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Government Takeover of Utility Distribution Systems

Government Takeover of Utility Distribution Systems DOER Roundtable 29 January 2004 Geoffrey Lubbock VP Regulatory East ain’t East and West ain’t West Russia and Britain, two great socialist countries, are capitalizing their utilities Massachusetts is proposing to socialize its utilities

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Government Takeover of Utility Distribution Systems

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  1. Government Takeover of Utility Distribution Systems DOER Roundtable 29 January 2004 Geoffrey Lubbock VP Regulatory

  2. East ain’t Eastand West ain’t West • Russia and Britain, two great socialist countries, are capitalizing their utilities • Massachusetts is proposing to socialize its utilities

  3. Proposed Legislation is Flawed • Takeover prices are way below market • Market value and prices paid by utilities are well above net book • Municipals allowed to buy at net book • The US constitution protects against such seizures of property

  4. What Benefits to Municipal Customers? • Misleading price comparisons: • Municipal rates do not include: • property taxes ($90M) • DSM programs ($70M) and may not include the same level or any: • police detail ($5M) • repaving ($5) • tree trimming ($5M) • use of labor from other town departments • The lack of municipal takeover since 1929 is a good indication of the lack of benefits

  5. Municipals Savings from Cost Shifting to Other Customers • In Massachusetts streetlight sale transactions set the stage • Lower profile section of restructuring law allowed streetlight “at book” rather than at market • DTE precedents allowed below book by applying depreciation rates that were not approved • Result: some towns buy streetlights for $1 but the other customers make up the difference • “David vs. Goliath” syndrome of towns vs. utilities tends to create distorted precedents

  6. Impacts: Higher Cost Communities Lose • Towns with high average incomes and low population diversity win by redlining • Towns that are richer do not need to pay for the towns which have a higher proportion of low income customers

  7. Impacts: Environmentalists Lose • Investor owned utilities are required to invest in environmental conservation • Municipals are not required and do not spend commensurate sums

  8. Impacts: Labor loses • Non-Union labor may be cheaper, but it results in lower benefits and compensation for Massachusetts state residents • Quality and training investment may be less

  9. Impacts: Loss of Efficiencies and Oversight • Reporting requirements are not the same for municipals and utilities, so a comparison of one to one is not possible. But several things are clear: • Larger utilities have greater resources to use in times of crisis • IOUs help municipals in times of crisis, but not the reverse • The New England Grid network is more secure • Security is improved with a larger organization • Fewer headquarters, accounting systems • DTE provides extensive regulatory review of IOUs, but not municipals

  10. Winners Municipalizing towns win the cost shifting game at the expense of the remaining IOU customers • Consultants • And, of course, LAWYERS

  11. Losers • Remaining IOU customers • Electrical Union workers • Environmentalists

  12. Conclusion • The proposed Municipalization legislation is bad public policy

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