Last legislative session, Missouri lawmakers took a swing at addressing anxiety over data centers increasing electricity rates with the passage of Senate Bill (SB) 4. This bill requires that customers with loads over 100 megawatts (MW) pay their share of costs associated with connecting to the regulated grid (the Missouri Public Service Commissions recently expanded that rule to 75 MW). For reference, 100 MW is roughly equivalent to the electricity needs of 80,000 U.S. households.

There has been confusion about whether average Missourians’ rates would increase due to data centers. It’s understandable that people might be confused about some language in the bill. For example, what exactly does “any unjust or unreasonable costs arising from the service to such customers” or “pay their share of costs” mean?

A recent hearing at a St. Louis Board of Alderman committee meeting brought some needed clarity to the matter. When questioned, Ameren’s manager of economic development clarified that “all Ameren customers, including residential customers, pay for expanding the grid through building new power plants through rate increases, and that may be needed to accommodate large-load customers.”

In plainer English, average Missouri ratepayers would pay for new power plants constructed to meet data center demand—which could be a hefty bill if Missouri does indeed need new power plants.

Major technology companies (Amazon, Google, Meta, Microsoft, xAI, Oracle, and Open AI) are meeting with President Trump to sign a pledge that they will supply and pay for their own power for artificial intelligence data centers.

So average Missourians won’t be paying for new data centers at all?

Potentially, but it depends on the deal that is finalized with the major tech companies.

While there is some uncertainty about who will pay for what, Missouri could bring clarity by allowing consumer-regulated electricity (CRE).

CRE offers a private, parallel pathway to energy abundance, and gives data centers a private partner (CRE utility) to meet their own energy needs with less red tape, more certainty, more control, and more freedom to innovate. A CRE utility would develop and operate generation on behalf of large-load customers that prefer not to own and operate power plants themselves.

SB 4 was a good start, but Missouri can go further in protecting ratepayers and attracting investment. Allowing CRE could create a clear, structural pathway that could not only further protect ratepayers, but also provide attractive, tangible benefits to the developers paying for their own energy needs.

The post Who’s Paying for What with Data Centers? appeared first on Show-Me Institute.

The investigation and review are intended to protect ratepayers, assess Missouri’s future energy needs, and manage Missouri’s natural resources effectively. These are good objectives, but the hard question is finding a policy solution to match all those goals.

One option I have written about, consumer-regulated electricity (CRE), is worth considering. (If you’re unfamiliar with CRE, you can click the link to learn more.)

Instead of placing new data centers on the existing regulated grid, we could match data centers with an independent CRE utility (CREU). Furthermore, if electricity demand for these data centers falls short of its sky-high projections, then the excess capacity will have been a poor investment. This protects ratepayers by putting private companies on the hook for that risk instead.

There are benefits to data center developers as well. A CREU can be structured around the developer’s reliability needs and preferred energy resources. Projects could also require less transmission, as new generation facilities could be built near their customer base. CRE could be a reliable, economical, and sustainable energy solution to meet current and future energy needs.

Speed to operation is vital in today’s economy, and data center projects have experienced difficulties securing permissions from the various layers of government. While many hurdles would still remain (like local zoning), CRE projects would not require permissions from the Missouri Public Service Commission since they would not be connected to the regulated grid. At the federal level, Senator Tom Cotton recently introduced the DATA Act, which would exempt CREUs from federal regulations not designed for on-site, self-contained power systems. While still early, this legislation is worth monitoring and could further increase the speed to operation.

The governor has made it clear that he wants to meet growing energy demand in a way that protects ratepayers and addresses Missouri’s current and future energy needs. CRE is a policy approach that matches those objectives.

The post Consumer-Regulated Electricity (CRE) and Data Centers appeared first on Show-Me Institute.

The data center discussion is highly nuanced, marked by an interesting mix of not-in-my-backyardism and yes-in-my-backyardism.

This debate has touched down in Platte County in the Kansas City area, where “Project Kestrel” would grant substantial property and sales tax subsidies to support the development of a new, $100 billion data center campus. But is this the right move for Platte County, or for Missouri?

Missouri is in need of investment, and artificial intelligence and associated data centers already play a significant role in our economy.

However, economic development subsidies enrich individual developers at the expense of taxpayers, schools, and other public services. Using tax subsidies to lure data centers, filmmakers, sports teams, and others into Missouri shrinks the tax base of the region without leading to meaningful economic growth. Opportunity costs are largely ignored, with estimates for economic “boosts” not taking into account what the millions given away in subsidies could have achieved if invested in infrastructure, public safety, education, or tax rebates for Missourians.

