Public Power Pt. 3: Ingredients For Success — Episode 166 of Local Energy Rules

Podcast: Local Energy Rules
Source: whisper-base
Language: en
Duration: 2032s
URL: https://media.blubrry.com/localenergyrules/content.blubrry.com/localenergyrules/2022-9-ler166-public-power-3-ingredients.mp3
Fetched: 2026-03-03 04:31:24

it's easy to lose sight of progress in terms of administrative or judicial proceedings that drag on that are not fully transparent to the public because nobody wants to dig into the minutia of what the who and in what process and so people tend to get frustrated and that of course is one of the great tools of incumbents. The more I can delay the more likely it is that the citizen will lose heart and require their elected leaders to go away or stop or leave me alone. Welcome to the third episode in a special series of the institute for local self-reliances local energy rules podcast focused on public power utility companies owned by the cities they serve. Consumer utilities to people want solar. Well this is a totally different model run a more efficient operation. The local input democratic governance to demand something better 100% renewable energy publicly accountable resource. This series called the promise and peril of publicly owned power responds to an upswell of interest in city owned utilities. In addition to clean energy advocate site local control lowering costs and reinvestment in the local economy among the major reasons they want public instead of private power companies. In the first two episodes we shared why communities are pursuing public power and what specific benefits are found in the public power model. In this episode we talk about the process of forming a publicly owned utility and why so few cities have accomplished this feat in recent years. John Coil an attorney who has represented many cities in their public power pursuits provides an overview of the barriers to municipal takeovers and explains the four key ingredients for success. You'll also hear quotes from Ursula Shriver vice president of strategic member engagement and education at the American Public Power Association and Randy Knight city manager of winter park florida we talked to last episode. I'm John Farrell director of the energy democracy initiative at the institute for local self-reliance and this is episode three in our multi part series the promise and peril of publicly owned power. It's a production of local energy rules a bi-weekly podcast sharing powerful stories about local renewable energy. My interview with attorney John Coil was wide-ranging but we started off with history and with the principle that's at the heart of public power. Specifically he explained how president Franklin Roosevelt used a 1932 campaign speech in Portland to reinforce the importance of state and city authority to hold monopoly companies accountable. John included a few examples of U.S. cities that have wielded the power Roosevelt discusses including by revoking the utilities monopoly grant to be the sole electricity provider also known as its franchise. Note that Coil also borrows Roosevelt's use of the word sovereign to describe the city or the state with the power to issue that franchise. One of the sort of foundational documents I always point people to was president Roosevelt's Portland speech from September 1932 where Roosevelt kind of reviews for his audience in a very compact and folksy way the origins of ransom monopoly power under common law and the circumstances under which the grants are withdrawable and essentially it takes his audience through the whole development of the concept of just unreasonable rates and the idea that a utilities permission to provide utility service on a monopoly basis comes from the sovereign or its delegate which in this case would be the state or its delegate to municipality and can be withdrawn for unsatisfactory performance or for any reason the sovereign is allowed to exert under the under the agreement that constitutes the franchise. In America in more recent years it has other and clear antecedents on kind of a state-by-state basis. The town of Messina, New York was one of the first of the modern era. Certainly I can think of a couple of my clients the city of Kansas City, Kansas and the city of Springfield, Missouri both became municipal utilities. Kansas City entered the electric business in the mid-1930s if I'm not mistaken and city utilities of Springfield took over an existing utility property in 1945. John explains that despite the power cities hold few city leaders seem to realize that public takeovers are available. It's my impression that people generally don't understand the value of the grant that's embedded in the franchise. It becomes a matter of well this is the way we've always done business and so when the local electric company comes in if they bother to come in and sometimes they don't for a renewal then we just automatically renew it because state law requires that they have one. People tend to overlook the fact that it is a of value and be the utility doesn't own it. There is a lot of misconception I think built into certainly a lot of jurisprudence to some extent state law, certainly federal energy regulatory commission president that there is some sort of inherent continuity in the franchise without the consent of the franchise or and that's not fundamentally correct. It's really not legally correct. Legislatures influenced as they are by a variety of considerations tend to be protective of the rights of property less than perhaps the right of the community to regulate the quality of service it gets for the money that it pays. Having covered the legal foundation of public power I asked John to provide an overview of the common steps in the process of municipalization or the formation of a public utility. He explains via the example of Boulder, Colorado that city was engaged in a 10-year effort to take over electric service in the city from the public service company of Colorado otherwise known as Excel Energy. There are some sort of prudential components to a municipalization we always tell people even before you have a vote you want to have a preliminary feasibility study that at least estimates the costs and benefits involved takes kind of a preliminary look at the cost of