Privatizing Lebanon, Missouri’s Municipal Electric Utility
City officials in Lebanon are considering getting out of the municipal electric business by selling their electric utility or, at a minimum turning over its management, to Laclede Electric. While discussions began only recently and no cost-benefit studies have been completed yet, residents should keep an open mind about this development.
Lebanon provides electricity to its residents through a small, city-owned and operated electric utility. However, a 2019 study from Concentric Energy Advisors found that small public utilities were comparatively inefficient when compared to larger co-ops or investor-owned utilities. Similar studies for decades have recommended that municipalities instead purchase electricity from these larger entities or get out of the business entirely. This is because of economies of scale, meaning that the larger the size of electricity operations, the lower the overall cost is of producing each megawatt of electricity. Think Cheaper by the Dozen, but for keeping the lights on.
Privatization can increase efficiency and expertise and provide public services at a lower cost. More than 86 percent of all electricity sold in Missouri is provided by a utility company or an electric co-op. In fact, Lebanon is the only city in Laclede County that has not already taken this route.
Cities nationwide, such as Eagle Mountain City, Utah (2015), Fort Wayne, Indiana (2011), and Readsboro, Vermont (2011) have privatized their municipal electric utilities in the past decade. These cities have used the divestments to fill budget holes, improve service, and decrease rates for residents. Lebanon officials should look at what worked for these and other cities and tailor their privatization process accordingly.
Lebanon’s electric utility equipment is valued at $14 million, but it is not known how much a sale would bring in. Lebanon residents could benefit from this money and sale in several ways. The city’s long-term public employee costs would be reduced, and the money could be used to finance any immediately needed public improvements, build a rainy-day fund, or finance a tax cut. As seen in other cities, this may also result in lower electricity prices or better services for residents.
Lebanon officials would make the deliberations as transparent as possible so citizens can observe. Adding the financial incentives of competition may be difficult due to Missouri’s monopolized electricity structure, but any deal should include a provision holding any new entity accountable if it does not meet quality-of-service and implementation expectations.
Lebanon officials and Laclede Electric will be studying the issue for the foreseeable future, and as more information emerges it will make evaluating the specifics of any deal easier. If the experience with privatization in other cities is any indication, Lebanon should consider taking advantage of this opportunity.