Looking at electricity, data centers are enormous consumers that are prompting the buildout of new generation facilities. On a regulated grid, such as Evergy’s in the Kansas City area, building new generation and associated transmission is one of the most expensive processes for average ratepayers, because monopoly utilities are allowed to recoup the cost of their capital investments and typically earn a government-approved profit.

Now, it is true that average Missourians use artificial intelligence, indirectly driving the increased demand for data centers. It is also true that we currently cannot predict with certainty the amount of electricity artificial intelligence and data centers will ultimately require.

In April 2024, Goldman Sachs forecast that data centers would rise from 2.5 percent to 8 percent of all U.S. electricity usage by 2030. However, Google recently reported a 33-fold reduction in energy usage for AI queries in a single year.

Some legislation has been passed in an attempt to shield average Missourians from bearing “unjust or unreasonable” costs of powering new data centers. However, this does not mean that none of the burden of new power-plant construction will fall on average ratepayers. Furthermore, if utilities overbuild generation capacity based on overly aggressive demand projections, average ratepayers could find themselves footing the bill for underused assets.

Yet, there is risk in veering too far in the other direction as well: An underbuild of new generation would likely lead to Missouri missing out on significant investment.

To navigate this dilemma, policymakers in Missouri should think outside of the box. Instead of solely considering solutions inside the regulated, ratepayer-supported grid, Missouri should follow New Hampshire’s example and consider consumer regulated electricity (CRE). The idea is simple: huge customers like data centers are driving up electricity demand and putting strain on the grid and ratepayers. CRE would allow off-grid electricity providers to build and operate generation and transmission facilities whose output would be sold exclusively to these new customers. This approach would help shield Missouri ratepayers from both the rate hikes that would otherwise come with new plant construction and the risk of overbuild. CRE would also provide developers with speed, flexibility, and certainty—attractive qualities that are often lost to red tape and lengthy regulatory approval processes.

Adopting CRE could help ease tensions in Platte County and across the state. Of course, the pressure to offer tax subsidies would remain, but this problem is not exclusive to data center development. Corporate handouts are not the way to encourage economic growth. Instead of trying to lure businesses with subsidies, Missouri should have a free market–oriented economic and regulatory environment; for example, one that is conducive to polices like CRE.

The post Data Centers, Subsidies, and Electricity in Platte County and across Missouri appeared first on Show-Me Institute.

SB 4 allows utilities to recover construction costs gradually during the construction phase, rather than waiting until the project is complete and operational. This will only be explicitly allowed for natural gas projects, although there is potentially a pathway available for nuclear and other resources through the Missouri Public Service Commission (MPSC). This alternative financing strategy should be useful for future capital-intensive projects, as it would reduce financial risk for utilities and possibly lower total project costs by allowing firms to rely more on revenue instead of loans, which accrue interest.

CWIP offers benefits for needed power plant construction, but the interest of ratepayers is still vital. A blank check for a monopoly utility could lead to cost overruns and cancellations (which are issues partly tied to the monopoly system itself).

Further Ratepayer Protections and Compensation

The MPSC will still oversee utility rates, and it should continue to weigh potential safeguards to protect Missouri ratepayers. SB 4 already includes two key provisions—cost caps (limited by the estimated cost and completion date) and a refund mechanism—if the plant is not put into operation.

The State of Virginia also recently passed CWIP reform, and it instituted additional safeguards that should be considered for future projects. These include:

• A limit on the number of eligible projects;
• Excluding 20% of development costs from early recovery;
• Mandatory evaluation of federal funding opportunities from the Department of Energy; and
• Establishing a cap on residential monthly bill increases ($1.40 per 1000 kWh).

Additionally, the MPSC should evaluate how ratepayers could be compensated appropriately for early contributions and their role in risk-sharing, such as treating CWIP financing more like a bond system.

This could involve limiting or disallowing pre-operation profits or aligning profits with the operation and provision of power. Another approach might be reducing total cost recovery for utilities after the plant is put into operation, since it is a riskier investment that relies on ratepayers earlier. Potential mechanisms include offering credits for reduced rates post-operation (that could function like a principal in a bond) or shortening the depreciation period post-operation to account for profits earned during the pre-operation phase. If this strategy leads to cost savings for a project, ratepayers should receive a portion of those savings.

These provisions could help strike a balance between protecting ratepayers and facilitating needed power plant construction. Utility companies argue that CWIP is required to build more energy generation in Missouri. If that’s the case, adequate safeguards for state ratepayers are needed.

The post SB 4: Missouri’s Energy Challenge and the Push for CWIP Reform appeared first on Show-Me Institute.

There is a proposal to sell the Sugar Creek water and sewer systems to Missouri-American Water on the April 8th ballot. The company is offering Sugar Creek $5 million for the systems and guaranteeing an $8 million investment into improvements.

