Legal & Regulatory

Public vs. Private: What's Best for Power Customers?

There are generally three types of electric power utility ownership structures: public power utilities, rural electric cooperatives, and investor-owned utilities (IOUs). The American Public Power Association, which calls itself “the voice of not-for-profit, community-owned utilities,” says there are more than 2,000 cities and towns in the U.S. that get their electricity from a community-owned and -operated utility. While public power entities are often uniquely structured based on local charters and state-specific requirements, they are commonly a division of local government, owned by the community, run by boards of local officials. Most are owned by cities and towns, but some are owned by counties, public utility districts, or even states.

Rural electric cooperatives are similar in nature. They are also not-for-profit, but are member-owned rather than community-owned. The National Rural Electric Cooperative Association, the “voice” of co-ops, says there are more than 900 local electric cooperatives, providing electric service to more than 56% of the U.S.’s landmass. Co-ops are typically governed by a member-elected board of directors, which sets policies and procedures that are implemented by the cooperatives’ management.

According to the Edison Electric Institute, the association that represents all U.S. investor-owned electric companies, the majority of U.S. power customers—about 220 million Americans from all 50 states and the District of Columbia—receive their electricity from IOUs. These companies have private boards with shareholders reaping the profits.

Public Power Utility Contemplates Change

So, which type—public or private—is best for the customer? That’s a question one of the largest public power and water entities in the U.S. is trying to answer.

JEA is a community-owned utility that operates across about a 900-square-mile service territory in northeast Florida, including the city of Jacksonville. The utility has about 466,000 electric customers, 359,000 water customers, and 270,000 wastewater customers throughout Duval County and portions of Clay, Nassau, and St. Johns counties.

Aaron Zahn, JEA’s managing director and CEO, explained that the utility is currently organized as an independent authority of the Consolidated City of Jacksonville. It has a seven-member professional board with a professional management team, but ultimately, its major policymakers are the city council and city administration.

JEA’s customer base has grown steadily over the years. In 2007, it had about 412,000 electric customers, which has increased every year since then. What hasn’t increased is JEA’s electric power sales. After peaking at 16,939,214 MWh in fiscal year 2007, sales decreased to 12,732,236 MWh in 2018. That was about 30% less than forecasters had projected back in 2006. While the utility says efficiency improvements accounted for more than 90% of the decline in power sales, that’s a small consolation for customers, who saw rates increase about 71% between 2006 and 2018 to help JEA meet its debt obligations and increasing operating expenses.

Trying to Remain Relevant

The challenging market has led JEA to consider its business options. “We’re working on designing an entity that can best serve the needs and desires of the customer,” Zahn told POWER. That could mean staying status quo or taking the utility private.

“When the word privatization comes up, people have a visceral emotional response,” Zahn said. “I think the debate of public versus private really misses the mark, and it ought to be a debate about how to best organize to serve your customer. The most basic question in business is: ‘What resources, talent, and capabilities does the organization need to serve the customer?’ This is the question our board and leadership are attempting to answer.”

Zahn explained that, as a government-owned utility in Florida, JEA has a substantial number of constraints imposed upon it through the government organization, the Florida Constitution, different state statutes, and the city charter, which is ultimately the organizational document that dictates those things JEA can and cannot do. As JEA’s leadership looks forward and thinks about how to best serve the customer, there are a number of innovative things the utility would like to do but can’t under its current structure.

For example, there may be opportunities to help customers adopt more rooftop solar, behind-the-meter storage, demand-side management solutions, distributed water systems, or data algorithms that allow JEA to provide customers better, lower-cost and more-reliable services. However, current government constraints prohibit JEA from participating in these technology-enabled markets. Zahn said the lending of credit is another great example. The Florida Constitution prohibits government entities from lending credit to any “corporation, association, partnership, or person.” That ties JEA’s hands in some cases.

“The influx of technology is causing us as an entity to recalibrate on the tools and resources we may need in order to remain relevant for our customer, both now and in the future,” said Zahn.

“However, it’s important for everyone to understand that no decision has been made one way or the other,” Zahn said. “We’re simply doing a very open and transparent scenario-based strategic planning process where we are envisioning different future states.”

In the end, should JEA’s board decide a non-governmental structure is the best option for serving customers, the Duval County voters will have the final say in the matter, because a countywide vote would be required to transfer more than 10% of JEA’s assets to another entity.

“It’s a very simple policy question,” Zahn said. “Do the citizens of Duval County want JEA to be designed to shrink as the market we exist in becomes more competitive and has more private-sector participation through adoption of technology or do they want the utility to be positioned to grow and remain relevant as our market and customer demands change?” ■

Aaron Larson is POWER’s executive editor.

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