Consider a hypothetical corporation that has a monopoly over millions of people, providing a service that is indispensable to its customers. If it raises prices, customers have no choice but to pay those prices. Recognizing this, the government imposes some regulation. It cannot set arbitrarily high prices, but it negotiates with the government to obtain prices that guarantee a steady profit rate.
To the corporation, this is an acceptable bargain: Profits may not be as high as it likes, but they are high, and they are virtually guaranteed. Plus, because the corporation has been around for a long time, it has cultivated friendly relationships with local and regional politicians. It even makes a point of hiring some of them when they leave office. This makes it easier to strike a good deal.
The corporation is a staple in your town. Without you knowing it, though, a chain of parent corporations has bought the company, and investors from around the world have flocked to get an ownership stake. The people calling the shots about this necessary part of your life have become a shadowy network of global shareholders.
These global investors decide whether or not to raise your living costs, and where to send your jobs or whether to cut them entirely. They decide the quality of the service you receive and how much to charge you for it. Since your life and livelihood depend on the service they provide, the government sometimes steps in to make sure that service is decent and reliable. But the shot-callers are mainly interested in their profits, so they regularly shirk their responsibilities. Customers suffer, sometimes fatally.
This tale, which is replicated across the world, is the story of my upstate New York community’s electricity provider.
Hiking New York State Energy Rates for Profit
Rochester Gas and Electric (RG&E) and its sister company New York State Electric and Gas (NYSEG) are investor-owned utilities: private corporations that generate or purchase electricity which is distributed to customers within a monopolized service area. While they are local brands, RG&E and NYSEG, which serve around 1.3 million customers in upstate New York, are privately owned subsidiaries of Avangrid, which is itself the North American subsidiary of the $68 billion multinational Iberdrola, based in Spain.
Who owns Iberdrola? Its top two shareholders are the sovereign wealth fund of the oil kingdom of Qatar — where fossil fuel revenues account for more than 70 percent of government revenue — and BlackRock — the largest of the world’s multinational shadow banks, through which the global 1 percent hide their money from regulators through speculative investments. BlackRock, which manages assets valued at more than a third of the U.S. gross domestic product, is a prime example of the secretive financial institutions that have taken control of an enormous share of our economy in order to further enrich the ultra-rich.
Investment in Avangrid is very lucrative. The company posted a profit rate of 9.2 percent in 2018, well above the average profit for all non-financial corporations (6.4 percent). The RG&E subsidiary reported profits of 10.2 percent. But the real costs of decisions made by executives halfway across the world and on behalf of a segment of the global elite are felt locally. This year, RG&E and NYSEG went to the New York Public Service Commission asking for rate hikes of up to 23.7 percent, which would boost their revenue by $163 million. Customers are, of course, captive to any rate hikes since, as with all utilities, if you live in RG&E and NYSEG’s service areas, you have but one option for buying the service that heats and lights your home.
The burden of rate hikes is felt most sharply by low-income households, which often happen to be people of color. Black people are twice as likely as their white counterparts to live in poverty. Indeed, a census-based study of 48 large U.S. cities found that the median Black household pays 64 percent more of its income on utilities than the median white household.
The requested rate hikes also come in the context of shameful infrastructure neglect. In the last three years, RG&E and NYSEG were cumulatively fined more than a record-breaking $14 million for violations of reliability and emergency response standards leading to hundreds of thousands of homes having their power shut off in 2017 and 2018 winter storms, a scenario that is playing out again this winter. Moreover, while science indicates that global climate change is already increasing the frequency and severity of winter storms, RG&E and NYSEG have done little to transition to renewable energy sources.
Faced with public opposition, RG&E and NYSEG argued that their rate increases “are designed so that each company has the resources necessary to best serve our customers.” If these utilities provided rates near the cost of service, this would be plausible, but Avangrid’s elevated profit rate reveals that they are lying. Given the multimillion-dollar fines that RG&E and NYSEG recently incurred from the state, it is clear that additional rate hikes are not intended for infrastructure improvements, but rather to preserve profits.
Calls for Municipalization Echo in the Wake of California’s Wildfires
The conflict between private profit and the public interest in the utility sector is playing out in magnified form in California. The state’s main electricity provider, Pacific Gas and Electric Company (PG&E), recently reached a settlement of $24.5 billion for having caused devastating wildfires in 2017 and 2018, prompting a bankruptcy filing in early 2019.
Last year, millions of Californians experienced long blackouts, some lasting a week, as PG&E intentionally shut off power to their still neglected infrastructure to prevent new wildfires. Several 2019 wildfires are suspected to have been caused by PG&E equipment.
