Cities can cost effectively start their own utilities

I used to live in a small town in Michigan which had city provided power using a dam. It was inexpensive and highly reliable. But every couple of years the big power company in the state would try and get the city to sell them the utility.<p>After I moved a city council for whatever reason ended up selling. As a result the cost of electricity immediately doubled and power outages occurred regularly due to reduced maintenance. I don&#x27;t know what they spent the money on that they received but it was a very poor decision that I have to believe they regret.

The author estimates that electricity prices would be reduced by up to 33% (from $0.45 blended rate to $0.30), but PG&amp;E’s profit margins are only 11%. That’s a good hint that this hypothetical is missing some important details<p>The article hedges against someone pointing this out by admitting that Walnut Creek is an unusually optimistic location and that PG&amp;E is also recognizing large expenses related to ongoing infrastructure buildouts, but no solutions are offered for these caveats.<p>The hidden problem with projects like this is that once you roll these utilities into the city’s budget it’s too tempting to start dipping into taxpayer funds for needed improvements rather than raising electricity rates. When problems arise, politicians try to kick it down the road so it becomes their successor’s problem, or they try to offload the expense onto a growing debt load because that delays the problem to the next generation. It becomes easier to keep the highly visible rate down, but taxes might go up to cover the infrastructure costs instead.<p>So I’m skeptical. If there was an analysis that showed a drop in rates that was not 3X higher than the profit margins of the private utility I’d be more open to the idea, but as presented this feels like back of the envelope math that generates savings by ignoring all the details that didn’t make their way onto the envelope.

This is absolutely a no-brainer for municipalities. The private companies are charging a premium that they return to shareholders and give to executives. Municipalities have excellent access to credit at rates significantly lower than the premium charged by utility companies. The residents get cheaper access and more influence in how the utility is ran.<p>The number of people that pay for-profit companies for natural gas (heat), electricity, and water in North America is absolutely bonkers. There is a specific concern about foreign corporations purchasing water rights in the American west.

Of course it&#x27;s cost effective for cities to start their own utilities, the economies of scale work in favor of urban and suburban electrification and maintenance.<p>What isn&#x27;t effective is electrification and maintenance of low density regions although power monopolies like PG&amp;E are required to provide service. The urban and suburban customers are effectively subsidizing the cost of transmission and maintenance for rural customers.<p>PG&amp;E doesn&#x27;t want their most profitable customer base[cities] to have public utilities because if enough do, their company becomes unprofitable and implodes.<p>This is exactly the reason we should do it.

I am a city council member in small city (9,000) which owns and operates a municipal electric power plant. We have 4 large diesel generators, two large wind turbines and a few fields of solar panels. It is nice having power on 24&#x2F;7, if there is an outage we simply fire up a diesel generator and power is restored in just a few minutes. We do have to buy power on the grid but also have times where we sell power back (summer, when people use AC prices go up and our solar panels typically generate excesss and profit) The price of power is almost identical to those outside of the city. Honestly keeping as many derives local really has been a win&#x2F; win for our community.

The author mentions the cost of buying out the distribution network, and cites SF&#x27;s failed attempt to do this. The author tries to figure out the price for Walnut Creek&#x27;s grid based on inflation and population -- but the $2.5B figure this is based off was <i>rejected</i> by PG&amp;E. The messed up thing is PG&amp;E as a monopoly can set the price wherever they like -- and they can demand substantial continuing payments to connect to the grid so long as they retain it.<p>&gt; PG&amp;E continues to demand huge payments on routine power grid connections. For example, the cost to comply with PG&amp;E’s latest requirements for the City to use public power to connect streetlights, traffic signals and other small loads would exceed $1 billion.<p><a href="https:&#x2F;&#x2F;www.publicpowersf.org&#x2F;en&#x2F;faq" rel="nofollow">https:&#x2F;&#x2F;www.publicpowersf.org&#x2F;en&#x2F;faq</a><p>I think <i>either</i> we need the political will to use eminent domain to take the grid back (i.e. set the price through a legal proceeding), or we&#x27;d need to build a duplicate distribution grid and then abandon PG&amp;E.

