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Burn to Earn: A Cautionary Tale about a City Owning Its Utility Company


By

In March of 1986, having just obtained a Master’s Degree in town planning at Florida State University, I was happy to accept a job offer as the environmental planner for the relatively progressive college town of Gainesville FL — a town that is approximately the same size as Boulder, CO. I was thrilled, when I arrived, to learn that Gainesville owned its own utility company.

Having dabbled in socialism in my college years, I was fully convinced, initially, that Gainesville was quite fortunate to own its utility company. After all, much of the revenue/profits generated by the utility company would be funneled into city coffers. And more importantly, city leaders – as owners of the utility company – would have full control (as its “board of directors”) over how the utility operated. Obviously, the pollution and other undesirable impacts of the typical utility company would be tightly controlled and regulated because the utility company, as their motto proudly proclaimed, was “owned and operated by the people.”

A town owning its own utility company seemed supremely progressive — even revolutionary — to me at the time.

But in my 20 years as a senior long-range planner for Gainesville, I came to learn that Gainesville Regional Utilities (GRU) was anything but progressive. Instead, it was quite far from being beneficial to Gainesville as a city-owned utility. Indeed, I now believe that a strong argument could be made that GRU is one of the least progressive utility companies in all of Florida. It seems to be less under the control of its local government than any other Florida utility (most or all of which are privately owned).

In part, the city-owned GRU is less progressive, in some ways, than privately-owned utility companies in Florida because Florida regulates municipal utilities (through the “public service commission”) separately from private utilities, and generally takes a “hands off” approach that allows municipal governments to get away with things never allowed private utilities.

But there is quite a bit more to the question of why city-owned GRU is not a shining example of the good that one would expect coming from a city-owned utility.

For example, in those 20 years, I watched as GRU was repeatedly successful in its desire to extend its water and sewer and electrical lines into remote locations in Alachua County. Many of us in the field of town planning knew that a utility company extending its lines in such a way was powerfully inducing new suburban sprawl into the hinterlands, as the cost of developing in the outlying areas was being greatly reduced by the extension of utilities into these areas. This expansion of the utility company service area was partly motivated by the need for more revenue paid to an increasingly dependent city government.

GRU has a track record of aggressively (perhaps excessively) removing mature trees from locations near its utilities, and actively working to keep new trees from being planted near its lines.

Initiatives proposed by citizens to conserve energy or use more solar power are typically met with opposition or derision by GRU, and the GRU manager commonly points proudly at existing (and tepid) conservation efforts as being sufficient. GRU seems to have a tacit agreement with the Gainesville City Commission (equivalent to the city council in Boulder) on avoiding substantial conservation (conservation which would otherwise compromise an ever increasing revenue transfer to the city). In addition to shirking conservation, GRU has structured minimum service fees to increase revenue, imposes double taxing of users in its billing, and closely guards the transfer fee formula from all. The overriding incentive appears to be to maximize revenues to support the transfer to city coffers. The amount of money extracted from GRU by the city has grown to be so excessive that bond rating agencies have taken note and warned GRU in annual reviews.

I should also note, in the name of fairness, that as modest in scale as GRU’s Feed-in Tariff has been, it’s still an important initiative that demonstrates the feasibility of the technology. [Under a feed-in tariff, eligible renewable electricity generators (which can include homeowners and businesses) are paid a premium price for any renewable electricity they produce and “feed in” to the electric grid.] The feed-in tariff, while again largely the tireless work of local activists to urge its implementation, puts GRU among the nation’s leaders in encouraging solar infrastructure. Given its rather modest nature, however, this is more of an indictment of the state of this tactic nationally than an example of a quality program by GRU.

Recently, GRU proposed to significantly increase its generation of electricity by inviting a regional utility consortium to site an enormous power plant on the northern edge of town, at the existing power plant site northwest of Gainesville.  The city commission, as the GRU board of directors, was quite ready to rubber stamp the GRU initiative. It was only through the strenuous efforts of local activists over a period of three years that this plan was defeated and demonstrated as an unnecessary addition to the GRU generation capacity. In spite of the fact that Gainesville did not need new generating capacity, the city commission was convinced by GRU to install a biomass (wood-burning) plant. Opponents have always suspected that this was due to the city’s desire to increase revenues.

Many in Gainesville now expect that the city will be committed to an expensive, unneeded plant fueled by wood biomass — biomass which is expected to have multiple competing uses in the near future.

Given all of the above, local conservation groups and individuals often find themselves battling against GRU (and losing) in efforts to reduce the loss of trees, reduce air and water pollution, increase energy conservation, use greener energy sources, reduce suburban sprawl, and increase undergrounding of overhead utility lines.

GRU has always had the upper hand in technical matters because no city staff are experts, the city commissioners are always changing, and commissioners are usually incompetent in both leading multi-million dollar businesses as well as evaluating environmental or technical concerns of a utility company. Indeed, the Gainesville City Commission is usually quite relieved to concede their power as the utility company “board of directors” to GRU. And the GRU staff are quite adept at manipulating the city commission.

In addition, the GRU manager is extremely powerful in controlling the rate, extent and location of new development in the unincorporated county through GRU planning decisions. This has evolved to the point where the utility manager is arguably the most powerful person in the city of Gainesville.

Unfortunately, it has fallen upon the citizens of Gainesville to protect themselves from GRU and the city commission by evaluating, challenging and guiding the city commission — a fact which the city commission often resents.