Though it exclusively serves Californians, PG&E, like Avangrid, is a corporate utility with a global network of shareholders that likewise includes BlackRock. The company’s neglect of the infrastructure required to ensure safe and consistent service is therefore unsurprising. After the company declared bankruptcy, people began proposing radically different ownership and governance structures.
Cities like San Jose and San Francisco are pursuing municipalization, following cities like Sacramento, Anaheim and Los Angeles that already operate successful city utilities in California. Two dozen California mayors have called for all of PG&E to be converted into a consumer-owned cooperative, and calls for the state to purchase PG&E and run it as a public entity have grown louder. Both models would take profit out of the equation and reorient the company’s interests toward the needs of consumers.
PG&E, of course, has its sights set on keeping its for-profit monopoly, and if it does remain private, the company is planning on big profits, financed by rate increases on captive customers. The company projects $2.4 billion earnings by 2024, $700 million more than it made prior to the wildfire claims. California Gov. Gavin Newsom has threatened a public takeover of PG&E, replacing it with a state utility with a locally-appointed board, though many question how far he intends to go.
California’s decision about whether to bring the electrical grid into public hands was forced on them by the climate change-fueled wildfires that led to the tragedy in Paradise, alongside widespread environmental and economic devastation. But their example more generally illustrates the hazards of privately held utilities.
Building a Movement to Make Power Publicly Owned
With public ownership, revenues are not sent to the pockets of distant investors, but can be redirected to where they belong: profit-free rates for customers, energy efficiency upgrades, and investments in the infrastructure needed to provide a safe and reliable grid.
More than 2,000 U.S. communities already have publicly owned utilities, and efforts are underway to establish more publicly owned power. Sen. Bernie Sanders’s Green New Deal will provide support for communities looking to establish public power districts and give preference to state- or municipally-owned utilities in federal energy sales. A bill in the New York State Senate would create a public Downstate New York Power Authority (DNYPA) with service areas in nine counties that include New York City. The DNYPA would have a democratically elected board, the ability to set up progressive rates based on income and the requirement that workers hired for utility-related construction or renovation projects be paid the prevailing wage.
The DNYPA shows how community control can incorporate a social justice mission into a utility’s operations. It does not, however, have a firm mandate to distribute renewable energy — a point of concern at a time when we must decarbonize our economy by 2050 while global carbon emissions actually increased in 2019.
To their credit, Iberdrola/Avangrid are ahead of most private utilities with respect to the green energy transition. Avangrid has invested heavily in building new wind and solar facilities, and the company boasts that 89 percent of its power-generation capacity is in renewable energy. However, most of the electricity distributed to Avangrid customers is not generated by its renewable generation plants, but is instead purchased from other companies and then transmitted to customers using its grid. When considering energy purchased and sold by the utility, emissions only decreased by less than a modest 3 percent annually in recent years.
Throughout New York State, the slow transition to renewable energy has prompted communities to circumvent utility companies using Community Choice Aggregation (CCA), a program wherein municipalities make bulk purchases of renewable energy from external providers, which is then distributed on the utility’s grid. Locally, five Monroe County municipalities (including my city of Rochester) have passed CCA legislation. However, since energy purchased through CCA still has to be distributed using the RG&E grid, CCA’s effect remains to enrich Iberdrola’s shareholders.
Publicly owned power distribution, if done right, allows communities to make deliberate investments in renewable energy without profit. This must, however, come with an explicit mandate. Nebraska’s Public Power District, the country’s only statewide public utility, sources less than 19 percent of its energy from clean renewables. In contrast, Boulder, Colorado, which is doggedly pursuing municipalization, has received energy supplier bids offering 89 percent renewable power by 2024, outperforming the private utility by 36 percent and at lower cost. Given collective will, community control empowers us to hasten the green transition by giving us direct control over our energy sources.
The main barriers to establishing public power are utility companies themselves. In California, PG&E has resisted a public or cooperative takeover, spending millions on lobbying efforts in an effort to access state bailout funds without losing private ownership. Municipalization campaigns like Boulder’s show us the outrageous spending, stonewalling and incessant court challenges that private utilities will use to avoid having to be bought out.
Electrical utility companies spend millions of dollars on federal campaigns in order to buy control over energy policy, and Avangrid’s board of directors exemplifies the corrupt office-to-industry pipeline through which corporations capture government regulation (the board includes Robert Duffy, a former Rochester mayor and New York Gov. Andrew Cuomo’s former lieutenant governor, as well as a former governor of Maine and a former U.S. ambassador to Spain).
We need public power. Shareholder-owned power distribution aggravates our country’s obscene inequality by forwarding large chunks of our paychecks to the global rich. It keeps us captive to profitable rates netted through political corruption, all while failing to keep our communities safe. It prevents us from making the collective choice to address climate change, the greatest crisis of our time. It’s about time we began building the political will to make power public.
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