acquiring facilities whether you're going to acquire them through eminent domain or not and just evaluates again not on a back of the envelope basis but on a relatively high level whether you're going to be able to achieve your objectives as a community in an economically sensible way. In Boulder's case and I speak to this with some level of experience because we refer counsel for Boulder they had done a lot of feasibility analysis and once you've done the preliminary feasibility then yes you need to have a legislative resolution at the municipal level to form an electric utility and then typically although not inevitably a legislative adoption of a plan as to how you're going to go about actually implementing the electric utility and where these things tend first to to run into obstacles obviously is the incumbent utility going to challenge the validity of those enactments. Certainly public service of Colorado did at every opportunity. Boulder decided to proceed by eminent domain and I think they may well have succeeded in doing that have they not decided that they were also going to condemn public service Colorado's certificate of convenience and necessity to serve customers outside their municipal limits. Colorado has a very strong constitutional home rule provision for municipalities but the force of that provision as a source of municipal power diminishes considerably once you step out of the municipal boundaries. So once Boulder took that decision public service Colorado hold them in court Boulder decided then to go litigate the question of whether they could get permission in the public utilities commission and that took about three years as these things roll on the community's order tends to dampen somewhat diminished because it's easy to lose sight of progress in terms of administrative or judicial proceedings that drag on that are not fully transparent to the public because nobody wants to dig into the minutiae of what the who and in what process and so people tend to get frustrated and that of course is one of the great tools of incumbents. The more I can delay the more likely it is that the citizen will lose heart and require their elected leaders to go away or stop or leave me alone. Assuming cities have shown the feasibility and passed a resolution how do cities exercise their authority to take over? As John Coil mentioned in his overview of Boulder's municipalization attempt a common tool is seizing the electric grid hardware the poles and wires through eminent domain. Using eminent domain triggers a legal process where a court determines the fair price that a city must pay for the grid infrastructure currently owned by the utility but it also generates utility resistance as Ursula Shriver of the American Public Power Association explained in our interview. The biggest disadvantage in terms of the municipalization process is the fact that the incumbent utility is not typically a willing seller of the system because they are going to fight the municipalization effort 99 to 100% of the time they're going to spend a lot of money on both communications campaigns to scare people into not wanting to pursue it and then legal battles as well just dragging out the process we've seen this in so many of the efforts that we've seen. So it's a time consuming process it's costly but if communities are committed and they have done their research and really understand what their goals are then it can be very successful. John also described how utilities can resist a takeover by obstructing the process of valuing the existing grid system. There are a lot of I want to say imponderables involved in evaluating the value of an electric distribution system and evaluating the eminent domain value of the franchise. I can get into that in greater detail if you want the basic problem is most incumbent utilities will tell you that we don't keep our continuing property records based on the boundaries of your municipal corporation so we can't really tell you what facilities we have in there so then you pay an engineer to go around and count the calls and the transformers the miles of wire and you prepare an eminent domain filing on that basis and then the utility immediately steps in and tells you know you were wrong you forgot about this wait I thought you didn't keep your records on that basis I don't have to tell you that beyond the ways that utilities can play games as John coil suggested there are other issues with establishing the cost of buying out the incumbent utility in theory it ought to be a simple matter of taking the original value of the polls and wires and then deducting for the age of the equipment sometimes called the quote depreciated original cost unquote I suggest it as much to John and I got more than I paid for he explained how the concept of depreciated original cost originated when the federal trade commission and congress stepped in to address utility abuses that contributed to the onset of the great depression today utility regulators commonly used appreciated original cost to set rates and to value utility infrastructure except notably in the case of municipal takeovers John also explained that one city which are park florida found a method to make this question of cost much easier the notion of depreciated original cost comes to us as a result of the causes of the great depression and those of us who have become old and bald and fat and greyhired in this business the way I have will remember that one of the causes of the great depression was the public utility holding company system that had been promoted developed in a lot of ways by Samuel Insul who was Thomas Edison secretary and figured out that if you created these utility holding companies and they sold assets back and forth and each time the asset was sold you marked up the value right so that the using in quotes the term fair value of the facilities devoted to the public service kept increasing while ultimately that leads to a situation in which utility returns and therefore utility rates are based largely on air or water and in turn that they used in Insul's day in terms of watered stock and eventually the market may not be prescient but it's pretty smart and when the market realized this about the electric utility holding company structure that was