On this page we will share concrete examples of the risks to utilities management, utilities funds and utilities service when political influence is introduced into an otherwise business-like model of local governance.

We start with an article in the American Public Power Association (APPA) magazine, Public Power, in June 2012, and the community Gardner, Kansas.  Additional information can be found on the Public Power webpage: http://www.publicpower.org/

Effective Governance Is Key to a Healthy Utility
June 2012 issue Vol. 70, No. 4
Perspective By Mark Crisson President & CEO, APPA

Each year as part of our planning process, the APPA board of directors and staff identify priority issues that will command our attention in the calendar year that follows. Often, we find ourselves focused on similar priorities for several consecutive years. Electricity market reform and environmental regulations have been on our priorities list for the last several years and no doubt will continue to require our attention. New to APPA’s priorities in 2012 is a focus on the continued viability of the public power business model.

To carry out our examination of the public power business model, we have assembled a working group of utility CEOs, chaired by Glenn Steiger, general manager of Glendale Water and Power in California, to examine challenges to the traditional model and make recommendations for APPA member utilities going forward. Changes have included an updating of APPA’s “Model City Charter Provisions for a Public Utilities Authority”; a revision of APPA’s “Deciding the Future of Your Community-Owned Utility”; and a series of programs and workshops on the benefits and risks of the public power business model.

To carry out our examination of the public power business model, we have assembled a working group of utility CEOs, chaired by Glenn Steiger, general manager of Glendale Water and Power in California, to examine challenges to the traditional model and make recommendations for APPA member utilities going forward. Changes have included an updating of APPA’s “Model City Charter Provisions for a Public Utilities Authority”; a revision of APPA’s “Deciding the Future of Your Community-Owned Utility”; and a series of programs and workshops on the benefits and risks of the public power business model.

Public power utilities differ from investor-owned utilities in important ways. Both types of utilities deliver electricity to consumers. However, IOUs are in business chiefly to maximize the investment of their shareholders through the provision of electricity and other services. Public power utilities are in business to serve customers, exclusively. Our utilities are customer-owned and customer-focused. This difference is the essence of the public power business model. The public power business model is also defined by our not-for-profit operation, and our commitment to providing power at the lowest possible cost consistent with sound business practices and community values.

When some public power utilities become targets for takeover by profit-seeking IOUs or rural electric cooperatives, governance issues are often a factor. When decisions surrounding management of a municipally owned utility are influenced by politics, rather than sound business practices, the result can be financial instability. Residents of Gardner, Kan., have recent experience with this. The electric utility in Gardner was on the auction block about five years ago, after local elected officials made decisions that may have lowered electricity bills but ignored business maxims required to keep the enterprise fiscally healthy. Those decisions led to a crisis: the utility was losing money.

Forward-thinking leaders in the city and the state recommended a fundamental change that turned around Gardner’s electric utility. In 2009, the Gardner City Council handed responsibility for utility policymaking to an appointed electric board, responsible solely for the utility. The board’s five members focus exclusively on utility issues and therefore have time to study the often-complex issues that confront a public power utility. An independent board may not be as subject to the political whims of the electorate as are elected city councils. In fact, in Gardner’s case, they were instructed by the mayor to run the utility like a business—to make decisions that will ensure a fiscally healthy, reliable and cost-efficient utility.

The change in governance structure in Gardner led to a dramatic turnaround in the utility’s fortunes. The utility was losing money in 2008, but stemmed its losses and began building up its reserves in 2009. Today, it has a healthy reserve fund and is poised to take on bigger challenges in a city with a growing population and a growing economy. For more information about Gardner’s experience, read “Growing the Fix” on page 72 of this magazine.

About half of public power governing boards are city councils, while the remainder follow the independent utility board model adopted in Gardner. The Model City Charter recently reviewed by our working group on the public power business model recommends establishment of an independent utility board. While it may not work for every public power utility, it offers several advantages. The electric utility industry today is very different than it was 20 years ago. New kinds of companies have entered the energy-delivery business. Many of these entities offer little in the way of value-added services. Rather, they employ slick marketing gimmicks aimed at attracting customers and making money. The personal service and high reliability that are characteristic of public power bring real value to customers. An independent, utility-focused board has the potential to make well informed, carefully considered decisions without the political pressure felt by elected council members. It is noteworthy that two other Kansas utilities profiled in this issue, McPherson Board of Public Utilities and Kansas City Board of Public Utilities, are both governed by independent boards. Both have proud histories of successful operation and both are well positioned to confront some of the most vexing challenges facing the utility industry today. Read more about McPherson on page 68 and Kansas City on page 64.

The cover article of this magazine, “Repowering the Public Power Business Model,” speaks to larger utilities with a formal, structured approach to strategic planning. The authors, both experienced strategic planning facilitators, share their approach for framing the strategic decision-making process. Their framework, summarized in a table on page 27, offers a useful reminder of public power’s heart: the focus on the customers.

Small or large, public power utilities share a singular focus on customers that has defined our business model from the beginning and will continue to carry us forward.

(Reprinted here with permission, 10/2/14)