When asked, US voters like the idea of a community or public entity delivering their electricity rather than an investor-owned utility. But the chances of that happening are slim.
Investor-owned utilities serve 72% of the US electric customers, and they don’t easily let go of their monopoly franchises.
A recent ballot initiative in Maine showed how hard the battle can be. A grassroots group tried to capitalize on anti-utility sentiment to replace the state’s two investor-owned utilities with public power. But the public power champions were outspent by about 40:1, and 70% of voters chose to keep the status quo.
Does this mean the pursuit of public power is a fool’s errand? Or is there another way?
The question is important to those who see public power utilities as more responsive to local sentiment and quicker to innovate than investor-owned utilities. In theory, communities that own their electric utilities can move more quickly developing distributed energy resources (DERs). Unlike investor-owned utilities, they are not subject to rate review before state public utility commissions — lengthy and complex proceedings that can hold up projects. Instead, such decisions are made locally.
Avoiding a frontal attack on investor-owned utilities
A movement afoot in California offers what appears to be an easier — albeit narrower — approach to creating public power utilities than what was pursued in Maine. Rather than bringing public power to an entire state, it focuses only on cities, and within those cities, the public power utility serves only new development. So rather than attempt to replace an investor-owned utility and take over its wires, poles and infrastructure, the public power utility builds its own local distribution network to serve newly built communities and businesses.
Described as targeted municipal power, the concept is emerging on two fronts: within the city of San Jose and separately among a group of energy professionals called Spark that supports distributed energy development in California.
What is public power? Public power utilities differ from investor-owned utilities in that they are not privately owned and do not operate with a profit motive. According to the American Public Power Association (APPA), they are not-for-profit, community-owned, or locally controlled. Often they are called municipal utilities (munis) or electric cooperatives.
In San Jose, targeted public power scored a big win on October 3 when the city council voted to create San Jose Power, a municipal utility to serve new development. The vote is the culmination of strife between city government and Pacific Gas and Electric (PG&E) going back to 2019. Then mayor Sam Liccardo led a coalition of about 20 California municipalities that urged state regulators to transform PG&E, one of the US’ largest investor-owned utilities, into a customer-owned utility. He also explored creating a municipal utility for San Jose.
Neither effort came to be. And since then the city says it has made peace on several fronts with PG&E. Still the city is once again eyeing public power, now under new mayor Matt Mahan.
The October 3 vote allows San Jose Power to go forward if a comprehensive study shows it will reduce electricity costs, spur innovative and energy-efficient construction, increase electric resilience, and attract skilled labor to operate the utility.
Once in a 100-year opportunity
City officials describe the plan as a “once in a 100-year opportunity,” because of two new high voltage direct current transmission lines, the Newark and Metcalf projects, being built to serve San Jose by LS Power Grid, a non-utility transmission developer. The city envisions San Jose Power connecting to the lines to power new data centers, manufacturers and critical facilities planned in the technology mecca, which is home to 6,600 tech companies, among them Adobe, Cisco, Brocade, Netflix, eBay and PayPal.
“New lines do not get built often, and so it’s important to look at all opportunities as they get sited here in the region,” said Lori Mitchell, director of San Jose Clean Energy, a community choice aggregator, during the city council meeting.
Although the transmission lines will take years to build, the city needs to establish its utility well beforehand to save money, according to a memo by Kip Harkness, deputy city manager. It will be less costly if LS Power Grid incorporates the municipal utility’s connection into the transmission design, rather than wait until after it is built.
“We need that seat at the table and one of the ways to get that seat at the table is to become a utility.” — Jim Caldwell, San Jose Clean Energy
Not everyone loves the plan. Both PG&E and the International Brotherhood of Electrical Workers spoke out against the municipal utility at the city council meeting.
But city officials won the day, arguing that city-run power would offer economic and logistical advantages. Mitchell cited an analysis indicating that San Jose Power would save electric customers 15% to 25% because a public power utility does not pay taxes or shareholder profits and is likely to enjoy lower borrowing costs.
