Saturday, July 13, 2024

Southeast Michigan Dreams of Public Power

I enjoyed attending a two-day virtual symposium, Coming Together for Equitable Public Power, which brought together practitioners from across the country working on reinventing utility models. Recall that I just wrote about why I thought this might not be the greatest idea earlier this year. It wasn’t from a standpoint of actively thinking that it’s a bad idea, but rather from a standpoint of thinking that the chess pieces were not properly staged to start thinking about it. I’m pleased to announce that this conclusion I made was incorrect– just so long as we approach this issue cautiously and are able to balance zeal with logistics and strategy.

What Public Power Is

“Public power” refers to a growing movement in the United States to create local entities to control utility distribution infrastructure and, in some cases, even generation and transmission infrastructure. The idea is that by wresting control from an investor-owned utility, a local government or government-chartered nonprofit agency will have more accountability to its constituencies. Bypassing the profit motive is another popular talking point, as, depending on how you slice it, this can extract a double-digit percentage of bucks from the enterprise to pay out to shareholders (and to focus on stock price growth rather than, say, business operations or infrastructure). In my estimation, this seems to be a phenomenon that has thrived on the discontent of ratepayers facing insane rates of power outages, but it’s also one borne of broad discontent with the fact that utility bills are rising and the grid isn’t decarbonizing as fast as it needs to. The Democratic Socialists of America have gone so far as to call for the nationalization of transmission infrastructure— which, hey, I mean, who knows, right?

Interestingly, the public power movement is as old as electricity itself. I wrote about the municipalization of streetcar and public lighting systems in the 19th century in cities like Detroit, Philadelphia, and Washington, DC for my graduate thesis (that American University tells me I’m not allowed to call a thesis). This was borne of the recognition that systems that were heavily dependent upon capital-intensive and spatially expansive infrastructure tended to form what are called “natural” monopolies– or duopolies, in many cases (because it’s very expensive and complicated to build all of that infrastructure).

But city leaders quickly realized that duplicating something as huge and expensive as power lines or trolley tracks takes up an awful lot of space, not to mention costs a ton of money.

So, municipalization was actually an effort to improve the efficiency of this setup, consolidating and centralizing instead of duplicating. Detroit Mayor Hazen Pingree did it. To some degree, any infrastructure system that is commonly managed is a product of this process of centralization. Let’s recall that even the Class I railroads in the United States, which operate effectively as monopolies (or perhaps duopolies or even triopolies in a thoroughly uncompetitive market) in most regions, had vast swaths of land given to them by the US government which, in turn, had appropriated it from land occupied by native and indigenous peoples. In other words, we have plenty of examples of large infrastructure projects being built by centralized authorities, whether those be big business or the State, but there aren’t many examples of competing infrastructure systems surviving for that long because of how expensive and complicated infrastructure is in general.

The utility landscape in the United States is mostly dominated by investor-owned utilities, or IOUs. IOUs provide electrical service to about 70% of the population of the US, with municipal utilities accounting for around 15% and rural electric cooperatives accounting for a bit less. IOUs are referred to as “public” utilities because of the fact that they are mostly governed by clear sets of regulations that allow them to be monopolies in exchange for certain levels of transparency and certain funding commitments. Public service commissions or public utility commissions are the state entities that regulate them.

There are a few points that it’s worth mentioning when considering the question of whether public power is “better.” A good chunk of the discussion here is not about narrowly defining public sector as “good” and private sector as “bad,” but explaining how one setup has historically led to a particular outcome. Investor-owned utilities do work in many areas, and provide reliable, affordable energy (shoutout to Pepco).

Contrast to rural areas: Rural co-ops were established as citizen-led entities to demonstrate the viability of rural electric power when metropolitan utility companies refused to assume the expense of building transmission and distribution to rural areas based on an assessment of risk. This can be viewed as roughly analogous to my point about why utilities love giant solar farms taking up valuable farmland but struggle with the idea of distributed generation.

There are plenty of other issues that incentivize forward-thinking citizens to want to abolish a public utility. Policies around shutoffs, the plethora of additional fees and surcharges (regulated though they are), and equity considerations. Low-income ratepayers in most jurisdictions pay far more into energy efficiency surcharges than they use. That’s the kind of thing that people are talking about when they talk about taking over a public utility, because public utilities don’t spend too much time worrying about this stuff. (I had a super cool project at Pepco around low-income building electrification that my boss’s boss killed because they said they couldn’t justify spending $150,000 on a market study to support a $150 million program, since that would take money away from the ratepayers. This is the kind of conversation that wouldn’t happen in a municipal utility, even if you might well have other problems).

Given my own personal, disastrous experience with city government, I posed the question of why a municipal utility would actually be better than a public utility. There is, after all, a level of operational efficiency that results from the scale of the corporate organism. This can do things like build and maintain functional technical systems, implement new technology at scale, or quickly source and move capital. This last one is challenging for smaller utilities, but there may be some ideas about how to solve this (more on this later).

