As Connecticut continues to grapple with some of the nation’s highest electricity rates, interest has surged in a century-old alternative to investor-owned utilities: public power. The vast majority of Connecticut residents get their electricity from either Eversource or United Illuminating, w hich are privately-owned companies. In addition, there are roughly 77,000 customers of seven smaller municipal-owned utilities. Municipal utilities are located in Bozrah, Norwich, Groton, Wallingford, Jewett City and Norwalk, which is served by both South Norwalk Electric Water, or SNEW, and the Third Taxing District. Some municipal utilities also serve small portions of surrounding cities and towns. Unlike Eversource and UI, municipal electric utilities are not regulated by the state’s Public Utilities Regulatory Authority. Instead, their rates are reviewed and set by local commissions, whose members are either elected or appointed by officials such as the mayor or city council. All but one of the municipal utilities also have a consumer advocate, similar to the state’s Office of Consumer Counsel. How did municipal utilities form? Most of Connecticut’s municipal electric utilities were formed in the late 19th and early 20th centuries to provide a public alternative to a growing number of private, for-profit power companies. “The municipal model has been around since the very beginning of the electric era,” said Alan Huth, general manager of SNEW, which began operating the state’s first municipal power plant in 1892. “When we started, it was only 10 years after [Thomas] Edison’s first generation plan on Wall Street.” Over time, many smaller public and private systems merged to form today’s large electric utilities. Both UI and Eversource are now owned by companies that operate utilities across several states. The only modern example of a privately-owned power company going public in Connecticut is Bozrah Light Power, which was sold to nearby Groton Utilities in 1995 for $5.4 million. In order to acquire a private utility, a municipality or other public entity must buy or lease the system’s infrastructure including polls, wires, and substations. The cost of that equipment, even for a portion of an existing utility, could run into hundreds of millions or billions of dollars. Are municipal electric utilities cheaper than Eversource, UI? Municipal electric utilities typically charge lower rates for electricity than either Eversource and UI. For a typical customer using 700 kilowatt hours a month of electricity, the savings range from 23% to 64% according to publicly-available rates. The reasons for those cost differences are varied, but officials generally point to the municipal utilities’ smaller size, the ways in which they procure electricity, local tax exemptions and their lack of a profit motive as the primary driver of savings. “Our scale is really what makes our business model unique,” said Jeff Brining, general manager of Norwich Public Utilities. “Many of us live and work right here or near the community that we serve, we know the customers that we serve… that allows us to create some efficiencies that may not necessarily be applicable on a larger scale.” As public entities, municipal utilities are generally exempt from paying local taxes on their property and equipment. However, some utilities have entered into payment-in-lieu-of-tax agreements or remit a percentage of their revenues back to local government. Private utilities, by contrast, are the single largest taxpayer in many towns. Eversource and UI spend hundreds of millions of dollars each year on state and local taxes that are baked into their customers’ rates. Municipal utilities are also exempt from many of the state-mandated programs that are paid for through the public benefits charge, which account for 11% to 13% of private utility bills. Municipal customers are required to pay a quarter-cent conservation charge for every kilowatt hour of electricity used. Both municipal and investor-owned utilities are required to earn some profit off of their investments on electric grid in order to pay the cost of financing those projects. State law allows municipal utilities to earn annual profits of between 5% and 8%. PURA allows UI and Eversource to collect profits of around 9%, though both companies have complained in recent years they have fallen short of those margins. How do municipal utilities procure power? With the exception of Wallingford, each of the municipal utilities are members of the Connecticut Municipal Electric Energy Cooperative, a nonprofit that procures electricity on behalf of customers. CMEEC also provides wholesale power to the Mohegan Tribal Utility Authority. Unlike the private utilities that were deregulated in the 1990s, CMEEC is allowed to own and operate its own power plants. Other than a few small diesel generators used in times of peak demand, however, CMEEC today mostly purchases power for its customers off the wholesale market, according to chief executive David Mesinger. Mesinger said that CMEEC’s procurement process differs from Eversource and UI by buying many contracts for relatively small amounts of power — or hedges — for any time up to five years in the future. Private utilities, meanwhile, have to follow a more rigid procurement process overseen by PURA, for much larger quantities of power. Whatever the utilities pay for power is passed along to their customers, without any markup. Private utility customers are also able switch back and forth between third-party suppliers, which makes it difficult to pinpoint exactly how much electricity the utilities will be on the hook to deliver in the future. That injects a level of risk into the companies’ contracts with its suppliers that ends up leading to higher prices, according to Doug Horton, Eversource’s vice president for rate and regulatory requirements. As part of a series of reforms passed by lawmakers last year through Senate Bill 4, PURA is required to establish a process that will allow Eversource and UI to procure up to 25% of their total load through a flexible process more akin to CMEEC’s. “We don’t know exactly which way it will go, but the idea is that as we have more flexibility to procure the power in more real time, that that hopefully will result in at least the elimination of the risk component of the rate,” Horton said. ...read more read less