Sugar Creek needs to make improvements to its water and sewer systems. Sewer rates just went up this month, and water rates will likely increase, too. The question for voters is whether the city will fund those improvements via debt or whether Missouri-American will pay the city for the asset and fund the improvements itself.

Studies have shown that private utilities generally operate more efficiently than public utilities. Privatization of these two systems could result in a substantial infusion of money for the city, and placing the water and sewer facilities on the tax rolls would expand the tax base. That large payment plus the broader tax base could lead to tax cuts elsewhere in Sugar Creek.

The residents of Sugar Creek currently receive their gas and electricity from private utilities closely regulated by Missouri’s public service commission. Getting their water from Missouri-American Water would be no different, and this sale would greatly benefit the people of Sugar Creek.

The post A Sweet Deal for Sugar Creek appeared first on Show-Me Institute.

Sugar Creek doesn’t operate its own water utility, which makes this proposal a little different from other privatization proposals. Sugar Creek buys water from the Independence municipal utility (which should also be privatized along with the Independence electric utility, but that’s another story).

Privatization, however, is still a very good idea for the residents of Sugar Creek. The main problem with public utilities is that customers are also voters, and politicians are hesitant to raise rates on their voters. This leads to an underinvestment in the system. As the City of St. Louis said in 2024 when it finally increased water rates:

Major I-64 Water Main Break Highlights Need for Long Overdue, Much-Needed Investment in City’s Water System

This was the city’s own water system it was talking about! Cheap rates have harmful consequences down the line.

Beyond that problem, studies have demonstrated that private utilities are generally more efficient than municipal utilities. In 2000, economist B. Delworth Gardner of Brigham Young University determined that private water utilities in Utah charged lower rates for water than comparable public utilities despite the large advantages in taxation and regulation that government utilities have. A recent comparison of public and private electric utilities in Florida concluded that private utilities outperformed public utilities in nine of 14 categories.

Missouri American Water is offering $5 million for the system and has promised to invest $8 million in upgrades over five years. The equipment would also go onto the tax rolls, expanding the property tax base for Sugar Creek. Most importantly, it would put water services in Sugar Creek in the hands of a more efficient private operator, which is closely regulated by the Missouri public service commission. The idea that Missouri American Water could use its monopoly power to keep raising rates is incorrect.

This policy change would be a very good move for the people of Sugar Creek.

The post The Salad Days in Sugar Creek appeared first on Show-Me Institute.

Columbia is currently considering raising its municipal water rates. The proposed increase would be set at four percent, with higher increases for some water services during the summer. I have no criticism of the proposed increase if it is truly necessary and the revenue is properly used, but there is an even better option that Columbia citizens and leaders should consider: privatization.

There is no standard method for providing utility services in Missouri cities. Springfield, for instance, has a city-owned public utility that provides every utility service. Alternatively, almost all of the 1 million residents of Saint Louis County are customers of private utilities for water, gas, and electricity. The private sector also provides utility services in Jefferson City.

Despite the structural differences between public and private provision, there is little difference between what customers pay in Columbia and Jefferson City. Both cities are below the national averages for utility costs. According to data from payscale.com, a residential customer of Columbia’s municipal electric utility has an average monthly charge for usage of $169.75, which is four percent below the national average. In Jefferson City, that average monthly electrical bill is $162.50, or five percent below the average. That’s obviously a small difference in favor of customers of Jefferson City’s private utility compared to Columbia’s city-owned utility.

Studies have demonstrated that private utilities are generally more efficient than municipal utilities. In 2000, economist B. Delworth Gardner of Brigham Young University determined that private water utilities in Utah charged lower rates for water than comparable public utilities, even after accounting for the large advantages in taxation and regulation that public companies have. Economists Daniel Hollas and Stanley Stansell found in a 1994 study that private gas utilities were more economically efficient than public gas utilities.

It is reasonable to suppose that private utilities would be more efficient in their costs and operations than Columbia’s current municipal utilities. Privatizing the utilities could benefit the city in a number of ways. Most importantly, the city would experience an immediate cash infusion from the sale. Eureka, in Saint Louis County, sold its municipal water and sewer utility to Missouri-American Water for $28 million in 2020.

Columbia would also see other fiscal benefits from privatizing the city utilities. The assets of the newly private utilities would become taxable, expanding the Columbia and Boone County tax bases. Finally, reducing the number of municipal employees entails scaling back the long-run taxpayer costs associated with government pensions and health care.

