The Green New Deal Must Put Utilities Under Public Control

Highland Park, Mich., is a small, majority-black community of three square miles, nestled in the center of Detroit, with some of the highest poverty and unemployment rates in the country. It’s suffered a series of indignities and setbacks over the years: a state emergency management takeover of the city and surrounding areas; a state takeover of the public water infrastructure; public school closures; and a collapse of tax revenue fueled by white flight, fossil-fuel-driven suburban development, and the rapid decline of the housing market and auto industries.

Residents were hit again when, in 2011, an armada of flatbed trucks with workers bearing DTE Energy logos moved through the city and started pulling streetlight poles out of the ground. Residents watched from their porches as their infrastructure was taken away in real time.

DTE Energy, the area’s investor-owned monopoly energy utility, repossessed over 1,000 streetlights from Highland Park because of $4 million in unpaid electric bills accumulated over many years. (To put that in context, the city’s debt to the utility was still significantly less than what DTE’s CEO, Gerard Anderson, took home in compensation that year: $5.4 million.)

The repossession prompted Highland Park residents to organize and put up their own solar street lights. But it also forced the community to reckon with deeper questions of how DTE treated residents. A 2017 survey of 70 Highland Park households conducted by Soulardarity, a nonprofit and community organizing group, found that close to half of those polled had trouble paying their electrical bills. A quarter had experienced gas or electricity shutoffs, the majority of which were during Michigan’s cold winter months. Nonetheless, DTE has proposed additional extensive rate hikes, raising money that goes in large part to maintain their current coal plants, build new fossil fuel plants and pay their CEOs millions.

While DTE’s actions are shameful, they aren’t too different from the behaviors of many investor-owned utilities in the United States.

The Green New Deal advocated by members of Congress and presidential hopefuls, including Detroit’s own freshman Rep. Rashida Tlaib, promises rapid action on climate change. While the Green New Deal should encompass a massive range of initiatives, a cornerstone must be a program to free communities from the unjust power of investor-owned utilities — not only for de-carbonization, but in order to transform our economy so it serves everyone. Modeled after the original New Deal’s Rural Electrification Administration, such a program could give communities the much-needed finance and capacity to kick out their investor-owned utilities in favor of community-run, renewable-powered utilities.

The problem with investor-owned utilities

DTE and its fellow investor-owned utilities have a long history prioritizing money-making over the needs of communities or the environment. As companies that are largely traded on the stock market, their primary driver is shareholder gain and growth. They dump pollution on poor people and people of color, situating their noxious fossil fuel plants, landfills, incinerators or refineries in black and brown neighborhoods, where the residents have less capital — be it time, money or political influence — to object.

Households in low-income neighborhoods and communities of color across U.S. cities experience a higher-than-average energy burden — a higher ratio of energy costs to earned income — in part because they often live in older, energy-inefficient buildings. The investor-owned utilities also use regressive pricing mechanisms that squeeze the poor to the benefit of their shareholders and higher-use ratepayers: High-energy commercial users get lower rates, while ordinary consumers who seek to save money through conserving energy or installing solar systems find themselves being hit with higher fixed rates from utilities just to get access.

Throughout Wayne County, which includes Highland Park and Detroit, households at 50 percent or less of the poverty level are spending a stunning 30 percent of their income on energy — three times the threshold that qualifies as living in ​“energy poverty.” And across the country, much as in Highland Park, shutoffs are an all-too regular occurrence, putting residents at risk of being without air conditioning in extreme heat, home heating in extreme cold, or even the ability to operate life-supporting medical equipment.

These big companies consolidate political power through campaign contributions, lobbying and tactical philanthropy. They have built up serious political and economic machines where they operate, often so much so that the regulators bend to their will, quashing community needs. For example, Dominion Energy of Virginia is the largest corporate contributor to electoral campaigns in the state. ​“No single company even comes close to Dominion in terms of its wide-ranging influence and impact on Virginia politics and government,” says Larry Sabato, a University of Virginia professor. 

The private utility industry shows no meaningful sign of being willing — or even able — to adapt to the urgent need for a shift to renewable energy. In large part, this is because their business model revolves around a centralized distribution system and a deeply-vested interest in fossil fuel infrastructure, from pipelines to power plants. These companies have used their economic and political machines to dig in their heels in on the energy transition — from fighting rooftop solar tooth and nail to changing rate structures in ways that make renewable energy financially infeasible.

While some investor-owned utilities are starting to shift to renewable energy, their compulsion to recoup their sunk costs and obligation to generate shareholder profits continually impede progress. If not for pressure from municipalization campaigns in Boulder, Colo., and Minneapolis, Minn., the much-lauded electric utility Xcel may not have made commitments to increase its use of renewable energy so quickly.