Mitchell also made the case that San Jose Power could offer more reliable energy. She said that public power utility outages are 67% shorter than private utility outages. She also cited a PG&E Independent Safety Monitor status report, published in the first quarter of 2024, that ranked the utility in the bottom 25% nationally in terms of frequency and duration of distribution outages.
All of this comes as Mayor Mahan has pledged to electrify every sector of the city’s economy, which will significantly increase power demand. At the same time, the city is courting energy-hungry new businesses, including Downtown West, a $15 billion complex planned by Google. City officials are concerned that PG&E will be unable to keep up with the demand.
“All of this load increase needs to be coordinated and the city itself needs to be involved in the priorities. The city knows better than the ISO in Folsom, what we need, what our priorities need to be, and how we need to do it,” said Jim Caldwell, a deputy director at San Jose Clean Energy, during the city council meeting. “So we need that seat at the table and one of the ways to get that seat at the table is to become a utility. When you become a utility, now you’re a member of the club, now you have access to all the data that everybody else has.”
City officials emphasize that they still have a long way to go before giving San Jose Power a final thumbs up. The exploratory phase will take about 18 months and will include the development of a ‘plan of service’ to forecast the municipal utility’s electricity needs. Connecting to the Metcalf and Newark lines is even further out since the lines are not expected to begin operation until 2028.
“Like any transformation, this transformation of the electrical system creates both risks and opportunities. Risks include the status quo being unable to meet the pace and scope of change. Opportunities include the opportunities for new and innovative approaches,” said Harkness.
Breakthrough opportunity for distributed energy
It turns out that San Jose may not be the only city testing the targeted approach to public power. Separate from San Jose, an informal group of energy experts called Spark, is investigating the idea as a way to get more distributed energy built in California.
Bob Krause, a social entrepreneur working with the group, called targeted municipalization a “breakthrough opportunity” that can overcome regulatory and utility obstructions to distributed energy projects. He argued that the California Public Utilities Commission makes decisions “skewed” in favor of the investor-owned utilities, as it attempts to keep them upright, but “at a tremendous cost, and the biggest cost is the deferral of distributed clean energy controlled by local entities.”
Targeted public power utilities — those that serve only new development — can break the impasse by removing the CPUC and the investor-owned utilities from the equation. They require no legislative or ballot approvals to create, Krause said, and the new entities would not be under the jurisdiction of the CPUC since they would be governed by city, county and tribal governments.
The group, which includes several consultants who often participate in CPUC proceedings, hopes to bring together private developers and local governments to create the new utilities. Because many local governments do not understand how to create public power, Spark hopes to act as a resource and offer open-source information. Spark is still working through the details and is not yet making public the cities it sees as good candidates.
“We would love to talk to anybody who is interested — local governments and developers,” Krause said.
While municipal utilities are often viewed as a threat by investor-owned utilities, Krause says utilities play a strong role in Spark’s vision for the future grid, acting as distributed system operators.
Opening the door a crack
Creating a full-scale municipal utility today is like rolling a large boulder uphill. Of 64 attempts, 11 have succeeded since 2000, according to testimony before the Maine Committee on Energy, Utilities and Technology by Concentric Energy Advisors for Avangrid, which owns Central Maine Power.
Among the battles:
- In Washington Jefferson County Public Utility District began working on creating a municipal utility in 2008 and finished purchasing the assets of Puget Sound Energy in 2013.
- Winter Park, Florida worked for six years acquiring its investor-owned utilities asset before establishing a municipal electric utility in 2005.
- Boulder, Colorado began the process in 2011 but abandoned it in 2020 after legal costs reached $30 million.
More recently, a grassroots group, Metro Justice, began working on a public power takeover of Rochester Gas & Electric in New York. APPA lists about a dozen jurisdictions that have announced plans to explore public power in recent years. While dwarfed by their investor-owned counterparts, existing public power utilities do serve 49 million Americans.
It’s unclear whether the Spark model could work in cities outside California. For one thing, it requires that new development be underway, making it unworkable for cities with stagnant growth. So, while targeted municipalization may not open the doors wide, it does let in a crack of light for local communities searching for a way to build more distributed energy. And given that it’s happening in California, the world’s fourth-largest economy, it is no small thing.
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