Two of everything? If Alma officials move forward with their plan to own and operate
an electric utility, they will need to duplicate the 2,400 utility poles and 41 miles of
cable already strung throughout the city.
The electric power industry generates more than $200 billion in revenue annually.
Deregulation and the resulting competition for the American consumers business is
creating more choice among electric power users. In Alma, a debate has been raging over
whether or not to introduce competition to the local electric power franchise by creating
a city-owned and city-run electric utility.
For the last five years the central Michigan city of Alma has been debating a proposal
to create a city-based energy provider to compete with Consumers Energy, the highly
regulated private, for-profit business that has had a monopoly in the area for 70-plus
years. In order to accomplish this the city would need to duplicate the 2,400 utility
poles and 41 miles of cable now strung throughout the city at an estimated cost of $20
million, financed over 25 years.
Governments often compete with private business in the production and sale of various
goods and services. Some products, however, are closer to the ideal of a "public
good" than others. A public good is any good that is "nonexcludable" and
"nonrivalous." That is, if someone chooses not to pay for a good, such as
national defense, they cannot be excluded from enjoying its benefits anyway. In addition,
there is no competitive market to provide for national defense (though components are
frequently contracted out). That makes the good nonrivalous.
While the public provision of some goods is unnecessary and counterproductive, others
may be more legitimate. What about electric power?
Of course, Alma would have several advantages over its Consumers Energy competition.
First, it could fund the $20 million construction by issuing tax-free debt, a privilege
not accorded to private firms. Second, an Alma-run utility would not have to account for
profit or pay taxes. Consumers Energy on the other hand, must account for profit and
please its shareholders.
Alma city officials do not intend to construct their own generators. They simply wish
to purchase power from wholesale producers and have it "wheeled" to their
community. Wheeling is the transmission of electric power by a utility that does not own
or directly use the power it is transmitting. Currently, more than half of Americas
2,000 public electrical utilities do just that. Michigan is home to 41 municipally owned
The charge in Alma to begin its own utility operation is being led by Alma city manager
Doug Thomas and a collection of area businesses, Gratiot Community Hospital, and Alma
College, all of whom seek lower energy costs. Collectively, these businesses employ 3,500
people and pay out over $93 million in annual payroll. The group is being led by Ultramar
Diamond Shamrock (formerly Total Petroleum), which states that 25% of its annual budget
($9 million) goes to pay for electric power. This group of businesses and people, known as
Alma Businesses for Electric Competition (ABEC), claims that a city-owned utility
operation would save users $61 million over 10 years, even after factoring in the $20
million cost of construction.
Needless to say, Consumers Energy officials disagree strenuously, as well they should.
Consumers Energy has spent $685,000 making its case before city government and the people
of Alma that they provide the best and cheapest source of energy. ABEC has spent $818,000
defending their positionand probably without good reason.
Last March, the Michigan Public Service Commission directed Consumers Energy and
Detroit Edison to begin allowing its customers a choice of providers. The plan is to be
phased in over three years. With the ability to wheel in electricity through Consumers,
what need would Alma have for its own utility that wheels in electricity anyway?
Simply because a government, at any level, chooses to involve itself in an otherwise
private endeavor, does not mean everything will work as planned. In fact, government
projects are notorious for big promises and small returns.
In the absence of a profit motive or a "bottom-line," governments dont
have the same incentive to come in on time and under budget. Even when they do, time and
politics often make these projects painfully inefficient and expensive. Decisions made in
a political environment often run contrary to sound economics. In addition, governments
often cross-subsidize projects (fund the losses of one project with the
"profits" of another), which masks the true costs of well-intentioned
If businesses want to pay less for electric power, they shouldnt be making
alliances with government to do it. They should do it the same way they drive prices down
everywhere elsethrough competition. Greater consumer choice is what is needed to
drive utility costs and prices lower. If Alma residents and businesses believe Consumers
Energy is too expensive, they should be able to go shopping for some other firm willing to
sell electricity for less. They might even go out of state to find a company that would
save the city the expense and hassle of duplicating miles of transmission wires and poles.