Currently, there is a question about how Columbia has been calculating the payments-in-lieu-of-taxes (PILOTs) from the water department (and likely the electric department, too). The Columbia city charter states that the public utilities shall pay to the city the amount that would be due in taxes to the city if the utilities were private. However, the city has long been transferring into the city’s general fund the total taxes that would have been due to all of the local governments, such as the county and school district, which is a much higher amount. While it may seem like a harmless transfer from one city fund to another, it also looks like a questionable use of water department revenues to increase Columbia city revenues while going around the requirements of the Hancock Amendment. Heavy users of water, such as swimming-pool owners, should pay high water bills to account for their greater use of water. They should not have to pay more for water because Columbia wants to transfer more money from the water division to the general fund as a subsidy to other city services. Privatizing the water and electric utilities would stop that appearance of impropriety for good.

Private utilities are just as capable of providing quality services at a low price to the residents of Columbia, and likely more efficient, than city departments. Privatization of the Columbia Water and Light Division would bring a needed cash infusion to the city, add substantial assets to the tax rolls, and reduce long-term public employee costs. Cities around Missouri have seen positive results from such privatization efforts, and there is good reason to believe that Columbia taxpayers and residents would also benefit.

The post Columbia Should Privatize Its Water and Electric Utilities appeared first on Show-Me Institute.

The post House Bill 2056 and Utility Reimbursement during Road Projects appeared first on Show-Me Institute.

You have probably heard about all of the large water main breaks throughout the St. Louis region over the past month, leading to boil-water orders, traffic mayhem, and extensive repairs.

Wait, they haven’t been throughout the St. Louis region? They’ve all been in the City of St. Louis? Yes, indeed they have been, but what difference is there?

The difference is twofold. First, the city’s water system is simply older, and in fairness an older system is going to have more problems than a newer one. But the other problem is that the city water division is owned by city government, whereas in most of our region—including all of St. Louis County (with the partial exception of Kirkwood)—the water is provided by a private company (in most cases Missouri-American Water). While water line breaks can and do happen to every water utility, the recent, dramatic trend in the City of St. Louis is not being experienced elsewhere.

The fundamental problem with government utilities is that politics inevitably interferes with the management of the utility. It can do so in ways that may seem beneficial, like holding water rates artificially low because politicians don’t like increasing rates on their own voters. Did you know that the city’s water division has never installed meters in many homes to help allocate billing and prices? That technology is almost a century old, yet it has never been adopted citywide.

In a 2002 study on water utility privatization, the National Research Council stated (emphasis added throughout):

Some studies show that the public is willing to pay for reliability and for high water quality. . . . Yet water managers and city councils often lack the political will to practice cost-based ratemaking. They may want to protect residential customers (who are also voters) from higher rates and use water pricing and availability policies to promote economic development even though there is scant evidence to support the usefulness of this strategy.

Compare those findings with these recent quotes by city officials, as reported by the Post-Dispatch:

The city’s water chief told aldermen Monday he needs two 20% rate increases in the next fiscal year—one in July and one in January—to shore up a division struggling to manage rising costs and aging infrastructure.

The increases . . . would be the largest in nearly three decades.

The system is supposed to pay for itself by charging ratepayers enough to cover the cost of operations and upkeep. When it can’t, the mayor and the board are supposed to step in and adjust rates.

But they don’t like to do it. The last time they obliged was in the late 2000s, another time when staff was telling them they had no choice.

While the proposed water rate hike is absolutely necessary, and the related proposal in the current bill to reduce political influence by automating future price hikes would be beneficial, I have zero faith that future politicians wouldn’t respond to pressure to reduce rates by backtracking as soon as possible. The city’s leaders have a history of ignoring recommendations to deal with the water infrastructure until every decade or so it becomes impossible to ignore it further.

Other communities in our region have privatized their water and sewer systems in recent years. Eureka recently completed the sale of both to Missouri-American Water for $28 million. Florissant and Webster Groves both privatized their water systems 20 years ago, also to Missouri-American. Other utilities are also potential bidders. Voters in Olympia Village in Jefferson County approved the sale of its sewer system to Liberty Utilities in 2021.

I hope city residents reconsider the benefits of cheap, public water the next time they have to boil it before drinking or get home late due to a massive traffic jam. Politics has gotten the St. Louis water division into this mess, and politics isn’t going to get it out. It is time to privatize the entire system as part of an open, transparent process that will hopefully lead to the city’s vital water system being operated by a private, regulated utility. Customers of private water utilities don’t have to think very much about their water supply, and that’s the way it should be.

The post St. Louis Should Privatize Its Water System appeared first on Show-Me Institute.

What’s missing?

Other bidders.

That is not necessarily Crystal City or Festus’ fault. The bid by JCPWS was unsolicited (apparently) so we can’t say that other potential bidders such as Missouri-American Water or Liberty Utilities (both of whom have been active in sewer operations in Jefferson County in recent years) were intentionally excluded. However, moving forward without asking for more bids would be a serious violation of good government principles.

