In the Q3/2016 issue of Area Development magazine, I provided commentary on the results of the 2016 Top States for Doing Business Survey. I briefly discussed the role a well-funded and organized electric utility can play in shaping a state’s business environment, especially as it relates to attracting industrial investment. Specifically, I noted:
One major reason for these states’ successes is their comprehensive economic development programming. With few exceptions, the states scoring best in this survey tend to have the most robust and capable state-level economic development platforms. Although these state-level efforts demonstrate each of these states’ commitment to long-term economic development, I firmly believe that the vast majority of the Top States for Doing Business have one severely underrated (at least to the casual industry follower) asset in common: the strong support of well-organized and well-funded power companies…These competitive states are supported by utility companies that often have more marketing and project management resources than the state economic development agencies themselves. In addition, these utilities can play a positive role shaping a state’s business environment.
These comments seemed to generate significant interest from corporate readers that would like to broaden their understanding as it relates to the value and support offered by electric utility economic development organizations. In reality, electric utilities can prove to be one of the most valuable partners to a company seeking to locate their corporate project.
An Unrecognized and Underrated Partner
As a company navigates the location decision process for its latest project, the involvement of third parties increases as the process progresses. These third parties often include a mix of site selection consultants, engineers, attorneys, real estate brokers, tax professionals, economic developers, and government officials at the municipal, county, regional, and state levels. Because site selection projects are infrequent exercises for a typical industrial company, most corporate project leaders are unfamiliar with the roles all these various parties should play in the process, especially those representing economic development interests from different levels of government. Therefore, the role the utility company can play in the process may not be apparent at first glance.
But from marketing sites and communities to project management and transaction assistance, utility economic development partners can be a resource along the entire value chain of site selection. More often than not, utility economic developers can be leveraged in the same capacity that one would leverage state economic development officials. But due to their knowledge of their local utility networks and site availability, utility partners can be a valuable asset during the entire project — but especially during the site-specific phase of the location decision process.
Utility companies understand that electric consumption will follow jobs and capital investment.
While a large-scale data center or large automotive OEM is still the Holy Grail for most utility companies, most corporate executives incorrectly assume that it takes a large megawatt user to generate the interest and assistance of electric providers’ economic development departments. While utility companies’ primary objective is, and will always be, to sell power, measuring internal success based on traditional economic development metrics like job creation and capital investment is becoming an increasingly common practice for utility companies across the country.
One utility economic development executive with whom I recently spoke confirmed this changing philosophy: “In an effort to better align ourselves with our state, regional, and local economic development partners, we understand that electric consumption will follow jobs and capital investment. Therefore, it is critical that we measure our performance with these metrics, in addition to power consumption. At the end of the day, it is about being a valued community partner; selling electricity will take care of itself.”
Most corporate executives incorrectly assume that it takes a large megawatt user to generate the interest and assistance of electric providers’ economic development departments.
Utility companies have a few competitive advantages when it comes to delivering economic development services.
There are several inherent advantages that utility economic development platforms provide that make them an invaluable resource. For one, due to their financial resources and internal exposure to electrical-related issues, they can often offer more technical expertise, which can be difficult to find when working with other economic development partners who aren’t tasked with technically challenging requests for utility service and cost estimates on a daily basis.
Further, although constrained to their service territory, electric utilities tend to work the “regional approach” to economic development better than their state and local counterparts. Especially in instances that cross state lines, the utilities can provide project management services without being influenced by government politics. Of course, like their state or regional partners, some utilities’ service areas are constrained by political boundaries, but those that cover major population centers straddling state lines (e.g., Duke in Charlotte and Cincinnati, TVA in Greater Chattanooga and Tri-Cities) can be especially valuable in identifying the optimal location for an active project.
Because electric utilities generally operate as for-profit companies, they are often less bureaucratic and nimbler than traditional forms of economic development (or at the very least, in my opinion, effectively portray themselves in this light). As a result, I have found that having a party at the table who has many of the exact same motivations as our clients can be an invaluable asset for building trust throughout a process.
Do not underestimate the funding of utility economic development groups.
I am continually amazed at how well funded many utility economic development groups are and how that can really move the needle at the strategic and project level. Those funds enable electric utilities to adopt aggressive marketing campaigns, staff their teams with the brightest talent, proactively invest in product development, and incentivize projects at a higher level than ever before.
In instances that cross state lines, the utilities can provide project management services without being influenced by government politics.
A prime example of the byproduct of being well funded is the role Santee Cooper, their local electric cooperatives, and The South Carolina Power Team played in attracting Volvo to Berkeley County, S.C. In an effort to reduce upfront capital expense and help streamline the site development process, Santee Cooper provided assistance in acquiring the land currently being developed for Volvo.
Another example is the involvement the Tennessee Valley Authority had in repurposing an old coal plant in Alabama for a Google data center. Although an unconventional project, the two parties were able to generate $600 million in capital investment in a situation where power plant workers were losing their jobs.
What Does the Future Look Like?
Although utility companies providing economic development services is not a new concept, it is clear that electric providers in the Southeast have been the leaders in this arena. However, utility companies in other parts of the country are investing more resources into their economic development platforms as well.
Returning to an earlier point, some corporate clients can be initially confused by the number of economic development officials involved in a project. As I hope I’ve demonstrated here, utility economic development partners can bring a lot to the table, especially in terms of technical expertise along with strategic and project-level funding. That being said, introducing another party to the project only underscores the critical importance of project coordination from the community side. Regardless of who’s “leading” the project — whether the state, regional authority, county/city, or utility — leveraging all parties’ experience and assets is only effective when a clear and consistent message is delivered to the corporate client and the process is seamless from beginning to end.