said.

"Then," he said, "you'd have to agree to go out and borrow money to pay for the poles and wires and then our rate payers would have to pay for that."

While current munis do indeed charge lower rates than their investor-owned counterparts, the same might now be true for a new muni, which would be carrying the capital costs of the poles and wires, the operating costs, and the debt overhead.

Then, of course, labor and service continuity come into play. How do pensions transfer? How do people transfer? How do union contract transfer? And how does this impact rates?

The devil is always in the details, but it seems that if the Cape were to pursue a region-wide municipal utility, the region could probably build a third bridge from the mountain of details that come with the process with no guarantee of cost savings.

More than costs

Mehr said cost is not the only issue. Moving wires underground and investing in future improvements are important issues in his town. Becoming a muni provider becomes an issue of control of infrastructure, as well cost and service.

In addition, munis across the country have been the first to embrace 21st century infrastructure as well, adding fiber and telecomm services to the list of muni-managed resources.

Lafayette LA, for example, has successfully leveraged its muni electric organization into a fiber and telecomm provider that has in turn driven economic development in the city.

Is there a window of opportunity?

Few industries are more complex than power. When munis began, generating power, delivering power, and managing customers was far more simple and the complexity of the muni utilities were able to grow over time.

In the intervening century, regulation, the 1997 restructuring legislation, and a host of other mandated actions created a power playing field that requires deep pockets and deep expertise.

Political decisions pushed power into the realm of the private sector, which rewards return on investment rather than social or community returns in the form of lower rates. The original munis formed during a window of opportunity, when the market enabled different models to thrive.

But Mehr says the pending bills could change this.

Bill could drive change, but not necessarily new munis

"If and when competition is possible, it should exist," Mehr said. "The whole point of this legislation is to increase competition. Just like a utility could now be sold on the open market, a muni could now buy a utility. In California there is a company in the business of running third party networks, " he added.

But he admitted that the bill was unlikely to lead to a wave of municipalities dashing off to go into the power business. "You need deep expertise to do this; towns need this knowledge to start on this path and to spend on this," he cautioned.

"Our philosophy with this bill is to rectify a piece of state law which has become totally obsolete. It costs hundreds of millions dollars annually to MA. It is inefficient," he said. "The whole point isn't necessarily to create a 42nd muni, but the sheer existence of the potential for competition could even push NSTAR and other to improve."

Additional sources:

• Massachusetts Municipal Wholesale Electric Company (MMWEC)
• Bill H.869
• Joint Committee on Telecommunications, Utilities and Energy

Teresa Martin is a well-known Cape Cod technology and business leader who served as  C.E.O. of the Cape Cod Technology Council and was a founder and officer of the OpenCape Corporation, which is dedicated to fixing the Cape's dropped cell calls and upload issues. Read Teresa's tech blog, Cape Eyes on CapeCodToday.com here.