Boulder CO tried to do this, but failed. After a 10 year fight, Xcel&#x27;s lobbying won out and the $29 million that was spent to start the process had been exhausted. We need more cities trying to do this to show how it can be done and done well.<p><a href="https:&#x2F;&#x2F;www.cpr.org&#x2F;2020&#x2F;11&#x2F;20&#x2F;boulder-ends-decade-long-pursuit-of-city-owned-power-utility&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.cpr.org&#x2F;2020&#x2F;11&#x2F;20&#x2F;boulder-ends-decade-long-purs...</a>

These formerly &quot;public utilities&quot; are now often owned by PE or Berkshire Hathaway. Whenever I see the folky wisdom of Charlie Munger or Warren Buffer posted on HN, I can&#x27;t help but think about their firm&#x27;s work in transforming State Farm insurance, GEICO and this gem I posted earlier today on HN:<p>&quot;PacifiCorp Was Grossly Negligent in Oregon’s 2020 Wildfires. Now It’s Asking Lawmakers for Protection.&quot;<p><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=42971311">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=42971311</a><p>Because of regulation, they can gouge consumers who are captive to the damage, literally and financially.

There are a number of northern Illinois cities that have their own utility grids. Off the top of my head I can think of Naperville, Princeton, Rochelle, and Peru, with the last three having their own power plants.<p>Rochelle&#x27;s municipal utility system also provides water and sewer, and fiber-optic internet. <a href="https:&#x2F;&#x2F;www.rmu.net&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.rmu.net&#x2F;</a>

Austin Energy pays the city 115 million every year.<p>Austin Energy earns no profits and pays no federal income taxes. All revenues benefit the customers of Austin Energy and the residents of the City of Austin. The primary financial benefit to the City of Austin is Austin Energy’s transfer to the General Fund, which is set by policy and allocated by elected City Council members to municipal purposes such as fire and parks.<p><a href="https:&#x2F;&#x2F;austinenergy.com&#x2F;about&#x2F;company-profile&#x2F;numbers" rel="nofollow">https:&#x2F;&#x2F;austinenergy.com&#x2F;about&#x2F;company-profile&#x2F;numbers</a>

+1 to this analysis. Urban ratepayers in CA subsidize rural and fire-prone ratepayers. (Utility rates are a stealth tax. Same story as home insurance.) The fight is ultimately political and not as one-sided as you might think. The broad regulator and politician view is that the subsidies are valid, and if the cities all leave the grid, the subsidies will wind up on the state&#x27;s balance sheet. Nobody wants to see rural de-electrification. Utilities have a lot of sway with politicians for corrupt and non-corrupt reasons.

We have a publicly owned electricity utility. Electricity is cheap and it&#x27;s and it&#x27;s a selling point for homes within their service area. The other utility is bad, especially when it comes to billing.<p>People hate it and there has been a big effort from activists to turn it over to public hands. The local politicians are on board for the most part, but the company is of course fighting tooth and nail.

&gt; It costs a lot of money to deliver power to rural customers<p>Utilities (generally) have a universal service obligation.<p>If someone can cherry-pick just the denser areas with lower distribution costs, <i>of course</i> they could &quot;undercut&quot; the utility with the requirement to serve everyone.<p>(I&#x27;m not saying that PG&amp;E couldn&#x27;t be better managed. I&#x27;m saying that there&#x27;s a much, much deeper policy issue at stake here.)

Santa Clara&#x27;s utility rates are also cheaper because there&#x27;s a bunch of data centers that are the bulk of consumption and subsidize rates for residents. That said, I&#x27;m all for getting rid of PG&amp;E

Not only am I getting a 14c rate with smud but smud is ask really active in the community. They donate $1000s to my neighborhood association and local maker space. Also a friend is mine wanted 3 phase power ad was researching what it would take.<p>Smud was very helpful and had a simple process while PGE wanted proof of business usage amongst other stuff (heard this all second hand though)

Can the CA govt just impose prohibitive fire prevention liabilities on utility companies, bankrupt them, and scoop up the assets for free?

If Star Citizen can get nearly a billion dollars, I think we can all (right here on HN) evangelize a kickstarter for this. We just need the people that know this in and out to lead.<p>We should be doing more really in our current world. I confess I too spend too much time trying to build little apps just for money.<p>This <i>just for money</i> thing has got me reflecting a lot lately.

