Prudent Pundit Ponders Independence Power Privatization Proposal
The Kansas City suburb of Independence—although it is weird to call the fifth-largest city in Missouri a ”suburb”—is considering privatizing its municipal electric utility. Municipal utilities are an archaic system, and privatizing the utility would be an excellent move by city leaders. Independence is open about the long-term outlook for its utility. From the Kansas City Star article on the topic:
Independence has struggled to maintain its own power generation as the environmental and financial costs of coal plants has [sic] pushed many other energy firms into renewables. While many say IPL provides exceptional service and reliability, city officials note that their customers pay higher electricity rates than those served by for-profit companies in other parts of the region.
The utility is also facing financial headwinds: Its cash reserves will drop below the utility’s target of $25 million by 2025, officials said. And those reserves will drop to a negative $97 million by June 2032 as the costs to maintain the utility’s infrastructure mount.
“The problem we have, as we sit here today is that IPL is on a course to a financial train wreck, due to what I believe to be questionable decisions in the past,” said Councilman Jared Fears. “So clearly something has to change.”
It bears repeating that Independence utility customers pay more than those using for-profit utilities in the region. This is despite the advantages in taxation and regulation that municipal utilities have over private utilities. There have been several water utility privatizations in Missouri in recent years, but not many electrical utility privatizations. The case for electrical privatization is probably even stronger, as one does not have to deal with the typical “how do you privatize something that falls from the sky?” argument. Unless you make extensive use of your home lightning rod, someone is artificially generating the electricity you use. Eureka and Arnold are just two of the larger cities that have privatized their water or sewer systems in recent years. From the Post-Dispatch story:
Arnold sold its sewer system to Missouri American in 2015 for $21 million. “The system was not in good shape. It was not well maintained,” said City Administrator Bryan Richison. “And city council members were running on not raising rates, so it put us in a bad position.”
As electric vehicles ramp up the electrical power needs of our communities, it is time for Independence, Columbia, Kirkwood, and (most of all) Springfield to get out of the utility business. Private, regulated utilities are much better positioned to provide the necessary services to these communities. These cities should privatize their assets via an open, transparent process and use both the sale price and the future tax revenues to provide better overall public services for their communities.