No mandate needed for municipal utilities
Muny light plants do renewables on their own
FOR MORE THAN A CENTURY, through changes in the electric industry more revolutionary than the ones we are facing today, Massachusetts municipal utilities have set the standard for excellence in reliable electric service and competitive rates.
There are many reasons for this success, including a not-for-profit business model and local control over decisions that affect the quality and cost of electric service, exercised by locally elected or appointed municipal utility officials. In constructing energy policy for the Commonwealth, state legislators and regulators generally defer to the local decision-making authority of municipal utility officials, who are answerable directly to the customers they serve in open public meetings. This is arguably the most direct and effective method of regulation.
In the absence of local control, the private, for-profit investor-owned utilities (IOUs) are subject to state and federal regulations governing their rates and service. In large part, it was the lack of such regulation over the service and rates of monopoly electric companies that led to the creation of Massachusetts municipal utilities around the turn of the 20th century. Municipal utilities did not come into existence due to a “quirk of history,” as stated in Ronald Gerwatowski’s recent article in CommonWealth, “Are municipal light firms doing enough?” Instead, it was a purposeful action by municipal officials to gain control over the cost and quality of their electric service.
In the 1960s, backed by federal regulatory and US Court of Appeals decisions, Massachusetts municipal utilities won the right to purchase power at wholesale, establishing the municipal systems as utilities in their own right. In the 1970s, they formed a Joint Action Agency, the Massachusetts Municipal Wholesale Electric Company (MMWEC), which under a 1975 act of the Legislature became a not-for-profit public corporation and political subdivision of the Commonwealth, empowered to issue tax-exempt bonds to finance a broad range of energy resources to benefit municipal utilities. A snapshot of MMWEC’s successful 40-year history is available in its 2015 annual report, which is available at www.mmwec.org. For the purpose at hand, suffice it to say that the regulatory and legal foundation for municipal utilities runs deep and strong in Massachusetts.
The high quality of Massachusetts municipal utility service has been demonstrated time and again over many years, especially after storms that wreak havoc on the electric grid. Municipal utility customers often retain power or are returned to service within hours of such storms, while customers of investor-owned utilities can be without power for days or weeks. Recall the aftermath of the October 2011 snowstorm, when municipal utilities were islands of light as the investor-owned utilities struggled to restore service.
Municipal utility rates are significantly and consistently below the rates charged by the investor-owned utilities. The rates for 500 kilowatt hours of electric service, on average for the 12-month period ending March 2016, range from less than $60 a month for customers of the lowest-cost municipal utilities to more than $100 a month for customers of Massachusetts investor-owned utilities.
Again, there are many reasons for these differences, and the point of these comparisons is not to criticize the rates or service of the investor-owned utilities but to highlight the value of municipal utilities in providing a benchmark for the quality and cost of electric service. Franklin Delano Roosevelt, a big fan of public power and father of the Rural Electrification Administration, called it yardstick competition, an important tool in measuring the quality and cost of private utility service. Without municipal utilities, we would not have known that electric service could be restored within hours of the October 2011 snowstorm. Without municipal utilities, we would not know that reliable electric service can be provided at rates that are significantly and consistently below the rates charged by investor-owned utilities.
Today, municipal utilities are true to their founding principles, respecting the tradition, value, and responsibility that come with public ownership and control. At the same time, their approach to the challenges of today’s electric industry and marketplace is dynamic and progressive. They are embracing greener and cleaner energy policies, emerging technologies, and smart grid initiatives without mandates to do so. Municipal utilities recognize that they are an integral part of the electric utility industry and that their programs and services must adapt to broader changes in the industry, which often are driven by customer demand.
For example, in 2004, 15 municipal utilities signed contracts to purchase the entire output of a wind farm under development in the Berkshires. In 2008, when various delays jeopardized the project’s future, the municipal utilities and MMWEC formed a Municipal Lighting Plant Cooperative, purchased the project’s assets, and brought the 10-turbine Berkshire Wind Power Project to commercial operation in 2011. Municipal utility involvement in the project was driven by local decisions to invest in renewable energy.
In dedicating the project – the state’s largest wind farm by far at the time, and still the second largest – then-Gov. Deval Patrick called it “a beacon of our clean energy future,” marking “a new era of renewable energy development in Massachusetts.”
The municipal utilities financed the Berkshire Wind Project with a $64.7 million bond issue. As tax-exempt entities, they were not eligible for federal tax credits or incentives, including the wind production tax credit, which provides the owners of private wind projects with tax credits equal to 2.3 cents a kilowatt hour for wind energy produced during the first 10 years of a project’s operation. This subsidy alone, which costs taxpayers some $13 billion a year, offsets a significant percentage of private project development costs. Without such incentives, the municipal utility owners of Berkshire Wind sell the project’s Renewable Energy Certificates to help offset project development costs.
Solar projects with a capacity of approximately 25 megawatts are located in the 20 MMWEC member municipal utility service territories, with all of the energy from these projects purchased by the local municipal utility. In 2013, the municipal utility in Sterling was recognized by the Solar Electric Power Association as number one nationally in solar watts installed per customer. Today, Sterling is home to the state’s first utility-scale battery storage project, which is under development with a grant from the state Department of Energy Resources.
Massachusetts energy policy is intensely focused on developing a low-carbon power supply to meet the goals of the Global Warming Solutions Act. The MMWEC members’ power supply, encompassing the resources of 20 Massachusetts municipal utilities, already is approximately 46 percent carbon-free. As compared to the region as a whole, the MMWEC/municipal power supply is about 40 percent cleaner than generating resources serving New England.
These municipal resources include the wind, hydro, and solar resources noted above, additional low-cost hydro from New York, landfill gas, and carbon-free nuclear power. MMWEC is a joint owner of the Seabrook Station and Millstone Unit 3 nuclear projects, selling its share of power from the plants at cost to 28 Massachusetts municipal utilities. Closure of the Vermont Yankee nuclear plant led to an increase in New England’s power plant carbon emissions last year for the first time in five years, clearly demonstrating the value of nuclear power in achieving carbon reduction goals. The same is likely to happen when Pilgrim Station closes. It seems logical that any plan to comply with the Global Warming Solutions Act should include initiatives to ensure continued operation of Seabrook and Millstone, but that’s a different subject.While Gerwatowski’s article claims to educate, it omits important facts and reads like a call for change in the public power business model. The truth is that municipal utilities are not isolated from social, political, and customer pressures to address the environmental, public policy, and other issues facing the electric utility industry. They recognize and are addressing these issues without mandate, which validates a business model focused on local control and not-for-profit operations. It also enables municipal utilities to continue setting high standards for quality and cost-competitive electric service.
Ronald C. DeCurzio is the chief executive officer of the Massachusetts Municipal Wholesale Electric Company, a not-for-profit public corporation and political subdivision of the Commonwealth that provides a broad range of energy, financial, risk management, and other services to the state’s consumer-owned municipal utilities.