it's not me talking this is the federal trade commission and it's investigation of the causes of the great depression and one of the problems that led to the great depression was that the market got wise to the fact that a substantial component of the investments was in fact based on valuations that were not supported by realistic asset values so the requirement that depreciated original cost be used as basis for setting utility rates actually grew out of the preamble to the public utility holding company act 1935 which was a response to all this and it has been embraced by regulators throughout except in the context of a condemnation of utility facilities what should happen is you should be using depreciate original costs as a benchmark and if you're writing a franchise you heard it here first gang if you're writing a franchise you should write your franchise the way winter park did and say if I'm not happy at the end of this you're going to sell me those facilities and you're going to sell them to me to appreciate your original cost in my interview as city manager Randy Knight I learned about winter park floor to success with its acquisition of the utility hardware and how Randy felt like they could have gotten an even better deal but how did winter park win let's cut to my conversation with Randy about their effort I'm intensely curious about the fact that you succeeded because the landscape I feel like is littered with attempts for public power that have failed boulder calirato it was added for 10 years a lot of other places got no further than the feasibility study I was amazed from reviewing what if the presentations you've given that like in other places the utility outspent local advocates 10 to 1 a very common ratio unfortunately in terms of this how did you succeed up against that yes so it was a perfect storm is the way I put it there were 106 franchises with this one utility in Florida and they were all pretty much up for renewal in a five-year window and we were kind of into early to the middle part of that renewal process and they had renewed dozens and dozens before they got to us so when we started looking at it we saw some of our neighbors that were a little bit ahead of us in the exploration the city of Castlebury which is next door to us a city of Altamont Springs which is nearest and a couple of other cities were a little bit further ahead of us in starting to explore municipalization and so we when we jumped into it that's when the politicking began right they started supporting certain candidates in elections and those type of things that was very successful and what we saw happen in other cities is they would take out somebody that was supporting moving forward with the effort and replace them with somebody that that they helped get into office and then the franchise was renewed and that one was out I mean Castlebury actually ended up with a better arbitrated price than we ended up with even though they went all the way through that level of the process there was a change on their commission and they changed their mind and renewed the franchise in the city manager went to work somewhere else and our case I say it was a perfect storm because we had a commission that was committed to it they didn't lose in those elections the reliability was so bad in winter park people were fed up and we have Orlando Utility Commission right next door who has got runs one of the best utilities in the country for the investor owned utilities say munis can't do it we had the best example in the country right next door that was doing it and doing it very well and then you couple that then with a very educated community of people that aren't used to being bullied and the bullying tactics that they used during these campaigns didn't work here to me it's all those things that combined that made it work here where it didn't other places I'm kind of curious if you have meetings with folks from some of your neighbor cities like Castlebury since that decision was made and do you ever sort of poke them and say well look what you could have they say it to me that we wish we'd have done it when we had the chance so I try to be nice once in a while but it isn't a point of pride my entire interview with Randy was about 30 minutes and will release the full audio in the coming weeks in the meantime let's get back to my conversation with John Coil about municipalization John mentions that in some instances staunch utility resistance has pushed cities to explore alternatives to seizing utility infrastructure in order to create a public electric utility as he explains further here in the late 1980s early 1990s I was involved in a situation with the city of Clyde Ohio which had operated a municipal utility from the late 19th century until the early 1960s when they sold their electric distribution system to the Toledo Edison company flash forward to the late 1980s and the expiration of their franchise to Toledo Edison which was you probably don't recall you were probably still in grade school and anyway was burdened with very high rates because investments in nuclear power over a relatively small service area the citizens of Clyde decided to form an electric utility and reclaim their electric distribution system and that activity was met with what was George Wallace's expression massive resistance by Toledo Edison obviously ultimately what the city of Clyde ended up doing was building about 10 miles of 69 KV transmission line to a lower cost power supplier and then rebuilding the entire electric distribution system within municipal limits after they did that the rates were still 35 percent lower than Toledo Edison's rates John explains that while paying lawyers to pursue eminent domain is a relatively low cost investment compared to building an entire electric grid it can also have a low probability of success if on the other hand a city invests in its own power lines or other grid infrastructure it actually owns a valuable asset you can hear more about this in the full interview with John Coil to be released later this year we're going to take a short break when we return John shares the four key ingredients for public power campaigns to succeed and we discuss whether there's a role for the federal government in helping local public power