Both cities claim to be interested in keeping rates low:

“Both cities are concerned about maintaining the same level of service to residents and keeping the sewer fees as low as possible,” said Jason Eisenbeis, city administrator for Crystal City.

You know what other organization was interested in keeping rates low? The St. Louis water division, which has experienced a large number of water main breaks recently precisely because it kept rates low to appease voters. That didn’t give the water division enough money to properly maintain the system, and city residents are now paying the price for that, literally and figuratively.

Politicians keeping utility rates artificially low to benefit their voters is a terrible practice, and one of the primary reasons local utilities should be privatized in the first place.

It is great that Festus and Crystal City have received a bid for their sewers. As we know, the ability of small cities to operate utilities is getting harder and harder. As the municipal sewer commission explained in the article linked in the first paragraph:

The Festus-Crystal City Sewer Commission has been working toward improving the plant, but keeping up with federal sewage system regulations is a struggle, said Matt Unrein, the commission chair.

“We have been working hard these last few years to modernize the facility, but the regulations just keep changing,” he said.

Crystal City and Festus should open up their sewer system bid process to include all potential parties, not just some. Then, city officials can consider all options in a fully open and transparent process. If JCPWD has the best total bid, it can be selected by the cities. But anything less than an open process with multiple bidders would be a failure of local government.

The post Everyone Should Be Welcomed to the Party appeared first on Show-Me Institute.

Independence is one of the few cities in Jackson County that continues to provide extensive municipal utilities to its residents. It recently announced that is it considering the privatization of its municipal electric utility. If privatization is done in a transparent manner designed to encourage multiple bids for the electric assets and customers, it will greatly benefit the residents of Independence. In fact, the city should go even further and consider privatizing its water utility, too.

There is no standard method for providing utility services in Missouri cities. Springfield, for instance, has a city-owned public utility that provides every utility service. In Kansas City gas and electric are provided by private companies, while water service is handled by a city department. Almost all of the one million residents of Saint Louis County are customers of private companies for utility services.

Municipal utilities often charge lower rates than private utilities, but that is not the case with Independence. The city admits its municipal electric utility charges more than the private companies serving the area (mainly Evergy), despite the structural cost advantages in taxation, regulation, and financing that government-owned utilities have.

Studies have demonstrated that private utilities are generally more efficient than municipal utilities. In 2000, economist B. Delworth Gardner of Brigham Young University determined that private water utilities in Utah charged lower rates for water than comparable public utilities despite the large advantages in taxation and regulation that government utilities have. Economists Daniel Hollas and Stanley Stansell found in a 1994 study that private gas utilities were more economically efficient than public gas utilities. A recent comparison of public and private electric utilities in Florida concluded that private utilities outperformed public utilities in nine of 14 categories (with one category being equal).

It is a reasonable supposition that private utilities would be more efficient in their costs and operations than Independence’s current municipal utilities. Privatizing the utilities could benefit the city in a number of ways. Most importantly, the city would experience an immediate cash infusion from the sale. Eureka, in Saint Louis County, sold its municipal water and sewer systems to Missouri-American Water for $28 million in 2022. Independence is much larger than Eureka, and its electrical and water utilities could likely be auctioned off for a much higher price. The substantial sale proceeds could be used to continue funding vital city services, be deposited into a reserve fund, or be put to a variety of other uses that would benefit city residents.

Independence would also see other fiscal benefits from privatizing the city utilities. The assets of the newly private utilities would become taxable, expanding the Independence and Jackson County tax bases. Finally, reducing the number of municipal employees would scale back the long-run taxpayer costs associated with government pensions and health care. It is imperative, though, that the entire process be an open one to serve the interests of taxpayers and consumers.

Private utilities are just as capable of providing quality services at a low price to the residents of Independence, and likely would be more efficient than city departments. Privatization of the Independence water and electric utilities would bring a needed cash infusion to the city, add substantial assets to the tax rolls, and reduce long-term public employee costs. Cities throughout Missouri have seen positive results from such privatization efforts, and there is good reason to believe that Independence taxpayers and residents would, too.

The post Independence Could Benefit from Privatizing Utilities appeared first on Show-Me Institute.

These privatization deals are a wonderful thing that should be encouraged and expanded in Missouri, including for our largest cities and their water divisions. More stringent health, environmental, and other regulations (both necessary and not) are making it harder for local communities to operate their water and sewer systems properly. The Post-Dispatch article mentions right at the start how bad the water in Eureka is currently: “It’s the worst water I’ve ever tasted in my life,’ said Eureka resident Thomas Ferrari.”

