American Public Power Association

COLLABORATIVE NETWORKS
THE AMERICAN PUBLIC POWER ASSOCIATION

ROBERT BRIGGS

Introduction
In 1894 The City of Anaheim built the first municipal electric utility in Southern California. Ever since then, Anaheim has been a part of a growing collection of more than 2,000 community-owned electric utilities, serving over 43 million people or about 16.5 percent of the nation's electricity consumers. These public power utilities are operated by local governments to provide communities with reliable, responsive, not-for-profit electric service. Public Utilities do not serve stockholders. Instead, their mission is to serve their customers. Success is measured by how much money stays within the community through low rates and contributions to the city budget, not how much is paid out in dividends. Public power utilities such as Anaheim are directly accountable to the residents they serve.

This paper will examine a collaborative group in which Anaheim and the nation's more than 2,000 community-owned electric utilities participate. The American Public Power Association (APPA) is that service organization.
Since there is a lack of scholarly works on this subject I have used industry publications, speeches and Court rulings for the literature review.
It is extremely important to review the history of the generation of electricity to get a good idea of the environmental factors that influenced the rise of Utilities. After that, this paper reviews of the history of the APPA where we will follow its origins to it present status. Then, a case study using several papers will be used to evaluate the APPA. This will be followed by a discussion of the groups’ accomplishments and its impact on legislation. A theory and a framework that best fits this collaborative network will be applied.
History of Electricity
The history of Public Power has been a constant battle about power, money and control in which even Thomas Edison was entangled. In 1882, Thomas Edison installed the world's first central generating plant in New York City's financial district. His vision consisted of cities being populated by numerous power plants that sold electricity to customers. Whereas Edison wanted to own the equipment and sell electricity, bankers such as J.P. Morgan wanted big profits by selling expensive generators to individual industrial companies.
At that time Samuel Insull was serving as Thomas Edison’s secretary. Samuel Insull captured Edison’s confidence and eventually co-founded the company that would become General Electric. In 1892 Edison placed Insull in charge of a small Chicago Edison company, one of many Edison franchises around the country. In what amounted to a double-cross, bankers refused to loan Edison more than a small portion of the money he needed to make his vision work and instead, backed Insull who fought to make enormous profits by selling generators to individual companies for the private generation of electricity. This strategy proved successful, and while public power was not driven out of existence, hundreds of individual utilities were. By the mid-1920’s, the momentum toward public power stalled and Insull had amassed a utilities empire that spanned across 30 states. He did this by conceiving two very cunning ideas. First he established a State Public Utility Commission as a means to prevent competition between private and municipality utilities in the same area, and the commission prohibited new municipalities from forming. Secondly he established “holding companies” that controlled utilities in complicated pyramid structures, where a few investors at the top held controlling shares of many subsidiary companies. This pyramid structure led to a variety of problems and some analysts believe that utility holding company abuses greatly contributed to the Stock Market Crash of 1929.
After the crash in 1929, Congress enacted the Public Utility Holding Company Act of 1935 (PUHCA) as a response to the shady the business practices of huge utility holding companies during the 1920s and 30s.
To this date, the Public Utility Holding Company Act (PUHCA) of 1935 is the only law that prevents utility holding companies from subsidizing unregulated business activities from profits obtained from their regulated business activities and captive customers. PUHCA requires that all side businesses be kept separate from the regulated business. Some large utilities want PUHCA repealed, arguing that the law is obsolete and is restricting competition and diversification in the electric industry. But simply repealing PUHCA without enacting consumer protections would most likely result in a wave of mergers that would create a few disproportionately large and influential companies, rendering competition meaningless and harming consumers and the environment.



History of APPA

In the early 1940s, as World War II escalated, it became clear to some that the United States was facing the clear and present danger of impending war. There was a perceived need that the nation’s municipal utilities had to unite in an effort to help the nation’s defense, as well as to create a national service organization that would represent their common interests. One of the chief advocates for this cause at that time was Leland Olds, vice chairman of the National Power Policy Committee and chairman of the Federal Power Commission. Olds was very politically connected and strongly influenced President Roosevelt’s views on public power. On September 11th and 12th of 1940, managers of several municipal utilities met in Washington D.C., to discuss the role of utilities in the nations’ defense. On September 11, forty of those in attendance at the meeting on national defense, broke away and convened the first meeting of the American Public Power Association. All types publicly owned electric utilities were invited to join the APPA, including municipals large and small, public utility districts, state owned utilities, and federal power agencies.
The enthusiasm that surrounded the organization of APPA quickly began to dissipate. Friction between Boyd Fisher (the secretary- manager) and Northcutt Eli (the general counsel) developed about drafting the association’s bylaws and voting power. Eli went behind Fishers back and tried to make changes to the bylaws without informing Fisher. In addition Eli believed that larger utilities should have greater voting power based on the fact that they had greater revenues. Fisher held firm in his belief that successful collaborations required shared authority and democratic decision-making. A few months later, Fisher declined the position of secretary-manager citing misgivings about the democracy of control, and the fact that the APPA had no means in which it could pay him a salary. Luckily a utility from Nebraska agreed to lend its manager, Harold Kramer, to the APPA and Harold was credited for saving the organization.

