Michigan Municipal Electric Association               

 

About Public Power

 

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What is Public Power?

"Public power" is a term used to describe electric utilities like MMEA’s members, that are operated by a municipality, county, state or other public body including public utility districts. In the United States, public power systems number 2,007 and serve 14.3 percent of the U.S. population.

Public power systems are accountable to the people they serve. Many are controlled and regulated locally by the city’s elected governing board, such as a city/village council. Others are governed by an elected utility board.

All the benefits produced by public power stay in the local community - in the form of lower rates, improved services, and other contributions to the community.

What are public power’s benefits?

Lower rates. On a national average, residential customers of investor-owned utilities pay average rates that are 10 percent above those paid by customers of publicly owned utilities.

Reliability. Customers demand high levels of availability of electricity due to their reliance upon this power source for most daily functions. Due to the compact geographic area served and the greater quality of maintenance, municipal systems have a better record for reliability and response time on average than the large investor-owned utilities.

Efficient service. Public power systems are driven by service at the lowest possible cost consistent with community aims, environmental responsibility and sound business practices.

Locally controlled and regulated. Every citizen is an owner of the utility - having the opportunity to have a direct say in policies that affect rates and service. Policy and rates for municipal electric utilities are determined by locally elected officials. This fact along with being not for profit eliminates the need to be regulated by the Michigan Public Service Commission.

Competition. Public power provides standards against which rates and services of all utilities may be measured. In effect, they serve as a yardstick for electric consumers all over the state to compare their rates. That helps electric consumers everywhere.

Why does public power cost less?

In Michigan, residential customers of public power systems pay 15 percent less than residential customers of privately owned utilities. Commercial customers of public power utilities pay 12 percent less in electric rates than customers of utilities regulated by the Michigan Public Service Commission. Michigan’s municipal electric systems are a strong competitive force - They promote fair competition in electric power generation and transmission and provide a yardstick for measuring the performance and rates of private power companies. This helps keep electric rates low for all Michigan residents and businesses.

Public power systems’ administrative and general expenses average about 32 percent less than those of private utility companies, a clear indication of efficient and cost-effective management.

Public power systems are not-for-profit operations. They are not in business to pay dividends to outside stockholders. Their loyalty is to their customer-owners. As not-for-profit municipal government operations, public power utilities can finance capital improvements by issuing tax-exempt municipal bonds.

How do municipal electric utilities differ from investor-owned utilities and rural electric cooperatives?

In addition to municipal electric systems, Michigan electric customers are also served by two other forms of electric utilities -- investor-owned electric utilities and rural electric cooperatives.

Investor-owned utilities (IOUs) are private companies. The companies are owned by stockholders and represented by a Board of Directors. Since they are for-profit monopolies, their rates are regulated by the state’s Public Service Commission and the Federal Energy Regulatory Commission (FERC). Investor-owned utilities are sometimes called public utilities because they provide electric service to the public. Unlike most private enterprise markets, IOUs are granted monopolies by the state and thus regulated. But they are unlike public power systems. They sell electricity for profit, which is included in rates customers pay. Profits go to stockholders, taking resources out of the local economy.

Rural electric cooperatives are consumer-owned utilities established to provide electric service to rural portions of the United States. These systems are also non-profit enterprises, owned and controlled by the people they serve. There are nine rural electric cooperatives in Michigan.

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