The main complaint about privatization is that rates will increase. Yes, they often do, and that is typically a necessary thing. Municipal utilities frequently underprice water, electric, and gas rates because those pricing decisions are made by politicians who want to keep voters happy. That may help with re-election, but it makes necessary system investments more difficult. 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.”

The water in the City of St. Louis may taste great (it does), but the city water division there has done a poor job of reinvesting in its system and incorporating new technology into service. As astounding as it may be, the City of St. Louis water division has still never installed water meters in most homes to measure water usage and bill accordingly. You get charged for water based on a variety of physical factors, so if you want to water your lawn for 12 hours a day you pay no more than your neighbors. That’s terrible public policy and results in inefficient, wasteful use of water.

Water and wastewater privatization is very good public policy that we need more of in Missouri. Private utilities adopt technology more quickly, expand the tax base, invest in their systems more reliably, and are regulated by the state’s public service commission on their rates. More municipalities with their own water, electric, and gas utilities should follow Eureka and Arnold’s lead and privatize for everyone’s benefit.

The post Eureka Water Privatization Is a Very Good Thing appeared first on Show-Me Institute.

More transmission lines will need to be built to relieve this congestion. The two regional electric grids that Missouri belongs to—the Midcontinent Independent System Operator (MISO) and the Southwest Power Pool (SPP)—have released a draft study identifying several points along their shared electric grid borders—including spots in Missouri—where new transmission projects can help relieve congestion and increase connectivity between different grids.

The study noted several benefits of a more interconnected transmission network. Given that MISO and SPP’s wholesale energy markets select the lowest-cost electricity sources to meet regional demand, a more connected grid allows the most efficient power plants to produce electricity for a wider region. Greater transmission connection also increases reliability, as more power can flow between larger geographic areas in case one spot has trouble meeting electric demand.

The study estimated that the total benefits to customers in the MISO and SPP regions would be roughly $1 billion, savings which would cover a little over half of the expected $1.8 billion cost. It is important to note that these numbers are self reported, although the benefits of more integrated markets and transmission networks are widely understood.

Evidently, the need for expanded transmission capacity in Missouri has caught state legislators’ eyes. However, as I described recently, the bills in the House and Senate take the wrong approach to building out more transmission capacity. These bills give incumbent utilities veto power for new transmission construction proposals. Instead, Missouri should embrace a competitive bidding process, which on average cuts costs by 40 percent.

Electric delivery costs, which include transmission and distribution, are a growing fraction of the cost of providing electricity to customers. Given Missourians’ already rapidly rising electricity bills, policymakers should be keen on finding ways to reduce costs.

Missouri could benefit from expanded electricity transmission, but there are good ways and bad ways to go about doing that. Let’s hope legislators come down on the side of market forces and competition.

The post New Grid Operator Study Highlights the Need for More Transmission appeared first on Show-Me Institute.

The usual problems with water in St. Joseph, Missouri relate to having too much of it all at once. But properly getting rid of the water you have used—through your sewer system—is also a complex issue. More stringent water quality requirements from state and federal regulators have made it more difficult for many municipal utilities to operate. Often, they simply do not have the resources to meet the higher water-quality and sewage-control standards. Even large cities have had trouble dealing with revised Environmental Protection Agency (EPA) sewage guidelines. For instance, Kansas City reached an agreement with the EPA in 2010 to upgrade its sewer system at a cost of $2.5 billion over 25 years, and cities like Kansas City have more resources to deal with sewer infrastructure than communities like St. Joseph.

Sewer rates in St. Joseph are already a matter of complaint. A June 2019 article in the News-Press detailed concerns among the area’s business community that high municipal sewer rates were harming the region’s economic environment. Whatever the price, St. Joseph’s sewer issues aren’t going away anytime soon. The city reached an agreement with the EPA to improve the sewer system years ago. During the Trump administration, the EPA gave St. Joseph additional time and flexibility to complete those required system improvements. Under that revised agreement, the city will be upgrading the system until at least 2036, and during that period will continue to periodically release untreated sewage into the Missouri River during major storm events. While the agreement and time extension with the EPA may be justified, the fact is that St. Joseph has another option to consider: privatization. Water in St. Joseph has long been provided by private utilities, and the city should once again—as it has previously—carefully consider privatizing its sewer system.