Where they’ve given in to renewables, investor-owned utilities actively campaign against any projects that would fall outside of their ownership. For example, DTE has been pushing a proposal that would change how net metering works—a move that could seriously hurt rooftop solar because those who have it would benefit less from the energy they contribute to the grid. In response to DTE’s proposal, Becky Stanfield, senior regional director of Vote Solar says, ​“It is very clear that DTE is trying to put a dagger in the heart of rooftop solar in Michigan.”

This is especially problematic because we only have 12 years to implement a 45 percent reduction in our collective greenhouse gas emissions to avoid the worst consequences of climate change, according to the latest report of the United Nations Intergovernmental Panel on Climate Change. 

The United States is already feeling the effects of climate change, with the costs disproportionately falling on low-income communities and people of color. The investor-owned utilities’ persistence in a climate-change-fueling business model is a threat to us all. 

Time to take the power

This failure begs the question: Is it time to liberate ourselves from for-profit utilities in favor of community control? By cutting ties with investor-owned utilities to build new, publicly owned and operated energy utilities, communities could put themselves back in charge of decision-making, seek to lower their energy burden, transition more rapidly to renewable energy and place equity at the center of energy policy. 

Now elected officials like Tlaib and Rep. Alexandria Ocasio-Cortez (D-N.Y.) have teamed up with climate activists to demand adoption of a ​“Green New Deal.” Ocasio-Cortez’s proposal mandates the rapid elimination of fossil fuel use and calls for a renewable, resilient energy future with ​“social, economic, racial, regional and gender-based justice and equality” at the core. 

Community control of utilities is a key way to deliver on a just Green New Deal. One way to bring this about is to have the federal government fund this ownership shift through patient, low- to no-interest loans (as well as grants and other incentives) to support the creation of community-owned, nonprofit utilities, allowing communities to ditch their current for-profit utility contracts and take over their local wires. 

The parallel: electrifying rural America

This is not unprecedented. The U.S. government took very similar steps in the 1930s when Congress passed the Rural Electrification Act as part of the New Deal to supply power to areas that for-profit companies had written off as unprofitable.

When that act was signed into law by President Franklin D. Roosevelt, investor-owned utilities had left nine out of 10 rural homes without access to electricity. Writes author John L. Neufeld in his book, Selling Power: Economics, Policy and Electric Utilities Before 1940, ​“Stories abounded of farmers coming individually and in groups to utility executives begging for service, only to be flatly rejected, even when their need came from illness in the family and even when they were close to an existing power line.” 

This created deep divides between America’s cities and country, leaving rural areas behind. ​“Beyond [city limits] lies darkness,” wrote one advocate for rural electrification. Rural residents were subject to grueling labor each day, with women bearing a disproportionate burden of the back-breaking work. Without running water, gas or electricity, processes like laundry and cooking took much longer, detracting from women’s ability to make life richer and fuller, recounts William Leuchtenburg in Franklin D. Roosevelt and the New Deal.

Through the Rural Electrification Act of 1936, Roosevelt launched the Rural Electrification Administration (REA) as a way to jumpstart rural electrification by providing long-term, patient capital in the form of low- to no-interest loans. Originally, they were offered to for-profit utilities, but the utilities rejected the loans, continuing to deem REA projects unprofitable. But, farmers and rural communities applied in huge numbers to start electric cooperatives, public power districts and municipal utilities in order to bring electricity to their areas. In 1935, Congress appropriated $410 million in loans over the first 10 years of the program (more than $7.5 billion in 2019 dollars), and within a decade of opening up the program, rural areas went from having little to no electricity to more than 90 percent electrification, spurring faster growth of rural economies. Nearly all of the loans were fully repaid and the ultimate cost to the taxpayer was low. REA is now considered one of the most successful of the New Deal agencies.

While REA controlled the flow of federal funds to the region and supervised their use, communities were given a substantial amount of autonomy to build out electrification in their areas and were largely owned and operated by customer-owners. As Brian Cannon describes in his analysis of rural electric co-ops in the West, ​“Power Relations: Western Rural Electric Cooperatives and the New Deal,” ​“Although REA programs were planned and administered in Washington, D.C., western residents rather than New Deal administrators initiated most of the region’s rural electrification efforts.”

REA provided important technical and legal capacity to support the localities, helping the newly formed cooperatives and publicly owned utilities with contract negotiation, management techniques, auditing, construction of their systems and even with shaping new norms around how to integrate electrification into rural lifestyles. Today, there are more than 900 rural electric cooperatives that started through the program. The administration is now housed under the U.S. Department of Agriculture, and continues to provide loans to rural areas for new investments in their grids.

The proposal: Community Ownership Power Administration

Current investor-owned utilities think of shifting to renewable energy in much the same way as the utilities of the 1930s thought of rural electrification, as a non-economic social good, and have actively opposed being mandated to act. This clear market failure, along with investor-owned utilities’ immense political power, has stymied action on many community solar, energy-efficiency and non-exploitative rate projects across the country. 