efforts you're listening to episode three of the local energy rules special series on public power with guest John Coil discussing how communities can form municipal locally owned utilities hey thanks for listening to local energy rules if you've made it this far you're obviously a fan and we could use your help for just two minutes as you've probably noticed you don't have any corporate sponsors or ads for any of our podcasts the reason is that our mission at iLSR is to reinvigorate democracy by decentralizing economic power instead we rely on you our listeners your donations not only underwrite this podcast but also help us produce all of the research and resources that we make available on our website and all of the technical assistance we provide to grassroots organizations every year iLSR's small staff helps hundreds of communities challenge them and apply power directly and rebuild their local economies so please take a minute and go to iLSR.org and click on the donate button and if making a donation isn't something you can please consider helping us in other ways you can help other folks find this podcast by telling them about it or by giving it a review on iTunes Stitcher or wherever you get your podcasts the more ratings from listeners like you the more folks can find this podcast and iLSR's other podcasts community broadband bids and building local power thanks again for listening now back to the program having asked john to provide the context for how cities can municipalize and some of the most common barriers i went straight to the heart of the issue and asked what the key ingredients are for success his answer was in four parts a formulation developed as he put it over a six-pack of pbr on a stopover and a story of Ohio one night many years ago we always say that the secret sauce for successful municipalization involves basically four things the spread the bread the head and the leg and what those elements really mean is the spread is do you have a viable economic alternative to present to your community because nobody undertakes this level of effort as a matter of principle if they or if they do they don't undertake it as a matter of principle for very long so you have to be able to present a plausible and compelling economic alternative to your community the bread it's going to cost you so you need to have some means of financing the effort on an ongoing basis whether that's some kind of a tax the bolder levied in occupancy tax on public service the Colorado once it's franchised and expired in 2010 or 2011 i forget which but the the population voted in occupancy tax now of course public service passed the tax through to its breakpares and bolder but the political cleverness of that was that people saw the tax on their electric bill even though they were funding an effort to to oust public service the Colorado it didn't feel so bad because you could see where your money was going so that's the bread the head is critical you need to have committed local leadership with continuity and it has to be at the local level you cannot guide an effort like this from outside someone in my position cannot sitting at a desk in Washington DC inspire people in Ohio or Colorado or Arizona or any of the other places where we've done it Minnesota to put in the effort that needs to be put in to keep the community cohesive on its objectives and finally the lead you need good lawyers and good engineers because you will have to engage in some level of controversy in order to make this happen and you need competent experienced committed professionals on the outside working for you in order to make that happen in my experience if you lack even one of these ingredients your chances diminish remarkably and there's no guarantee that having all four of them will get you there but they're kind of an irreducible minimum of what you need to have to succeed knowing the foreign greetings I was particularly curious whether John felt it would be appropriate for the federal government to help cities with their pursuit of public power knowing that they're often outspent 10 to 1 by the incumbent utility and that the federal government did provide some aid during the Roosevelt administration he didn't think so I don't think that the federal government ought to be in the business of picking winners and losers in these fights because fundamentally the existence of the utility franchise isn't a federal issue it's a state issue and more appropriately in my view local issue to the extent that the federal government wanted to provide grants or was in the position to provide grants in this day and age it probably wouldn't be for the construction of distribution facilities but it might well be or things like battery storage or community solar or things like that then yeah that may be appropriate at the state level I think it is well past time for reappraisal of the locusts and the nature of the power to award a franchise to an incumbent utility state legislatures and certainly the state judiciary have been blinded by the notion that the investment of an incumbent utility in its facilities gives it some right to continuity and inherent right to incumbency that somebody has to pay to dislodge and I honestly don't see that as the intention of the franchise system and I'll go all the way back to Roosevelt's Portland speech so I think he got it right in terms of what legal antecedents of the franchise are in this country and I think Scott Hempling is also correct about his assessment that the role of the consumer right the role of the host community in controlling the right to serve within that community is substantially undervalue in most states jurisprudence in this country and almost inevitably by state regulatory agencies who again going back to Roosevelt might more properly view their role as consumer protection rather than as umpire my own view is that what the federal government needs to do is is to adopt more of a neutral position on the question of municipalization while John didn't support federal intervention to help cities pursuing public power he did suggest that the federal energy regulatory commission or FERC had a role to play specifically he suggested that FERC needed to fix the issue of so-called stranded costs the concept that utilities use as John