But when the citizens prevail and environmentally sound choices prove popular or successful, city commissioners are happy to take credit and forget their former opposition.

Gainesville is fortunate to be a university town where there is a small cadre of dedicated experts who, so far, have been willing to dedicate an enormous amount of time and money in urging the city and GRU to adopt environmentally (and business) responsible policies.

How could this have happened? How could a utility company “owned and operated by the people” be so comparatively detrimental to so many public objectives? Many privately-owned utility companies in Florida, after all, seem to be much more likely to engage in progressive actions regarding pollution, energy conservation, tree management, control of sprawl, and the undergrounding of utilities.

As noted above, I believe the answer is found, ironically, in the fact that GRU is owned by the city, and the fact that the public service commission in Florida does not regulate utilities and protect rate-payers from the utility. As owner, the city benefits from significant annual revenue transfers from GRU to city coffers. GRU has become an essential “cash cow” for Gainesville. Without GRU revenue, Gainesville would be forced to significantly and painfully scale back a number of capital projects and public services.

In the end, the GRU board of directors (the elected Gainesville City Commission) is — perhaps inevitably — a toothless board. Nearly anything that GRU calls for is immediately rubber-stamped by the “directors,” no matter how detrimental to the public. Nearly every time GRU complains that a public proposal to protect trees or promote energy conservation or discourage sprawl would be too costly for GRU, the “directors” seem to immediately agree with GRU.

I will repeat this because it deserves emphasis: a loss in revenues by the city-owned GRU means a reduction in the transfer of revenues to city coffers. Protecting trees, conserving energy, reducing pollution and discouraging sprawl play second fiddle to a loss in revenue to the city.

So the “directors” become lapdogs to GRU. A utility company “owned and operated by the people” ends up being a relatively reactionary utility company when compared to its peers. Because as owners of the utility company, “the people” have a strong financial vested interest in maximizing revenue (often to the detriment of the community).

It becomes a publicly-owned company that is not so much a “people’s utility company,” but a company focused on the imperative of “BURN TO EARN.”

In sum, Boulder must therefore be extremely careful as it considers stepping into the potentially unexpected consequences of city utility company ownership. The case can be made that Gainesville’s ownership of its utility company has had some important benefits, such as local activists successfully lobbying for the nationally prominent feed-in tariff (a program that would have been highly unlikely had the Gainesville utility been privately owned). However, there is a significant possibility that if the utility company revenues become an important source of revenues for the City of Boulder, there might very well be some very surprising, unintended outcomes in Boulder for having a company “owned and operated by the people”: consequences that might overwhelm the benefits of municipalization.

Should the city opt to continue to pursue the municipalization of utilities, we urge Boulder — if it has not done so already — to explore the issue of revenue “de-coupling” (where revenue is accrued such that policy decisions are revenue-neutral). By de-coupling revenue, the city is much more likely to be able to pursue utility policies on their own merits. Otherwise, decisions that are clearly within the public interest can too easily be detrimentally influenced by a city council worried about jeopardizing their revenue stream. Other cities have successfully de-coupled revenue as a means of avoiding the perhaps inevitable, undesirable outcomes outlined above for Gainesville.

Bottom line: If an organization — even a progressive, publicly-owned organization — makes more money by producing more power, more power will be produced. Efforts to conserve energy or produce more “green power” will be secondary. Financial vested interests will always trump progressive politics or philosophy — even in Boulder.

Buyer beware.


UPDATE:  After having written the above comments, I have spoken to a number of informed people in the Boulder area, and have become more informed on the issue by reading articles in the Blue Line and the Boulder Daily Camera. As a result, I am now leaning strongly toward supporting the idea of having the City of Boulder own its own power and light company (i.e., voting “yes” on Ballot items 2B and 2C).

I have not made a final decision yet, but I am starting to support the idea of municipalization, as I have gotten persuasive information that there are adequate safeguards in place which would prevent one of my most important concerns from occurring: a city-owned utility that becomes a “burn-to-earn” cash cow for the city. I now think it is highly unlikely that this problem would emerge.

In addition, I have decided that in general, for the sake of sustainability, it is best that there be more local, citizen-based control over those things that are essential for a sustainable local future. Having local energy (or food or water) decisions in non-local hands or in private, less accessible hands, tends to be less sustainable and less desirable. The point has been made to me, for example, that Boulder citizens are less able to review the documents and numbers being used for power company decisions if those documents and numbers are in private rather than public hands. More transparency, in other words, tends to be preferable to less.

Long ago, in an environmental economics college class, I learned that the private sector commonly “externalizes” its costs on the community. In other words, private companies commonly take advantage of not paying for (or avoiding) polluting activities. One common instance of this is that companies often pollute the air without paying for, or compensating for, or preventing the air pollution. Instead, they “externalize” the cost of pollution by having citizens or the natural environment pay for the pollution. That alone is reason enough to municipalize an energy company, as public owners are less likely to externalize costs on themselves.

On the other hand, I made the point in that college classroom that a private energy company is not entirely unsustainable because it would never “cut its own throat” by taking actions that would lead to the exhaustion of its energy source. The response from the professor, however, has stuck with me for my entire life: “An energy company has no need to avoid exhausting its energy source, as the company owners and investors can simply move into another, non-energy business.”

With our energy future being rather perilous (and polluting) these days, we need more of our energy decisions in the “sunshine” to minimize having such decisions be based on less sustainable measures such as short-term profits.  Or on the incentive to “externalize.”

 

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