The power of Human Touch, Alan H Richardson, Speech Orlando Florida, June12, 2005
“In the beginning, with fewer than 50 members, no staff and no budget, all APPA could do was oppose bad legislation.”
The need for a national association such as the APPA increased through time as Government became increasingly involved with the electric utility industry. As APPA’s membership, resources and staff have increased, so has its political clout. The APPA is now the collaborative effort for this nation’s more than 2,000 community and state owned electric utilities. It is the spokesman for public power’s interests in Washington, D.C., and attempts to influence public policy on the behalf of its members and their consumers.
The APPA’s mission is to advocate policies that:
Ensure the success of public power in a changing electric utility market through superior representation, information and support services.
Ensure reliable electricity service at competitive costs.
Protect the rights of citizens to control their own affairs through the democratic process.
Advance diversity and equity in the electric utility industry.
Promote competition in the wholesale electricity marketplace.
Protect the environment, and the health and safety of electricity consumers.


Literature Review
Confronting the opponents of public power and trying to influence legislation seems to be the main role of the APPA today much as it was for its founders 60 years ago. Over the last several years, the APPA has attempted to advance public power’s legislative interests and restrain Congress from subjecting public power to the Federal Energy Regulatory Commission (FERC) jurisdiction.
Just recently, a comprehensive energy bill (HR 6) has passed House and will struggle to get through the Senate. The APPA is supporting passage of the legislation even though this Bill will repeal of the Public Utility Holding Company Act (PUHCA) of 1935. The APPA will continue to work to address significant issues of this bill that impact Public Power, including provisions to strengthen consumer protections.
The Public Utility Holding Company Act, Union of Concerned Scientists, 10- 26, 2002 http://www.ucsusa.org/clean_energy/renewable_energy/
“Repealing PUHCA without enacting other consumer and environment protections would allow utility holding companies to:”
“Create huge multinational corporations beyond the reach of state and federal regulators.
Undertake risky unregulated and foreign business ventures that could threaten their core business and increase rates without providing any services or benefits in return.
Drive out small business competitors by using regulated business profits to subsidize unregulated business activities.
Merge more easily, reducing the number of competitors in the power market. One leading Wall Street analyst recently predicted that 80 percent of electric utilities would disappear in less than 10 years. “
Many legislators and regulators have treated the repeal of the Public Utility Holding Company Act as a foregone conclusion, but as recently as Tuesday May 2, 2005 a decision by Robert Mahoney a Securities and Exchange Commission administrative law judge upheld the Public Utility Holding Company Act and ruled that a merger violated the 1935 law.
The SEC law judge denied approval of the merger, concluding that it did not constitute a “single integrated public-utility system” as required by PUHCA.
APPA, applauds Judge’s ruling, Jeannine Anderson, Public Power daily newsletter. Copyright, May 05, 2005.

“As corporate scandal follows corporate scandal in the headlines, can there be any doubt about the continued relevance of consumer protections against the misuse of power by giant corporations?"As it considers energy legislation, Congress “should not repeal PUHCA unless the Federal Energy Regulatory Commission is simultaneously given the authority to address the probable consequences of repeal,” the two associations said.

This week’s initial ruling by Judge Mahoney shows that PUHCA “remains as vital today as it was when it was enacted in 1935,” said Lynn Hargis, an attorney with Public Citizen’s Energy Program. “It is this very law that protects consumers from high electricity rates, poor customer service and a loss of local control over public utilities,” she said.


Another of the sticky issues the APPA deals with how public utilities finance their debt. Utilities require huge investments to build the infrastructure that produces, transmits, and distributes power. Under current federal tax law, electric utilities owned and operated by units of state and local government issues tax-exempt bonds to finance their capital investments. These bonds are subject to the private use rules in the federal tax code designed to prevent private parties from benefiting from lower-cost tax-exempt financing. If public power utilities permit too much “private use,” bondholders will retroactively lose the tax-exempt status of their investments and the utilities will be forced to redeem some or all of the bonds.
The Anatomy of a Bond Refunding, Mark E. Mazak Asst. Gen. Manager City of Anaheim, Memorandum, March 01, 2005.

“Municipal utilities such as Anaheim rely almost exclusively on the issuance of tax-exempt bonds to provide the capital necessary to acquire major plant and related facilities. Anaheim ratepayers enjoy substantial financial advantages in the form of lower borrowing costs due to the ability to utilize tax exempt debt, a privilege not generally afforded to non-governmentally owned utilities”.

These bonds are subject to the private use rules in the federal tax code designed to prevent non-government utilities from benefiting from lower-cost tax-exempt financing. These private use rules impose two significant restrictions on public power utilities with tax-exempt financed transmission and generation facilities:
1. The private use rules severely limit the ability of public power systems to sell power (from tax-exempt financed generation facilities) to non-government utilities on negotiated terms.

