The following is the opinion and analysis of the writer:
Marc Spitzer
The U.S. electric grid is an engineering marvel. While 150 years old, it’s still flexible enough to accommodate massive new power consumption as our country’s industrial and transportation sectors are electrified.
Now, communities are exploring how best to ensure reliable service and affordable rates. In Tucson, that conversation has included the possibility of the city taking over some portions of Tucson Electric Power’s system.
But, be warned, hostile takeovers of existing electric companies are fraught with risks, both economic and operational. For that reason, 95% of these proposed takeovers have been abandoned.
Municipal utility ownership is not the issue. Serious risks arise from the takeover process. Tennessee Valley and Bonneville Power authorities were formed by Congress in the 1930s to electrify unserved America. Arizonans are proud of the contributions of Salt River Project (SRP) (1903), City of Mesa Utilities (1917) and Navajo Tribal Utility Authority (1959), providing safe, affordable and reliable electricity to those formerly lacking.
Municipalization of an existing utility is a completely different proposition. The legal process by which the city condemns and then pays for utility assets is time-consuming and complex. The debt burden on taxpayers from bonds issued to close the deal is both daunting and uncertain. Since the determination of the condemnation award will not be known for up to ten years after the commencement of litigation, the ultimate unpaid bill hangs over the heads of present and future generations of city residents. Just as aggregate municipal debt is unclear, the new operational cost structure is subject to risk from supply chain upheaval and the absence of a state regulatory structure to determine the prudence of investments. Upon takeover, the City foregoes Arizona Constitutional protections as to the prudence of expenses and reasonableness of rates.
Perhaps the most consequential drawback of a hostile takeover of a utility is the impact on electric reliability. Customers expect 99.9% reliability 24/7, and the impacts of outages range from irritating to devastating. Arizona investor-owned utilities, electric cooperatives, SRP and the City of Mesa each have over a hundred years’ experience in managing the complexities of the modern power grid. They employ teams of engineers and grid experts to install and maintain generation, transmission and distribution equipment. Dedicated union linemen work in close proximity to high-voltage electricity to keep Arizona air conditioners running in August. If the utility disappears, then what?
Tucson may look to the case of Boulder, Colorado. The communities around the Universities of Colorado and Michigan (my alma mater) informally compete for the title of most liberal college city. Boulder’s City Council grew impatient with the utility’s pace of decarbonization and filed in court to acquire its assets. The City Council recognized the cost to get a new utility up and running could be $800 million, but believed such was a fair price for 100% green energy, reasoning that some expenses could be made up from the elimination of shareholder dividends. However, trial evidence proved that assumption to be false, as well as Boulder’s mistaken belief that loss of local sales, property and income taxes could be papered over.
The story of Boulder’s well-intentioned but failed municipalization effort is recounted by its former Mayor in progressive online publication Grist. In 10 years of litigation, the City and utility fruitlessly wasted $50 million that could have deployed clean energy to which both parties ultimately agreed.
As noted above, 95% of municipalization proposals are abandoned. The lesson of Boulder is the road to success is stakeholder engagement and consensus followed by transparent negotiations with the incumbent utility. I would expect Tucson to follow that path.
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