The Maryland Public Policy Institute
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SEPTEMBER 30, 2010
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EASTON — While Maryland’s major energy providers are being pilloried by politicians, regulators and consumers for high rates and poor service, five cities throughout the state are operating their own power companies just as some have for more than a century.
And they like it that way.
“Basically, you know everybody,” said Easton Utilities President and CEO Hugh E. Grunden. “I’ve had people call and say, ‘Mr. Grunden, my power is out,’ or someone will say, ‘Hey, there’s a street light out.’ It’s just part of being in a small system in a small town.”
Easton, Berlin, Thurmont, Williamsport and Hagerstown own their own utilities. Together they account for just a fraction of Maryland’s electric customers and produce less than 1 percent of the power generated.
But these town utilities have advantages over the deregulated power industry dominated by large companies such as Pepco, Constellation Energy Group and Allegheny Power. For instance, the local utilities own the infrastructure and are familiar with the territory and their customers.
“That’s the reason we continue to do this, because we can provide power cheaper,” said Thurmont Mayor Martin A. Burns. “We have our own wires, our own poles and we have our own people who can fix them.”
The majority of community-owned power utilities in the U.S. are run by small municipalities like the ones in Maryland. While they do have some advantages, the locally owned utilities face stiff challenges as well, such as high operating costs, including expensive equipment, that have caused many to get out of the business over the years.
Nicholas Braden, spokesman for the American Public Power Association, a trade group, said that while the number of town-owned public utilities waned in the 20th century, there are still about 2,000. That number, he said, has remained static over the past decade. The trend has been the same in Maryland.
“It is a pretty popular construct because not-for-profits are more locally and consumer-focused than they are about being beholden to shareholders,” Braden said.
On average, customers of a public utility pay about 14 percent less for their power, according to the American Public Power Association. Revenue over and above expenses goes into the general fund or toward capital expenses.
In Maryland, public utility customers pay about 15 percent less for power than comparable customers of investor-owned utilities.
While the base rates might be lower, customers experience fluctuations in their bills through what are called purchase power adjustments. These let power suppliers recoup costs associated with the volatile power market.
Supporters say even with the power charge adjustment, public utilities still offer the lowest costs and have residents’ best interests at heart.
“I just think it’s a better thing for the people in town that we’re looking out for them,” Williamsport Councilman Jim Kalbfleisch, head of the town’s electric committee, said. “It keeps the town a nice place to live where we control our own fate compared to those who are at the mercy of the power companies.”
The city-owned power company is seen as a throwback to when rural towns built or bought electric plants to guarantee service to the area.
“It’s really kind of a look back in time with these,” said Thomas A. Firey, an analyst with the Cato Institute and the Maryland Public Policy Institute. “These were probably products of history where no one wanted to string wires.”
Making it work
Municipal power utilities in Maryland own their wires and infrastructures and are regulated by the Public Service Commission, which oversees the utilities’ rates, safety and service. They operate as nonprofits, which they say gives them an advantage over the for-profit investor-owned utilities.
“We’ve been able to maintain a public power utility by supplying our customers with a product that operationally appears seamless to them, at a price point lower than the surrounding [investor-owned utilities], with employees who live in and are dedicated to the community, and our personal customer service,” said Hagerstown Utilities Director Michael Spiker.
By buying for all of their customers, the utilities act as aggregators, which can also give them leverage when negotiating contracts. Williamsport goes in with the Thurmont Municipal Light Co. and the Hagerstown Light Department on a five-year contract to lock in electric rates.
Easton and Berlin not only buy power but also can generate electricity through town-owned plants. Berlin has five diesel generators, but they are expensive to run and are rarely used.
Easton buys power through the open market and also bids out its capacity from 18 generators that run on diesel, natural gas and even biodiesel. The money Easton Utilities earns from its generators goes to what it pays on the open market for power, which reduces costs for customers.
The generators also allow Easton to provide power during an outage for an outside supplier or when prices are too high.
Independence has its price
Maintaining a public utility comes with a steep price for a local government. Capital costs and maintenance costs can be high for utilities with generators, many of which are old.
“If your system falls into disrepair and the citizens don’t want to reinvest, that’s how a lot of the municipals went out of business,” Grunden said.
Easton recently replaced two generators that dated to the 1930s. Its oldest remaining generator was put into service in 1954.
Berlin has struggled with whether to replace equipment over the years. In 2004, one generator failed and was not replaced.
Berlin Mayor William Gee Williams III did not return repeated calls for an interview for this article.
Other operating costs can be high as well. The municipalities must staff call centers and keep a fleet of repair trucks at the ready and workers on call to deal with problems. Or they must hire contractors to do the work.
The towns also need staff members who understand the complexities of the power business.
Is change coming?
“If you’re a town manager, you’ll have to also be a shrewd operator of an electric company,” said Firey, of the Maryland Public Policy Institute. “And, they might say, ‘Who wants to deal with that?’”
So far at least, no officials in these five Maryland towns are saying that.
Grunden said Easton’s utility model has remained relatively unchanged since the town took over power delivery, and he expects things to remain unchanged for some time.
“It is a matter of pride and being a self-starter and taking care of yourself,” he said.
Kalbfleisch does not expect Williamsport to be getting out of the power business anytime soon.
“There’s no dissatisfaction from anyone on the council about us providing electric for the town and there doesn’t seem to be any dissent from people in town either,” he said.
But with the potential for regulatory changes and the uncertainty of the world energy market, budget-challenged towns may need to reconsider the wisdom of owning their own utilities.
“These municipal systems are dinosaurs to some extent,” Firey said. “The question is, will these towns have to wrestle someday with the economic and political concerns that private companies have to deal with?”
History
Electric service in the U.S. dates to the late 1800s, most famously with Thomas Edison’s Pearl Street Station in Manhattan, which began generating power to a limited area on Sept. 4, 1882.
In Maryland, Thurmont began generating power around 1890. Residents got electricity at the time from a hydroelectric plant at a local dam, which provided enough power for the town until 1930. Thurmont then switched to buying electricity.
For the Eastern Shore town of Easton, electric service started in 1887 through a private venture. The town purchased the assets of the power company in 1915 when, according to Easton Utilities President and CEO Hugh E. Grunden, town officials decided they could do a better job of providing electricity.
Over the years Easton Utilities has added Internet access and natural gas to its utilities and now also provides cable television service for town residents.
“Just because you live in a rural area doesn’t mean you shouldn’t have the same access to technology you do in an urban area,” Grunden said. “That just didn’t make sense to us, so we made the investments necessary to provide to the residents of Easton.”
Electric operations began in 1901 in Hagerstown. Michael S. Spiker, director of utilities, said the city-owned Hagerstown Light Department incorporated in 1918.
Hagerstown once generated its own power at its own plant but now buys power on the open market and supplies it at cost to residents.
Workers at the Town of Williamsport Electric Department were unable to provide historical information about the public utility. Berlin Mayor William Gee Williams III and officials at the Town of Berlin Electric Department did not return repeated telephone calls.
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