2. The rules severely restrict the use of public power utilities’ transmission facilities by non-government utilities such as investor-owned utilities and power marketers, and could prevent the transfer of control of these facilities to third party, independent grid management organizations.

These restrictions make it impossible for public power to compete in the open marketplace and to open up their transmission and distribution facilities to third parties. This problem discourages public power from embracing electricity restructuring and form a barrier to open and efficient electricity markets at both the wholesale and retail level.
The position of the APPA on this issue is public power systems need more flexibility to adapt to changing circumstances. A balanced marketplace will include a variety of electricity suppliers and that private use restrictions are barriers that must be addressed as part of a reasonable approach to a fair and open marketplace.
The next issue is an example of public power attempting to compete with the private sector. The focus is the Municipal Electric Utilities of Wisconsin (MEUW) and its efforts to sway legislation and establish legal precedence in an effort to allow municipally owned electric utilities to offer Internet access and other communications services.
The MEUW defeated anti-municipal telecommunications legislation by creating a consortium of groups that supported the municipal-internet option. Being careful not to alienate any group from their potential list of supporters, they put together a multi pronged lobbying effort against the legislation. By working with groups of similar interests, they were able to demonstrate the necessary political strength to defeat the legislation.
The implication for public administrators (and the argument against) is the question of a public entity competing in the private sector. Private companies contend that because municipal utilities are non-profit, it's unfair competition. Companies like AT&T, Verizon, and Sprint are spending millions in lobbing efforts to convince state legislatures exactly that argument in an attempt to eliminate municipalities from the competition. These companies claim that local governments shouldn’t be in this business using taxpayer dollars. However, these same companies are some of the largest recipient receivers of government subsidies. Since the Telecommunications Act of 1996 was written, sweeping changes in technology have driving the need to rewrite the law. In order to protect the rights of local citizens, Municipalities need to be up to their eyeballs in the legislative process. Currently, a US Supreme Court’s decision allows states to have the power to restrict municipal governments from providing telecommunications but nothing in federal law pre-empts a Municipal from providing these services. In summary, cable and telecommunications companies have been blanketing Congress with campaign contributions to limit the possibility of competition from Municipalities. This would not be happening unless they felt there was a lot of money to be made by limiting the Publics choices.
Theoretical basis
In my opinion the theory of Social Ecology may best fit the APPA. The theory of social ecology suggests that the environment is a social system and that public power entities are just parts of a larger system. In this case the “environment” refers to the wholesale transmission and distribution of electricity throughout this nation. Not just the physical infrastructure but the political environment as well. The APPA is the voice of public powers collective actions and it represents public powers interests in Washington.
Appling a framework
In applying a theory and a framework to the APPA I am choosing Arthur Himmelmans definition of collaboration. This definition requires networking, coordinating, and cooperating that built up over time. These are most effective when there is a common vision and purpose, meaningful power sharing, mutual learning and mutual accountability of the results.
The APPA plays several roles in this collaborative network of public power:
· First, they act as a convener and bring public power together on significant issues that are often related to data gathering or studies, which clarify the issue at hand.
· Second, the APPA is an advocate to the cause. It makes an early and clear commitment to participate in long term problems and strategies that make the collaborative issues “real” in the minds of members who are waiting for leadership before making commitments to an action agenda.
· Third, the APPA acts as a catalyst and uses the organizations influence to bring legitimacy to the collaboration. It uses its convening role to stimulate discussion with a longer-term strategy in mind.
· In the role of a capacity builder the APPA gives members a competitive advantage by offering discounted pricing and group packages.
· Finally, in the role of conduit, the APPA tries to make the best use of money collected from voluntary contributions to a political action committee. They do not have the millions of dollars it takes to influence political campaigns, as do private utilities.
Summary
When the American Public Power Association was first formed it was almost torn apart by the obstacles to collaboration. Successful collaborations require shared authority and democratic decision-making. Interpersonal dynamics between the secretary- manager and the general counsel about association’s bylaws and voting power almost sunk the battleship. The general counsel thought larger utilities should have greater voting power. This would have seen as a deterrent to smaller utilities to join. Why would smaller utilities join the collaborative if they would be out-voted by their bigger brothers every time? I feel the major reason why the APPA has been so successful was its shared vision by its founders and the fact that public power offers a tremendous advantage in that it provides a counter-point to private Utilities. In my opinion Public Power does it better, cheaper and cleaner.
From the start public power has struggled for survival. It survived Samuel Insull who, as early as 1898, proposed the idea of using state regulation to stem the tide of public power. It has survived constant attacks from private companies have claimed that public power's lower rates were due to special cost advantages such as the ability to finance construction with tax-exempt bonds, access to preference power from federal hydroelectric projects, and nonpayment of taxes. Now with the repeal of the Public Utility Holding Company Act looming ahead public power could be in for the fight of its life. This act is the very law that protects consumers from high rates, poor service, and a loss of control over public utilities. Hopefully public power will be around for the next 100 years.