Power to the People: Does Ownership Type Influence Electricity Service?

Abstract:

Since the 1990s, American states have deregulated electricity markets. However, there has been little effort to privatize municipal utilities. Rather, after storm related power outages, the press has relayed calls for municipalizing investor owned utilities, and claimed that profit-making utilities do not have enough of an incentive to prepare for storms. Most storm preparedness discussions have focused on regularly cutting tree branches near power lines and burying power lines underground. We provide empirical evidence that municipal utilities spend more on maintenance of their distribution network (e.g., cutting trees), but bury a smaller percent of their lines underground, compared to investor owned utilities. In order to find the overall effect of ownership type on outages, we examine a stratified random sample of 241 investor owned, 96 cooperative, and 94 municipal utilities in the United States between 1999 and 2012. We find that storms disrupt electricity sales for municipal utilities; specifically, storm damages that equal 1% of personal income lead to a 1.85% decrease in residential electricity sales by municipal utilities. However, storms do not significantly affect residential electricity sales by investor owned utilities. These results are consistent with international experience with privatization. Specifically, countries that have privatized distribution have not seen an increase in disruptions to electricity service.