It seems that the bulk of the savings for making an urban municipal utility come from not having to pay for upgrades in fire-prone regions. And the end game is that cities will have their own utilities with lower rates, whereas rural people will be adverse selected to be stuck with PG&amp;E and pay thousands of dollars per month on energy. Wouldn’t it be easier for PG&amp;E themselves to implement this desired rate schedule where urban rates are cheap and rural rates are expensive? It seems odd that the PUC would not allow PG&amp;E to charge extraordinary rates for rural areas today, but they do allow cities to buy up the good parts of PG&amp;E which will inevitably lead to the same outcome in the future.

Profit creaming, not good for county even if it seems good in the city.<p>Everytime there is a natural disaster in the US the press report xxxx houses without power. US leccy firms pride the bear minimum service, always. Profit comes first. Delivery second priority at best.<p>This doesn&#x27;t ofter happen in Europe because they dont profit cream and builds reliable redundant grid for almost everone. The grid even extends beyond countries boundaries, with neighbouring countries supporting each other.<p>Some folk out in the sticks, who you might think don&#x27;t matter, provide useful services to the city folk. Eg farmers.<p>I.e. Cost the grid not the city.<p>You probably are being ripped off in the US, but that&#x27;s a different story to the one being told imho.<p>Careful what you wish for.

There was a thread recently on a subreddit talking about hn threads that get outside the hn circle of competence (nuclear weapons in that case) and this thread is giving me the same vibe. I work in utilities and have worked in multiple countries&#x2F;continents and all over the US (and lived and worked in CA) for munis, coops, national carriers, giant IOUs etc.<p>If you see something you disagree with here please treat it as &quot;I implemented notepad.exe in elisp&quot; level of not even wrong.

Philadelphia has repeatedly killed people due to aging infrastructure. They have wooden pipes 100 years old. Half my block caved in due to a sewer collapse. They estimate all the current backlog of pipes will be done in 100 years.<p>Yes you can start it, but should we bow to political pressure to put off maintaining infrastructure? No. There&#x27;s a real cost to maintain this stuff. But a political force doesn&#x27;t want to raise prices so it gets depayed.

Interesting analysis.<p>Sounds like an argument for ABAG to expand its energy related services into a full utility (at least on the electricity side): <a href="https:&#x2F;&#x2F;abag.ca.gov&#x2F;our-work&#x2F;energy-infrastructure" rel="nofollow">https:&#x2F;&#x2F;abag.ca.gov&#x2F;our-work&#x2F;energy-infrastructure</a>

There are electric cooperatives everywhere. See <a href="https:&#x2F;&#x2F;www.electric.coop&#x2F;our-organization&#x2F;nreca-member-directory" rel="nofollow">https:&#x2F;&#x2F;www.electric.coop&#x2F;our-organization&#x2F;nreca-member-dire...</a>

*cost-effectively — confusing title without the proper adverb hyphenation

I can believe this is possible from a cost perspective, but I cannot believe that local governments can have leadership quality that is sufficient to do this well most of the time.

in situations where you want or need to look into &quot;uninterruptible power backup&quot; at even a reasonably small scale (e.g. a large apartment building or a hospital), given the cost and durability of a diesel generator, once you&#x27;ve bought and installed one, turns out you might as well run it. Varying economic and regulatory conditions can make it more or less viable, but it&#x27;s in the range of feasible.

PG&amp;E should have been liquidated in bankruptcy and the physical assets taken by the state, with regional public utilities created from them.

Social democracy in fashion again?

East coast is struggling the same. Not as crazy yet but Coned in NY is now over 31c

Geneva&#x2F;IL has its own utilities. Water and electricity. Gas is still ComEd.

I&#x27;m as capitalist as they come, but I think privatizing natural monopolies makes no sense.<p>In our area, they handed over all school bus services to a private firm. The number of drivers, buses, and routes do not change. How was it supposed to save costs without degrading the service? The answer is, it did not. But administrations were diluted that they could take it off their liabilities.

What is PG&amp;E should perhaps be on top of the page?

i miss feudalism the olden times of fiefdoms were so much better than one world humans

Electric, Water, Sewer are modern necessities.<p>Our governments should provide these services to Citizens at no cost to them.<p>We already pay for the maintenance costs and infrastructure is already built out.<p>Charge the companies for the services, and give them to the populace.<p>But, but, but, that&#x27;s socialism! Taxes are socialism. Take from the many, use that spending power to benefit the people.

Sure, providing power to a city is cheaper per-head than providing it to a large area which includes a lot of rural customers, news at 11. But they probably should not be _allowed_ to do so, because it would make providing power in rural areas at all uneconomic. If you had an electricity market where everyone paid actual cost to deliver power to them, you’re really talking about just having cities.

and cities can build roads and highways too?

