The Problem
One method for increasing competition in regional energy markets is for local and state governments to encourage the public ownership of electrical infrastructure and power supply. This is known as municipalization. The goal is typically to provide more reliable service, lower costs, increase local control over energy decisions, and promote renewable energy sources.
Data from the U.S. Energy Information Association shows that public utility rates are, on average, 13 percent lower than those of IOUs. Over the last three years, IOU residential electricity rates increased 40 percent more than inflation, while publicly owned utilities have increased rates at 34 percent less than inflation. San Diego Gas & Electric’s residential rate, for example, increased by 81 percent between 2020 and 2023, while the similarly sized Sacramento Municipal Utility District’s average residential rate rose less than inflation.
Municipalization can involve purchasing existing infrastructure from private companies or building new systems. It aims to ensure that the benefits of the power system, such as profits and decision-making authority, remain within the community, potentially improving public accountability and aligning energy policies with local priorities.
Investor-owned utilities have been vehemently opposed to the municipalization of the power grid for a century — understandably so, as public ownership of electrical infrastructure diminishes IOUs’ ability to rake in massive profits and deliver substantial dividends for shareholders. However, policymakers should be wary of utility fearmongering, as successful municipalization efforts have produced superior affordability, customer satisfaction, and resilience in more than 2,000 towns and cities across the U.S.
In Minnesota, when a small northern community named Elbow Lake began and ultimately passed a municipalization effort back in 1966, the incumbent power company, Otter Tail Power, fought it all the way to the Supreme Court. In 1972, the Supreme Court ruled in favor of Elbow Lake and decided that Otter Tail Power had violated the Sherman Antitrust Act by using its dominant market power to cut off the small town from the energy grid.
By the beginning of 1974, the state legislature had passed a law restricting future municipalization efforts by making the activity prohibitively expensive, requiring any municipal government to pay the incumbent power company for any future lost revenues caused by municipalization. That law proved effective and no municipal government in the state of Minnesota has attempted to create a publicly owned power supply since.
In Maine, ratepayers, business leaders, conservationists, and others organized a democratic movement to shift the state’s power grid from an investor-owned utility (IOU) model to a consumer-owned utility (COU) model. (See below for more information on the benefits of public power initiatives.) The organizers and advocates placed a ballot initiative on the 2023 November ballot that would have municipalized the ownership of the two largest power providers in the state to one new entity that would be owned by all the residents served by the power company, instead of outside investors. In order to defeat the referendum, Versant and Central Maine Power, the two incumbent utilities facing the threat of municipalization, spent over $40 million to halt the effort, vastly outspending the initiative’s advocates.
The Solution
States or cities can take over private monopoly utilities and turn them into publicly owned utilities. The American Public Power Association has a series of steps to guide such a transition.