Indianapolis outsourced its sewer systems to private operators in 1994, and the cost savings were even greater than had been estimated. The city saved $72 million over the first five years of the contract, and those savings allowed the region to invest in major repairs to its aging sewer system. On a smaller scale, communities across Missouri have realized that the best thing for their residents is to privatize their water and sewer systems. Within just the past two years, voters in Bolivar, Eureka, Taos, Trimble, Purcell, Hallsville, and Garden City have approved privatization of their municipal water and/or sewer systems to either Missouri-American Water or Liberty Utilities. Those communities—mostly small towns spread around the state—realized that maintaining these systems was going to be an enormous burden on city governments not properly equipped to manage them. Privatizing them—for amounts ranging from $200,000 to $28 million—was a way for each city to guarantee proper operation of their water and sewer services by a regulated, privately-operated utility. The cities can use (and have used) the money to pay down debts, invest in other municipal needs, or do whatever the city wants to prioritize.

Arnold, Missouri, is probably the best guide for St. Joseph. Arnold, a suburb of St. Louis with approximately 21,000 residents, was having trouble keeping up its sewer system as it grew in population. In 2015, city voters approved a plan to sell its sewer system to Missouri-American Water for $13.2 million. Since that sale, Missouri-American has completed several promised system upgrades, while Arnold used the money to pay down municipal debt and expand its park system. As a larger city than Arnold, St. Joseph could expect substantially more money in any privatization effort.

Private utilities in Missouri are regulated. Just as Missouri-American Water cannot raise water rates in St. Joseph without approval from the public service commission, no private company could take over the sewers and raise rates further without going through the same approval process. The fact is that running a sewer system under current rules and regulations is expensive and beyond the capacity of many communities. However, it is well within the capacity of larger, private utilities like Missouri-American Water, Veolia, and Liberty Utilities. As the Indianapolis public works director said about the private contractors they hired to operate the sewer system, “It’s just a different league. These guys have resources our guys could only dream of.”

St. Joseph should take advantage of that expertise and seek bids from several private utilities to either outsource the management and operations of their sewer system or—better yet—purchase and operate it. That is the best way that city officials can address the sewer system needs of St. Joseph for the benefit of everyone in the community.

The post St. Joseph Should Privatize Its Sewer System appeared first on Show-Me Institute.

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.

The post Privatizing Lebanon, Missouri’s Municipal Electric Utility appeared first on Show-Me Institute.

Missouri American Water, naturally, is supportive of the plan and is confident it can deliver the same services to Peculiar residents they receive now and at a lower rate. A webpage in support of the proposal shows the recent rates in Peculiar compared to other American Water customers across Missouri, including Kansas City neighbors Platte County, Lawson, and St. Joseph. (Incidentally, the Environmental Protection Agency (EPA) claims, “the average American family uses more than 300 gallons of water per day at home” or around  9,000 gallons per month.) 

At a time of increasing water rates in Kansas City, it might be worth considering such a deal here. Kansas Citians already look to private—albeit heavily regulated—companies for their electrical power and natural gas. Why not water too? And if such a sale here would include an upfront payment to the city as well as potentially improved management and lower rates over the long run, city leaders have a responsibility to consider the offer.

All of this hinges on a serious and substantive audit of the Water Department, as Kansas City Mayor Quinton Lucas has called for previously. That is a necessary first step so that taxpayers and any interested buyers know exactly what is at stake. Even without a looming financial crisis, Kansas Citians should be looking to shed costly burdens that can be better and more cheaply provided by others.

The post A Peculiar Solution for Ever-Increasing Water Rates appeared first on Show-Me Institute.

What are promotional practices, and why does this matter?

Imagine that your power company wants to invest in an electric vehicle charging station in your area. They might have to bump up rates a bit in order to finance construction, but once the station was up and running it would be a win-win for electric vehicle owners and the utility.

But if you’re happy with your gas-powered car, it’s a different story. It’s not like you can just switch power companies. How is it fair for some of the money you pay for electricity every month to go towards a charging station that will make the power company more profitable, but won’t do anything at all for you?

Promotional practices are activities a utility undertakes to encourage some form of action by ratepayers. In the example above, the promotional practice is building the charging station, as the utility is trying to use it to encourage people to switch to electric vehicles. Or it could be something as straightforward as a gas company paying a cash bonus to anyone who replaces their electric stove with a gas stove.

Right now, the rules governing what expenses utilities can pass on to their customers are a mess. For instance, consider an educational program about energy efficiency that benefits all ratepayers. Such a campaign does not meet the current definition of “promotional practice.” Why not?

We have an opportunity to change the rules so that they make sense. If utility companies and their shareholders want to launch a promotion, they should be allowed to—as long as they, and not the ratepayers, foot the bill. Some of the red tape can even be removed along the way.

These and other matters relating to promotional practices are up for discussion at the Public Service Commission. The comments I submitted outline rule changes that would introduce more fairness and market discipline into the state’s utility monopoly system. You can read them here.

The post Show-Me Institute Submits Comments to Public Service Commission appeared first on Show-Me Institute.