It never ceases to amaze me how often people will make socialist economic arguments (that are objectively correct) yet eschew the label &quot;socialism&quot;.<p>An enterprise, like providing a utility, has revenues and it has costs. The difference between the two can be called the &quot;surplus labor value&quot;. What happens to that depends on the economic system.<p>In capitalism, capital owners own that enterprise (utility) and they siphon off profits raising the costs. Put another way, capital owners own the means of production, not the residents of the city or the city itself. This is rent-seeking behavior.<p>In a socialist organization of the economy, the residents either directly or through the city itself, would own the utility. Any profits would go back into the utility or be extra revenue for the city but there&#x27;s really no incentive to increase prices on the citizens who own the utility (unlike the unquenchable thirst for increasing profits for capital owners).<p>I have to constantly point out that capitalism isn&#x27;t markets (market existed thousands of years before it and exist in every economic system). Capitalism simply supplanted feudalism by replacing kings with billionaires. That&#x27;s it.<p>We have abundant examples of how the latter is a substantially better system. Just compare EPB Internet (Chattanooga, TN and surrounds) vs Verizon, AT&amp;T, Comcast or Spectrum. Municipal broadband, without exception, is substantially better than any national ISP. The only thing that keeps national ISPs in business is more rent-seeking behavior such as lobbying for legislation to ban municipal broadband.<p>Given this is the Superbowl weekend, it&#x27;s worth adding that the Packers are owned by Green Bay (an arrangement the NFL now bans for any other franchise). What do we see in other cities? Teams extorating massive tax breaks from cities, counties and states to build massive stadiums at taxpayer expense without the team having to give up anything. The KC Chiefs are rumbling about leaving because the city didn&#x27;t pass a sales tax increase to pay for upgrades to Arrowhead Stadium.<p>I don&#x27;t know why anyone is surprised by any of this anymore.

If PG&amp;E could be undercut by 25%, then why are there no private companies doing it? Either it is not as profitable as the author claims, or PG&amp;E&#x27;s monopoly is due to state regulations (I don&#x27;t know enough about the specifics) and it would be quite contradictory to demand the state solve the problems it created.<p>Overall it reads like any other socialist argument for nationalizing (in this case &quot;municipalizing&quot;) companies, which does not work both on theoretical grounds and based on historical experience. The claim &quot;Walnut Creek could borrow from its utility in recessions, and loan money during booms&quot; is laughable. We know how that ends: the city would finance its deficits with utility money until the company is bankrupt.

Good luck getting that 4% financing.

I am so sick of PG&amp;E - our energy bills are nearly $1,000&#x2F;mo. It&#x27;s absolutely bonkers.

Same thing is likely true in SoCal. The city of Azusa,CA has their own, non-Edison utility, and their rates are 1&#x2F;3rd of the Edison rates in the towns around them.

PG&amp;E&#x27;s absurdly high rates are how they finance the careers of Governor Newsom &amp; his wife, and &quot;donations&quot; to a giant array of other pet project &quot;charities&quot; for politicians &amp; their favored cronies&#x2F;causes.<p><a href="https:&#x2F;&#x2F;www.washingtonpost.com&#x2F;business&#x2F;2019&#x2F;11&#x2F;11&#x2F;pge-helped-fund-careers-calif-governor-his-wife-now-he-accuses-utility-corporate-greed&#x2F;" rel="nofollow">https:&#x2F;&#x2F;www.washingtonpost.com&#x2F;business&#x2F;2019&#x2F;11&#x2F;11&#x2F;pge-helpe...</a><p><a href="https:&#x2F;&#x2F;www.sacbee.com&#x2F;article251851903.html" rel="nofollow">https:&#x2F;&#x2F;www.sacbee.com&#x2F;article251851903.html</a><p>Why would any of California&#x27;s uniparty establishment want to refund all that money to random utility customers – who might not even be reliable party footsoldiers?<p>PG&amp;E&#x27;s lowest overnight rates are 30¢&#x2F;kwh, surging during peak hours to rates ranging from 39¢&#x2F;kwh to 72¢&#x2F;kwh.<p>In neighboring Nevada, the utility serving its major metros NV Energy has rates of 11¢&#x2F;kwh for residential users &amp; 7-9¢&#x2F;kwh for small businesses.