Funding Infrastructure of Public Power Utilities | FTI Consulting

Keeping the Lights On: Funding Infrastructure of Public Power Utilities

Economic Consulting | Energy, Power & Products (EPP)

October 7, 2019

utility pole

The age-old debate on how to appropriately price services provided by public electric utilities is amplified in the current period of increased customer consciousness, technological change, flat-to-declining demand for electricity and public policy.

Indeed, various views, interests and prerogatives contribute to the conversation. Some are more applicable to the reality of how public power utilities design, build and finance infrastructure than others. One viewpoint suggests that public power utilities should recover costs, including fixed infrastructure costs, from customers in the same way as private sector for-profit entities, such as oil refineries, airlines, hotels and big box stores. This suggestion overlooks one critical and differentiating point – the utility’s obligation to serve. Public power utilities do not share the same business model as private for-profit entities. The former are owned and operated by local governments and tend to focus on obtaining only enough revenues necessary to deliver safe, affordable, reliable power to their communities. In contrast, the primary goal of for-profit organizations is to make money, to the benefits of their owners. Accordingly, public power utilities and for-profit organizations have different goals and missions, and therefore will behave differently.

Public power utilities have an obligation to serve because they provide fundamental services, such as electricity, natural gas, water and local phone service. These services have long been deemed necessities that benefit society by the courts and policy makers. The obligation to serve means that a public utility must provide service to any customer in its service area who asks for the service, can pay for the service, and agrees to the utility’s rules and regulations.

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