A Green New Deal should emancipate communities from these investor-owned utilities, fixing the market failure by deploying the much-needed finance and capacity to kick out their incumbent utilities for publicly run, renewable-powered ones. The reality is that the new, renewable grid we are trying to build will be based on more decentralized assets amenable to the scale of local power, not the old, top-down model of investor-owned utilities.

To do so, we advocate implementing what we call the Community Ownership Power Administration (COPA), a financing and technical capacity program similar to the REA of the first New Deal. COPA would provide a catalytic tool for a new energy system based on local, community benefit. Municipalities, counties, states and sovereign tribal nations could gain the necessary legal authority along with access to a suite of patient financing and funding mechanisms — including low-to-no-interest loans, grants and other incentives — needed to terminate their contracts with investor-owned utilities, buy back the energy grid to form a public or cooperative utility, and invest in a resilient, renewable system. 

The funds could be used by the community utilities to invest in a vibrant local economy. Working with community members, the utilities could build or spur projects in energy efficiency, grid resiliency, shared solar and electrification, and provide affordable energy rates, good jobs and access to community-based enterprise along the way.

This approach could increase buy-in from organized labor, as well. Unions have historically pushed back on renewable energy developments since utility and fossil fuel companies have typically had union representation, while renewable energy companies to date have largely not been unionized. The public sector’s higher rate of unionization — about five times higher than private sector workers — could increase unions’ trust that a publicly-owned utility would secure labor agreements with fair wages and good working conditions throughout their operations and contracted work.

These community-based utilities could even take over other public goods — such as broadband internet and water — to ensure that these necessities are owned and operated by the communities that use them. Already more than 800 communities in the United States have invested in public or cooperative broadband networks to provide affordable, locally controlled access to telecommunications.

Much like the REA, COPA would also provide technical assistance that helps communities navigate legal and technological challenges throughout the takeover and startup process. The program could even help to provide ideas and guidelines for setting up institutions that allow for participatory democracy, distributed ownership and delivering on a vibrant economy, while still leaving room for local design.

These utilities could implement multi-stakeholder boards, where workers, community members and elected officials make decisions together. They could also include consistent neighborhood meetings on topics ranging from workforce needs to how rates are affecting residents to new renewable energy projects in order to decentralize participation and draw upon local knowledge — be it technical expertise or pure lived experience — across their service area. These meetings would provide avenues for petitioning and enable better mechanisms for transparent, accessible information. While REA mobilized electrification and broadened community asset ownership, many of the rural electric cooperatives of today operate as ​“old boys’ clubs” without clear avenues for community members to engage or even know they have an ownership stake. By taking clear steps to democratize community utilities, COPA iterates upon and builds better institutions that will specifically ensure that low-income residents and communities of color have access and agency in this process. 

To date, communities that have municipalized utilitites have financed the takeover of investor-owned utilities largely through municipal revenue bonds. They are generally a major way for states and localities to pay for large, expensive capital projects, but they are also a major constraint on what cities can do. Municipal bonds, which are traded on the financial market, require payback with interest, with rates higher for poorer cities as a result of low credit ratings from private rating firms. The COPA program would help by providing multiple low-cost financing pathways to make the transition more affordable and accessible for communities across the United States. 

Beyond financing newly formed community utilities, COPA could also provide financing or funding to already existing publicly- or cooperatively-owned utilities transitioning to more renewable projects. The policies and subsidies that the United States has provided up to now for the energy transition, and infrastructure writ large, have been too focused on for-profit companies instead of communities or local governments — essentially giving away public funds to profit the 1%. As Ocasio-Cortez puts it, ​“For far too long, we gave money to Tesla [and to other technology entrepreneurs], and we got no return on the investment that the public made in new technologies. It’s the public that financed innovative new technologies.”

A related problem: since publicly owned utilities or nonprofits don’t pay taxes, they currently cannot take advantage of federal investment or production tax credits to finance a renewable energy project. As a consequence, they end up contracting with a for-profit corporation that constructs and owns the renewable energy assets, and claims the tax credit. This has led to privatization of our renewable energy assets instead of direct investment and ownership by communities and local governments. 

COPA would avoid this. Instead of continuing to consolidate wealth among high-paid CEOs and shareholders, community utilities could reinvest wealth back into the grid and the larger community. COPA would help by redirecting public investments to public institutions, focusing on creating value for communities through a renewable energy future.

In designing the Green New Deal, we must call for change that not only helps us meet our climate goals, but shifts the very structure of the institutions that created the problem to begin with. It means putting public goods under public control, providing clear pathways for communities like Highland Park to take energy into their own hands and build utilities that are for and by the people.

Highland Parkers have organized to install solar street lights, weatherize homes and bulk-purchase solar. They’ve also created a proposal for citywide solar lighting and the Blueprint for Energy Democracy, a community-wide plan to achieve sustainability. With support through the Green New Deal and COPA, Highland Park can build on this organizing to become a model of what local power can do.