As a credit analyst for 36 years on US municipal electric utilities for a rating agency, I have evaluated almost every municipal electric utility in North America and can attest to the attributes of that business model. I have assigned ratings to new municipal electric utilities such as Long Island Power Authority, one of the largest US municipal utilities, and the initial rating to Winter Park, Florida. My opinion expressed here is done so at the restart of the move to municipalize electric service in San Diego.
It is unfortunate that consulting studies employed by investor-owned utilities are often either intentionally inaccurate or there is a demonstrated lack of understanding. For example, in the Concentric study of the electricity municipalization of San Diego, almost one half the cost of a city-takeover was misleading and wrong. Concentric reported that almost $4 billion of added cost of a city takeover was due to lost revenues which included that San Diego Electric and Gas (SDEG)would after municipalization, no longer be paying property taxes, franchise fees and other revenues to the city. They called these revenues lost revenue. Concentric failed to mention that all US municipal electric utilities pay on average 8% of their revenues as a General Fund Transfer to their city government. Many call it payments in lieu of taxes. Some municipal electric utilities pay a higher amount i.e. San Antonio is at 14%. Factoring in that a new San Diego municipal electric utility would pay a transfer to the city government there then is no lost revenues and, since a city-owned utility would not be generating a profit above its costs (SDGE has had net profits in the $500 million range) the study should begin to favor municipalization.
The inaccurate claims on the estimated acquisition costs to the city were carried in major media outlets and included words like the acquisition was unaffordable to taxpayers. But taxpayers do not pay the cost of the acquisition from taxes. Investor-owned utilities have fixed costs for the facilities and system they own but which shareholders and ratepayers pay for. For that the investor-owned utility gets a rate of return and can take those funds out of the city and use for corporate and shareholder dividend purposes. Under a municipal electric utility, ratepayer revenues are paid based on customer usage and those revenues remain in the city.
Among some of the attributes of municipalization not addressed for their positive impacts in the Concentric analysis include:
*Local control and accountability through local governance of the municipal electric utility. San Diego Municipal Electric Utility reliability or rate issues are not resolved in Sacramento at the CPUC but would be considered at either a San Diego municipal utility board or at the City Council.
*Public meetings and transparency on resiliency, carbon reduction and other utility objectives would be a strength of the local municipal utility giving a voice to establish objectives and plans locally.
*The San Diego Municipal Electricity Utility would provide a lower cost of capital than SDEG to finance post-acquisition improvements with federally tax- exempt debt and an estimated higher credit rating. There are financial mechanisms such as debt securitization that could refinance the initial taxable debt used for acquisition resulting in further savings over the significantly higher SDEG cost of capital.
*Any earnings above municipal utility debt service payments stays in city versus IOU profits that get distributed to shareholders.
Today as climate change and decarbonization have established fears about the reliability of service and whether clean energy was a possibility, many cities are challenging the business model for electric service that now exists in their communities. From Clearwater, Florida to Louisville, Kentucky, San Diego to San Francisco and Rochester, New York among others, city leaders are asking questions about whether the local government should takeover electric service from the private sector utility.
The problem is that rather than addressing the fundamental strengths and challenges of such a change, opposition to the consideration of the question is mired in misinformation about the cost of a city's acquisition of the private utility's assets and the cumbersome process to even reach a fair decision on what is best for the customer.
From my experience observing the municipal electric utility business model it has provided in the other 2100 cities in the US, from LA, Seattle, Orlando, Memphis to SanAntonio, a sound case is made for consideration of a San Diego Municipal Electric Utility. SDG&E retail rates for residential customers are estimated to be 110% higher than the US average, and well above the average paid in Los Angeles. That fact alone should be a deciding factor for serious consideration in municipalization of electric utility service.
Dan Aschenbach
President,
AGVP Advisory
908-468-8806