Bay Area Economic Forum Municipalization Study
The Bay Area Economic Forum, a partnership of the Association
of Bay Area Governments and the Bay Area Council, in October released
its analysis of the economies of creating new municipal utilities
for electric power. The report, The Economics of Electric System
Municipalization, examines the historical record of California’s
municipal utilities in delivering low cost power to consumers, and
the issues that cities in the region and the state must address
when considering that option. It examines in detail the determinants
of consumer rates for municipal utilities (MU) and investor-owned
utilities (IOU), and the tradeoff between infrastructure acquisition
costs and power production costs that will ultimately determine
whether municipalization of power will produce consumer benefits.
It looks only at the economics of electrical power municipalization,
and does not address other possible social or political benefits.
The report determined the key cost components that will determine
whether a new MU’s system average rate will be higher or lower
than the incumbent IOU rates are:
- the combination of the income tax exemption and debt-only
capital structure of a MU which lower MU rates relative to an
IOU;
- the premium over book value paid for the distribution assets
which will increase MU rates relative to IOU rates; and
- the MU cost of generating or purchasing power, which could
be higher or lower than IOU costs.
The report applies its model in a case study that looks at municipalization
in San Francisco, including what would be necessary for consumers
to break even.
To download the report, visit the Bay Area Economic Forum’s
web site at http://www.bayeconfor.org/baefpubl3.cfm.
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