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Inward Investment Guides

America's Public Power Utilities: Key Partners for Business in a Challenging Economy

Steve Stackhouse-Kaelble (Dec/Jan 10)
(page 2 of 2)
By the Public, For the Public
Many people, including business owners, don't pay all that much attention to who is providing their energy. After all, electricity is electricity, right? On the contrary, what matters is who is on the other end of the power line - or more to the point, what kind of utility.

Those utilities known collectively as public power systems are owned and operated by local or regional governments or public utility districts. Their function is simply to provide reliable electricity at a reasonable cost, in a businesslike manner. In these respects, they are very similar to other types of electric utilities, including investor-owned corporations.

What sets them apart is the nature of their mission. Public power systems operate as a public service, just like the local police and fire agencies and the street department. Public service is what they're all about. They are not in the business of making money and turning a profit. They are not-for-profit operations, with no investors or stockholders who are expecting a return on their investment.

Also, public power systems answer to local bosses, not corporate structures that might be based in a faraway city. Ultimately, the local bosses in many cases are mayors and city council members who not only live in the city but are answerable to voters and taxpayers.

In short, public power systems are really working on behalf of the people and businesses that they serve. There are no other masters with conflicting priorities, just local leaders and taxpayers and voters, all of whom happen to also be electric customers.

So how does this distinction make a difference? The most obvious way is cost of power. Because public power systems are not-for-profit operations, their rates typically are among the lowest in the country. Commercial customers of investor-owned utilities pay an average of 9 percent higher rates than commercial customers who are served by public power systems. For residential customers, the rates charged by investor-owned utilities average 14 percent higher. Public and investor-owned utilities average similar industrial rates.

Public power systems operate in more than 2,000 American cities and towns, in all but one American state. The first public power system was created in 1880, and on the whole these organizations have deep roots in their communities. By 2010, a third of all public power systems will have celebrated their centennials.

Communities of all sizes are served by public power - the largest include Los Angeles and Sacramento, California; Long Island, New York; San Antonio and Austin, Texas; Seattle, Washington; and Nashville, Tennessee. The majority of the systems, however, are relatively small - 1,400 of the roughly 2,000 serve communities with populations of 10,000 or fewer. As a result, though there are 10 times as many public power systems as there are investor-owned utilities, the share of the population served by public power is about 15 percent, while nearly 70 percent get power from investor-owned utilities.

Public power systems may often be small, but they defy any stereotypes suggesting that bigger is better. In fact, their customers in many cases will hail the benefits of smallness. That's because having customer service representatives and repair crews located right there in town, rather than somewhere else, can translate into particularly responsive customer service - whether it's resolving a billing issue or restoring power following a storm.

The other key point to consider is that because public power systems typically answer to the same bosses as the rest of the local government, they maintain a strong interest in the economic health of the community. That's an especially important priority these days, with the economy struggling.
This interest in local economic health manifests itself in a number of ways. Public power systems provide a direct benefit to communities through payments and contributions to state and local governments. These may be payments in lieu of taxes, property-tax-like contributions, transfers to governmental general funds, as well as free or reduced-cost services offered to governmental agencies. This type of support averages about 5 percent of electric operating revenues. Of course, investor-owned utilities support governments through taxes and fees, too - those average just over 4 percent of electric operating revenues.

And as mentioned earlier, public power systems also are heavily involved in supporting the health and profitability of their business customers. They frequently offer efficiency audits, financial assistance for customers implementing cost-saving efficiency projects, and technical assistance that typically covers energy-related matters but also supports manufacturing improvements and other initiatives.

Having a connection to local government is also helpful in supporting companies that are expanding or are in the midst of picking a site for their next manufacturing facility or distribution center. Economic development incentive packages can be that much better coordinated when more players sit around the same table. Plus, that coordination often extends beyond electricity, because many public power communities are also served by municipally owned natural gas utilities, and some even have their own publicly owned broadband providers. All of these other publicly owned utilities promise the same non-profit mission as their public power counterparts.

Finally, even though they're often relatively small systems, public power providers are a collegial crowd. Because they're not competitors and they're not driven by a profit motive, they're willing to join forces for the common good through such organizations as the American Public Power Association. They'll share ideas, jointly pursue legislative priorities, cooperate on training and R&D initiatives, and in general ensure that all public power systems are able to look out for number one - the public that they serve.

For more information about the benefits of public power, contact the American Public Power Association at 202-467-2900 or 800-515-2772, or visit www.appanet.org.
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