A 2017 KCPT documentary detailed the effect of the increases in water rates—240 percent since 2000—on many Kansas Citians, and the apparent inability—or unwillingness—of local leadership to do anything about it. All of this is due to a settlement with the EPA, which cited Kansas City for multiple violations of the Clean Water Act and forced the city to agree to extensive upgrades to its water and sewer system.

Taking the violations and the need to address them at face value, it is still fair to ask what is going on with the water department. How is it spending its money and are there opportunities to be more efficient? Here there might be an opportunity. In its 2019 endorsement of Quinton Lucas’s mayoral effort, The Kansas City Star editorial board quoted Lucas as saying at a prior candidate debate, “I’m not just open to a conversation on a state audit; I think we need a state audit of the water department.” This is welcome, especially since the previous mayor denied requests by the Missouri State Auditor to conduct an audit of the water department.

It may very well be that the city-run water department is a model of efficiency and that these frequent increases are necessary. If that is the case, there may be other opportunities to address rising costs in a way that does not so burden those among us who are at the most risk of losing service. Mayor Lucas, the city council, and indeed those at the water department should all welcome an audit, be it by the Missouri State Auditor, a private and completely independent firm, or both.

The post Audit the Kansas City Water Department appeared first on Show-Me Institute.

The Mercatus project to analyze state-level regulation is a continuation of the state-level analysis on regulations conducted in Missouri for the No Mo Red Tape campaign initiated under Gov. Greitens. Mercatus says of the effort,

Mercatus researchers Patrick McLaughlin and Oliver Sherouse created QuantGov, an open-source policy analytics platform designed to help create greater understanding and analysis of the breadth of government actions. The platform allows researchers to quickly and effectively examine bodies of text using some of the latest advances from data science, such as machine-learning and other artificial intelligence technology.

The top-regulated industries in Missouri are utilities followed by ambulatory health care and chemical manufacturing. Only three other states bordering Missouri have utility regulation in their top ten, and they are much further down on the list (Kentucky 7^th, Tennessee 7^th, Iowa 8^th). It would be interesting to learn why Missouri regulated utilities so much more than our neighbors and the degree to which that might be driving up utility rates in Missouri.

While this study does not explicitly make the link, it is generally understood that regulation drives up cost. The difficult work is to determine which regulations are necessary and what costs are reasonable. Researchers and policymakers looking for more efficient ways to regulate may find this data useful.

The post Missouri in the Middle on Regulations appeared first on Show-Me Institute.

Last year, Ameren filed for approval to install six charging stations between St. Louis and Jefferson City along 1-70 in order to alleviate the “range anxiety” EV drivers suffer with the current number of stations available.  Instead of approving or denying the request, the Missouri Public Service Commission (PSC) postponed its decision on the matter because it was unsure of whether it even had jurisdiction to regulate the emerging technology.

Some background: utilities such as electricity are often delivered to consumers through monopolies because of how expensive competing delivery infrastructure would be—it is rarely feasible for a startup to lay new pipes or string new wires.  To keep current monopolies in check, regulatory bodies (like the PSC) monitor and approve the prices utilities can charge to cover expenses while still protecting consumers from exorbitant prices.

Many private citizens and businesses already own and operate charging stations, so approving Ameren’s expansion into the market is controversial.  Daniel Hall, the PSC’s chairman, said “. . . it’s unclear whether or not it should be a regulated industry or whether it should be an open, unregulated, competitive market. . . . Where there is a competitive market, I’m not sure that that is a role for the commission.”

Hall’s uncertainty about the PSC’s role makes sense.  If the PSC were to approve Ameren’s project, it’s possible that all of Ameren customers (whether they own an electric vehicle of not) would have to chip in to cover the cost of construction for the new stations. 

Communities around the nation are debating whether the public-utility model would stifle competition, or if it is a necessary kick-start to EV adoption. Kansas’ regulatory body recently denied Kansas City Power & Light’s request to charge ratepayers for a $5.6 million charging station initiative, arguing the proposal was anti-competitive and that it would be unfair to require all ratepayers to subsidize a handful of EV drivers.   Meanwhile, Oregon has ruled (see p. 8) that utilities may own charging stations and cover costs through all ratepayers if they prove an area is in need and would not otherwise receive investment.

Ameren is proposing to construct stations in an area that is currently underserved, but electric cars are relatively new, and technological improvements could soon make them more prevalent than they are today. Missouri’s PSC has been confronted with a difficult decision, and they deserve credit for not blindly jumping into the unknown.  If a free-market model could improve customer choice and spur innovation, then we should be wary of expanding a monopoly where it may not be necessary.

The post Policymakers Wisely Look Before They Leap appeared first on Show-Me Institute.