says to blundered in communities considering municipalization one of the biggest obstacles to a successful municipalization these days is the notion of stranded costs which is a construct that FERC federal energy regulatory commission imported into its open access rule back in 1996 when the federal energy regulatory commission said okay all of you investor owned utilities who own transmission facilities need to make those facilities available for all commerce they're what are called an antitrust essential facilities in order to prevent the exercise of market power by incumbent investor owned utilities FERC directed them to to open up their transmission systems now FERC had done something similar with natural gas pipelines somewhat earlier and the US court of appeals for the DC circuit said wait a minute you're creating a situation where the more agile will jump off the incumbent system and take advantage of this while those who are not quite so nimble will end up stuck with the bill so you need to find a way federal energy regulatory commission and more fairly apportioned the costs I'm supporting a sunk cost of incumbent I say this by way of saying FERC did not itself come up with the idea of stranded costs in their open access rule through your antecedents for it but FERC embraced it as what they then called a transitional mechanism that was 26 years ago and we're still transitioning you know I would like to see that notion of stranded costs eliminated were constrained in a more reasonable and less inclusive way it's been used as a club a bludgeon in every municipalization that I've ever been part of since 1996 and in the investor owned incumbents are very quick to try it out and say if you try to get rid of me you are going to be in my debt for 30 or 40 years and I'll stick it on your transmission bill etc. My final question for John Coil was whether the rising interest in renewable energy, affordability and racial and economic equity changes the likelihood that cities can be successful with public power takeovers. I would have said yes until I ran into bolder I honestly the limitation of my own intellect and all acknowledge it I didn't see why anyone would take on the burden of trying to do this unless there were a tangible economic reward on the other end and then I ran into a community folder where the community is a whole believed sufficiently in decarbonization as an objective and that they were willing to pull together and take on as a community the risk and the burden of attempting to establish a municipal electric utility they didn't exactly succeed in that but I think if you asked them they would say well we didn't get our own utility out of it at least not yet we did change the trajectory of public service of Colorado's decarbonization I'm not sure you get public service of Colorado to admit that but I experientially I believe that that's true so there are considerations other than straight up economics those considerations are inherently local. John with all the experience that you've had helping communities that are considering municipalization following the legal gyrations of this what advice would you give to public power advocates into cities like Ann Arbor Michigan, Decora Iowa, Louisville, Kentucky that are considering municipalization? Well strap in you're going to be in for a fight remember the four key ingredients make sure you got them and to the extent that you don't succeed at first consider that you are franchise grants you a very powerful tool to change the tilt of the playing field the next time. If a future generation comes along that shares your determination for local self-determination then if you have not in fact succeeded in resting controlled of the electric system from the incumbent yourself you could at least make it easier for your children grandchildren to do that and I think that's an important consideration so I guess that brings me to a final suggestion about what people ought to do if they're thinking about this to get the best information that you can and immerse yourself in it see who you believe don't take anybody's word for a necessary outcome on anything without being able to validate the conclusion on a common sense basis that is important to you and to the values that your community shares as a community. Personal striver from the American Public Power Association agreed that sticking by community values is essential to successful municipalization efforts. We see communities succeeding in the municipalization process maybe not every year but every couple of years especially the new public power utility that is formed there've been about 18 in the last 20 years so it is possible but it comes down to really being committed to the vision that you have for your community understanding what the community wants and making sure that all the stakeholders have buy-in on that because you've got to be committed if you're going to succeed in it. Thank you so much for listening to this episode of Local Energy Rules. The third in our multi-part series the promise and peril of publicly-owned power. To learn more about cities that have tried or are trying municipalization check out an article on ILSR's website entitled Spreading Like Wildfire as well as the taking over your utility section of our interactive community power toolkit. On the show page look for links to local energy rules podcast interviews with leaders from other public power communities as well as additional ILSR resources on municipal utilities. You can also find every existing city on municipal utility and our interactive community power map. Our next episode in the public power series in two weeks explores the answer to a pointed question about municipalization efforts. What happens if you lose? We share results from Dakota Iowa, Boulder, Colorado, Minneapolis, Minnesota and other communities that didn't get the public utility they'd hoped for but that did win more than the status quo. Local Energy Rules is produced by me and Maria McCoy with editing and sound production by an audio engineer Jew Burstbock. Tune back into local energy rules every two weeks to hear more powerful stories of communities taking unconcentrated power to transform the energy system. Until next time keep your energy local and thanks for listening.