POSTED ON OCTOBER 24, 2012:
It may be time to go on our own
For most of Tulsa's history, our electric power needs have been met by a private power company. Though for a short time a portion of Tulsa was served by the Grand River Dam Authority, today Columbus, Ohio-based American Electric Power (AEP) provides Tulsa's power through Public Service Company of Oklahoma (PSO).
For the first time since 1997, Tulsans have the opportunity to explore whether it would be economically feasible and in Tulsa's long-term best interest to look at the "municipalization" of the electric franchise.
Under the 25-year franchise agreement granted by the City of Tulsa to PSO in 1997, there is a provision which says that after 15 years the citizens of Tulsa have the option to decide if they want to purchase the assets of PSO that serve Tulsa and create a municipal electric utility similar to the water and sewer utility.
That 15-year mark was in July 2012. The process for this to occur is: Once the fair market value of all the electric system assets is determined, it would take a vote of the people to purchase the assets. These assets would be paid for by the issuance of revenue bonds and then paid back over time from rates.
Since Tulsa can do this, the broader question is whether Tulsa should buy its local electric utility franchise. In thinking about such a major policy decision, it's instructive to look at cities that have done this and how it has affected its citizens, its economy, and its energy efficiency programs. Some of the cities that have been most successful have been Los Angeles, San Antonio, Austin, Seattle and Sacramento.
In each of these cities, they have used their municipal utility authority to start solar rebate programs, electric transportation, smart grid and smart meter programs, residential and commercial loan programs to help advance energy efficiency, incentives to lower electric bills, and innovative entrepreneur efforts.
There are both advantages and disadvantages to having a municipally-owned utility. The advantages can be put into four categories: (1) local control, (2) potentially lower electric rates, (3) diversifying city revenues and thereby improving the city's credit rating, which reduces the interest rate the city pays when it borrows money for capital improvements, and (4) equal or greater reliability and service.
Local control is one of the main advantages of ownership. With local control, the city can determine how to provide electricity in a way that incorporates the priorities of the city, such as providing energy conservation programs, aggressively burying overhead lines, providing economic incentives to new businesses, use for the attraction of alternative energy industries and diversifying the sources of energy such as gas, wind, coal, solar and nuclear. And a greater amount of the revenue received from rate payers would stay in the Tulsa economy which could create jobs.
Another benefit is that a municipal electric system can address the city's need to diversify its source of funding for general government services beyond the unpredictable sole source of sales tax. In Austin, the municipal energy department provides up to 14 percent of its gross revenues back to the city of San Antonio, representing about 25 percent of the revenues for the city's general fund. This revenue is steady, stable, and provides a solid cushion of recessionary protection.
Generally, municipally-owned utilities have lower electric rates than investor-owned utilities. One reason is the profit motive built into the investor-owned model -- an additional cost compared to the municipally-owned model, which puts an emphasis on reasonable rates for the community. Also, municipally-owned utilities don't pay taxes and have lower borrowing costs because they are tax exempt.
Municipally-owned utilities often have fewer outages and greater customer satisfaction than investor-owned utilities. This goes back to the concept of local control, accountability, transparency, and the emphasis on longer term investment in infrastructure as opposed to a shorter-term need to produce profits.
The disadvantages of creating a new municipally-owned utility generally are the cost, the process, and the responsibility of ownership. The cost to buy the local distribution system and all of its equipment can be large. The process of buying an investor-owned utility can take years, as it requires a great deal of diligent analysis, feasibility assessment, and citizen input.
The City of Boulder, Colo., did this last November when the voters approved moving forward with the city separating from Xcel Energy by starting the process of providing its citizens with a competitive choice of electric providers.
Sometimes opportunities pay off and sometimes they don't. Over the past decade, cities across the country have embarked on comprehensive feasibility assessments to answer the question of whether it is right for them or not. Since there are examples of successful municipally-owned utilities, it would be premature to conclude that it won't work in Tulsa without learning all of the facts. For this reason, the city should consider commissioning a feasibility analysis.
What is clear is that aligning the interest of the city with that of a city-owned utility provides the opportunity for unique economic development and job creation in ways that an investor-owned utility cannot. It would allow local control, local accountability, local flexibility, and open up a wide array of new and innovative ways to create and use energy.
Public power is a strong competitive force that provides a yardstick for consumers and regulators to measure the performance and rates of private power companies. This continuous competition helps all electric consumers, not just those served by public power.
Tulsa understands energy, has a well-established energy industrial base, supports innovation and entrepreneurship, and has the infrastructure to train workers in new opportunities. Tulsa also has the political and business leadership that understands the changes that are coming in the world of energy.
Several years ago, the city changed its logo to "Tulsa -- A New Kind Of Energy". If we meant it, then perhaps it's time to find it -- and it may be in our own backyard.
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