Presenter Brandie Ekren, who is the Executive Director of Traverse City Light and Power, a municipal utility, said that the major difference is one of basic accountability from being physically located in the community that they are serving. TCLP’s customers, she said, “literally know where I live.” This is interesting considering the complete lack of accountability from a company like DTE. As a personal anecdote, I don’t even really know anyone who works at DTE anymore. The company’s footprint in Detroit feels like it’s limited to the footprint of the physical building and the occasional tax-deductible donations the company makes to its charitable foundation to fund local events or what have you.

Cool. How Does It Work?

The basics are that cities would be buying the local distribution infrastructure from the utility. There’s no hard rule about what all would be included in this, other than the fact that it would include most power lines in your neighborhood. It would be unlikely to include high-voltage transmission lines, which are used to move larger amounts of power over long distances and/or from power plants toward more populous areas of high demand. It would probably be unlikely to include generation infrastructure.

Then, how to source all of the capital to buy the stuff? Probably from a public bond issuance. This would be obnoxious, technical, and probably would take much longer than it would take a utility to raise similar amounts of funding. But it could be done reasonably affordably.

One commenter asked how a city trying to broker this process would ensure that they were getting a fair price, using as an example the notoriously bungled privatization of Chicago parking meters, parking structures, and the Chicago Skyway. In that deal, the private equity investors famously misrepresented the valuation of the portfolio when making an offer to the city, but stated the correct valuation to their shareholders. Why no one went to jail over this, I will never understand. But parking prices in Chicago are now insane, and much of that money simply goes to Wall Street. Hurrah. This is an important cautionary tale because it represents imprudent municipal management, and this is one of the things that would give me pause before suggesting we go all-in on such a proposal to municipalize infrastructure.

Having worked for the city of Detroit, I can’t say I trust all city governments more than I trust even Local Megacorp. The major difference is that the city government is at some level locally accountable to the electorate. The corporation can do whatever it wants with no accountability to anyone but the regulators. In a jurisdiction like Michigan, where the regulators have historically taken a languid, sleepy approach to utility regulation, there’s even less accountability.

The Importance of Strategic Communication

One of the interesting points in this conversation was a consensus that we shouldn’t necessarily call public power “municipalization” because of the association with socialism. Socialism bad, capitalism good, and nothing is wrong with the latter, while the former is associated with all bad things. I recall a presentation I made to a POCACITO group one time in which, for the purpose of illustration, I provided a sort of side-by-side analysis of orthodox economics and Marxist critiques. The purpose was to show that there are always multiple ways to look at how to answer a question, but there often a limited number of socially acceptable types of language. You can’t use Marxist critiques in a public setting and call them that, or people will tend to get weird.

I don’t know that I entirely agree that we can’t call it “municipalization.” Ten years ago, be it remembered, it was considered edgy to talk about DEI or “justice” in professional contexts. People explicitly told me that using “Black Lives Matter” hashtags might harm my employment prospects, years before Nike adopted a Kente cloth colored logo for Black history month. Times do change.

Similarly, in the utility world, I was once lightly corrected when I referred to “ratepayers” rather than “customers.” “Ratepayer,” my manager explained as she chided me, “is a regulatory term. We serve customers.” This is similar to how transit agencies annoyingly refer to “customers” rather than “riders,” since everything in America in 2023 is a business, of course. Some of these distinctions are semantic, some are political, and others, still, are questions of some sort of contrived political correctness that doesn’t necessarily owe itself to any one specific critique or provenance (I think this is the case for the ratepayer vs. customer distinction, because they seem like the same damn thing to me).

As far as the acceptability of the discussion in general, one wonders whether times will change when your local public utility company is posting SAIDI numbers in the 200s, 300s, or 400s, and that’s even averaged across customers who have lost power for thousands of minutes in a given year. The waning American Empire is defined by a lot of social upheaval and customers who are understandably irritated at the hegemony of completely unaccountable corporations that continue to enjoy record profits while most of us have to fight for crumbs– or electrons, one. Is it time to municipalize our local public utilities? I’m not sure. But it’s definitely time to push for a change, and if this discussion gives us a toolkit on how to achieve that change, regardless of what the end product looks like, I am all for it.

Learn more about Ann Arbor for Public Power, which is hosting a number of events in the near future in its quest to oust DTE, or check them out on Facebook. Thanks to Jackson Koeppel and Elizabeth Gilbert. Check out Soulardarity.

Nat M. Zorach

Nat M. Zorach, AICP, MBA, is a city planner and energy professional based in Detroit, where he writes about infrastructure, sustainability, tech, and more. A native of Lancaster, Pennsylvania, he attended Grinnell College in Iowa, the Kogod School of Business at American University, the POCACITO transatlantic program, the SISE program at the University of Illinois Chicago, and he is also a StartingBloc Social Innovation Fellow. He enjoys long walks through historic, disinvested Rust Belt neighborhoods at sunset. (Nat's views and opinions are his own and do not represent those of his employer).

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