Power to the People

City Utilities of Springfield had the lowest average residential utility bills based on 2007 rates, according to a Memphis Light, Gas and Water Division survey released earlier this year. Springfield topped the list of 25 participating cities, including St. Louis and Los Angeles, with a $287 bill, followed by Omaha, Neb., at No. 2 with $292.

In the same survey, CU scored in the top 50 percent in all usage levels for commercial and industrial electric rates. (Click here for a breakdown of the rates in cities similar to Springfield.)

CU’s new fiscal year began Oct. 1, but rates remained almost unchanged. Water rates went up 5 percent, but natural gas bills won’t increase until next year and electric bills won’t increase until fiscal 2011. The electric rate increase will pay for Southwest 2, the 300-megawatt coal-fired electric plant under construction.

Unique utility

So what makes CU’s rates low?

It turns out, CU’s customer base is in a pretty unique position. CU is one of about 2,000 municipally owned utilities – which provide only about 15 percent of the nation’s electricity – according to the American Public Power Association.

Public power is cheaper than private power, according to Washington, D.C.-based APPA. In 2005, APPA’s most recent data, public electric customers paid about 10 percent less than customers of private, or investor-owned, utilities, known in the industry as IOUs. Public utility commercial rates were 7.9 cents per kilowatt-hour compared to 8.6 cents per kilowatt-hour for private utility commercial customers, the research showed.

“I think the fact that we have only one master to serve, and that’s the customer, is a very powerful message,” said CU General Manager and CEO John Twitty, noting that CU revenues aren’t dished out to stockholders.

Making Springfield even more unique is that its public utility also owns water and natural gas services. While water services are commonly owned by cities, only about 20 percent of the public electric companies also own natural gas services, APPA Director of Communications Madalyn Cafruny said.

Springfield is unique in that it owns a three-service public utility. But is it better off for it?

Public debate

Based on rates, public power gets a nod, but there are pros and cons.

“Investor-owned utilities are one of the pure forms of the free market,” said Ryan Stensland, spokesman for Alliant Energy, which has provided private electric service in Cedar Rapids, Iowa, since 1904.

Stensland said the main advantages of private utilities are free-enterprise flexibility and economies of scale. To illustrate, consider that Springfield has 150,867 people, and CU has about 106,000 customers, while Cedar Rapids has 122,542 people, and Madison, Wis.-based Alliant Energy has about 1.4 million customers in Iowa, Minnesota and Wisconsin.

“It’s a whole lot easier for a community of several states or cities to manage these things than one entity,” said Bryan Day, assistant city manager for Little Rock, Ark., which is served by three private companies for electric, gas and water. “That’s the big downside to a city managing those types of infrastructures. They’re terribly expensive, and they’re based on a finite resource.”

Little Rock, a city of 184,053 people, receives gas service from Houston-based CenterPoint Energy, which has about 3 million customers in six states. If operating costs go up, rate increases can be absorbed by CenterPoint’s large customer base, Day said.

David Stokes, policy analyst for St. Louis-based nonprofit think tank Show-Me Institute, favors private utilities over public utilities, noting that cities can earn tax revenues from private utilities but not from tax-exempt public utilities.

‘Multiple systems’

While Little Rock’s Day said his city is well served by its trio of private providers, he added, “All things being equal, there probably is benefit for a city to manage and own its utilities,” pointing to better management of growth patterns and revenue streams generated for the cities.

Chattanooga, Tenn., a city of about 150,000 residents, has a public electric utility but private water and gas services. Harold DePriest, president and CEO of Electric Power Board of Chattanooga, wishes Chattanooga, like Springfield, owned all three.

“There are a lot of common costs that can be spread among all three utilities,” DePriest said. “You don’t have to have more accountants just because you’ve got multiple systems. You’re not going to have another president just because you’ve got multiple systems.”

For example, EPB of Chattanooga operates a $15 million a year phone and Internet company, which DePriest said makes its $424 million electric utility about $1 million a year cheaper to operate.

DePriest also said a consolidated public utility makes economic development easier. Less than a year ago, Chattanooga officials attempted to lure a Toyota plant to town. DePriest said negotiations would have been easier if Toyota dealt with just one utility provider. In Springfield, CU is a partner in two industrial parks, one that reached capacity last year.

Glen Thomas, supervisor of communications and public relations for Memphis Light, Gas & Water Division, the nation’s largest municipally owned three-service utility, said another benefit of public utilities is greater transparency, although private utilities are regulated by state boards. MLGW serves more than 420,000 customers.

CU’s Twitty said private utilities have no advantages over public utilities.

“I would say that the great advantage that the citizens of Springfield and our service territory have is getting all of the services from one company,” Twitty said. “It’s one call, it’s one bill, it’s one check each month.”

Electrically Entrenched in History

There are about 2,000 municipally owned electric utilities, 230 investor-owned utilities and about 900 rural cooperatives, according to John Twitty, general manager and CEO of City Utilities of Springfield. About 75 percent of the nation’s electricity is generated by private companies, many of which serve large regions.

So why does Springfield have a city-owned utility while similar cities have private power?

The answer is in their histories.

“Consumers Energy basically has kind of a corner on (our) market,” said Mark Nixon, spokesman for Lansing (Mich.) Board of Water and Light about Consumers Energy, a private company that has long provided natural gas service to his city.

Bryan Day, assistant city manager for Little Rock, Ark., said Little Rock has been served so long by private utilities, which own the established infrastructure, that it would be cost-prohibitive for the city to switch to public power.

The city of Springfield, on the other hand, switched to public power fairly early in its history. The city formed CU in 1945 after buying privately owned Springfield Gas & Electric Co., which had only 19,000 customers at the time, according to Mark Viguet, director of marketing and communications for CU, which now serves about 106,000 customers.

A Closer Look

City Utilities of Springfield data is for fiscal 2006.

Service area population: 229,000

Service area: 320 square miles

Utility customers: 106,000

Total operating revenues: $383 million

Average annual commercial electric bill: $6,106

Average annual commercial kilowatt-hours used: 110,755

Average annual commercial natural gas bill: $4,815

Average annual commercial therms used: 4,410

Source: City Utilities of Springfield