An electric transmission line.
The Buzz for January 31, 2025
Members of the Tucson City Council are awaiting a report that would give them information about what taking over electricity service within the city would entail.
Concerns about growing costs and environmental stewardship brought the city to consider taking the step.
"The evidence is actually pretty mixed," said Dr. Severin Borenstein, a a professor of business administration and public policy at the Haas School of Business at the University of California Berkeley. "There are certainly situations where there are some great publicly owned utilities that have managed to keep costs down. But overall, the evidence is pretty mixed on whether they actually run a more efficient system,all the way from generation down to distribution of the power. There are certainly plenty of instances of publicly owned utilities that have not done a good job, and there are plenty of instances of investor owned utilities that have not done a good job. It is a bit hard to compare them, because publicly owned utilities mostly have much smaller and denser service territories."
Borenstein said that the number of customers a utility serves is not necessarily indicative of being able to offer better pricing or service.
"There's certainly some economies of scale in dealing with some of the transmission and distribution systems, but it's not clear how big you have to be to actually get a lot of those economies, there are diseconomies of just the size when you start losing incentives and control down to the local areas so that you may not get as much incentive to for good performance."
He said most utilities in the U.S. are publicly-owned, and those that are run by non-governmental companies are not subject to as much free market competition.
"We have two bad options. We either have the government owned utility, which we all know of examples of government not having incentives to do things very efficiently, or we have a privately owned but we don't have the sort of competitive market we have in many other products. Instead, we have a monopolist and that means we have to regulate them, and the regulatory process is really imperfect and fraught."
That same notion holds true across other common utilities. There are about 50,000 water systems in the U.S., according to the Brookings Institution's Joe Kane.
"More than 88% of these 50,000 systems are publicly owned and operated. So the vast, vast majority of the water, if you will, that communities receive tends to be publicly provided. And that public provision of water often has a nonprofit mentality."
While most of the services are public, they are also largely small companies. About 80% of all companies service 10,000 or fewer customers. That small nature means large infrastructure improvements still fall, at least partially, on local government.
"A stat I like to often cite is more than three quarters of our public spending each year on our water infrastructure is at a state and local level. So as much as we look at the federal government as well, they can just swoop in and provide more money to rain down, pun intended, to solve these issues, that often isn't the case because the primary owners, operators, investors in this infrastructure are inherently local," Kane said.
One worry that Kane expressed is a general lack of knowledge about water utilities, especially as infrastructure ages and changing climate alter some aspects of that work.
"There's often a lack of understanding, education and visibility for a lot of these issues, until there is a problem, and then the local utility kind of becomes the boogeyman, or like, 'oh well, you should have done something about this.' And we easily point the finger at them, but, in many cases–and I'm not trying to be an apologist for utilities–they're overwhelmed. They don't have a lot of capacity. And meanwhile, the challenges are only getting more serious."
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