Proof in the Public Takeover Pudding — Episode 184 of Local Energy Rules

Randy Knight:

We’ve been noted in Winter Park for our strong customer service through the residents. And so that local control and accountability message carried the day. And ultimately when we did go to referendum, it was a 69% vote in favor of buying it.

John Farrell:

Nearly a dozen U.S. communities have considered municipalization, transitioning from a private to a publicly-owned utility, in the past decade. But no sizable city has succeeded since Winter Park, Florida, nearly two decades ago. Randy Knight, city manager of Winter Park, joined me in March 2022 to discuss the city’s success, the barriers it overcame, and what advocates of public power can learn from Winter Park’s success. I’m John Farrell, director of the Energy Democracy Initiative at the Institute for Local Self-Reliance and this is Local Energy Rules, a podcast sharing powerful stories of communities taking on concentrated power to transform the energy system.

Randy, thank you so much for joining me on Local Energy Rules.

Randy Knight:

Thank you for inviting me.

John Farrell:

So, I’ve talked with you a little bit over email about the context for this conversation is which is, you know, there are a number of cities over the past decade that have thought about municipalization, done feasibility studies, even had public ballot initiatives. one of the things I would just like to start with is, what motivated Winter Park to consider municipalization? What were you hoping that it would accomplish?

Randy Knight:

The motivation was primarily one or two things and I may throw in a third, but, one, we were at the end of a 30 year franchise with the incumbent utility and had a right to purchase at the end of the franchise. That clause was in the agreement. And so we had a city commissioner that said before we renew a new 30 year franchise, we should explore the option of municipalization. And you couple that with two other big things, one is reliability, electric reliability in Winter Park was horrible at the time, partially because of the next item I’ll talk about, which is power lines in the trees. We love our trees in Winter Park and trees and power lines don’t mix. And we wanted the power company to underground the lines. And of course they refused to do so unless we paid the total cost and they owned the product. So those things together is what made us start exploring it at the time, which this is right at the end of the calendar year 2000.

John Farrell:

So what ultimately led you to decide not to accept a renewed franchise with utility?

Randy Knight:

it was very interesting cause we had a split commission on the topic. We had two commissioners that wanted to renew the franchise. We had two that wanted to explore municipalization, and we had a mayor who worked for the incumbent utility and was conflicted out so he could not vote. And so we didn’t have enough votes to give him a new franchise. We didn’t have enough votes to explore it. And one of our commissioners actually said, the one of them that wanted to renew the franchise says, well, if you can guarantee in writing that you’re gonna improve reliability, I’ll continue to support a franchise. And they actually, in the public meeting said, we can’t do that, or we’d have to promise that to everybody. And, and so that commissioner switched over to the let’s explore side and we went forward with the feasibility study. And of course the feasibility study showed that this is a very viable business opportunity.

John Farrell:

I’m intensely curious about the fact that you succeeded because the landscape I feel like is littered with attempts for public power that have failed. Boulder, Colorado. was at it for 10 years. A lot of other places got no further than the feasibility study. I was amazed from reviewing what of the presentations you’ve given that like in other places, the utility outspent local advocates 10 to one, a very common ratio, unfortunately, in terms of this. How did you succeed up against that?

Randy Knight:

Yeah, so it was a perfect storm, is the way I put it. There were 106 franchises with this one utility in Florida and they were all pretty much up for renewal in a five year window. And we were kind of in the beginning to early to the middle part of that renewal process. And they had renewed, you know, dozens and dozens before they got to us. So when we started looking at it, we saw some of our neighbors that were a little bit ahead of us in the exploration. The city of Castleberry, which is next door to us, the city of Almont Springs, which is near us and a couple of other cities were a little bit further ahead of us and, and starting to explore municipalization. And so we, when we jumped into it, that’s when the politicking began, right.

They started, they started supporting certain candidates in elections and those type of things that was very successful. And what we saw happen in other cities is they would take out somebody that was supporting moving forward with the effort and replace ’em with somebody that they helped get into office. And then the franchise was renewed and that one was out. And we saw that, I mean, Castleberry actually ended up with a better arbitrated price than we ended up with. And yet, even though they went all the way through that level of the process, there was a change on their commission and they changed their mind and renewed the franchise. And then the city manager went to work somewhere else.

In our case, I say it was a perfect storm because we had a commission that was committed to it. They didn’t lose in those elections. The reliability was so bad in Winter Park. People were fed up and we have Orlando utility commission right next door, who runs one of the best utilities in the country. For the investor-owned utility to say, munis can’t do it, we had the best example in the country right next door that was doing it and doing it very well. And, and then you couple that then with a very educated community of people that aren’t used to being bullied and the bullying tactics that they used during these campaigns didn’t work here. To me, it’s all those things that combined, that made it work here where it didn’t other places.

John Farrell:

I’m kind of curious if you have meetings with folks from some of your neighbor cities like Castleberry, since that decision was made and do you ever sort of poke them and say, well, look what you could have.

Randy Knight:

<laugh> well, they say it to me, we wish we’d had done it when we had the chance. So I, I try to be nice once in a while. And it is a point of pride that our city was able to pull it off.

John Farrell:

Did the public power take over live up to expectations? Is service more reliable and affordable?

Randy Knight:

That’s one of the things I’m probably most proud of is that we made a lot of promises during the campaign. And I think we kept them all, we promised better reliability. We promised we would keep the rates at or below the predecessor’s rates. We promised to begin undergrounding the power lines and we’ve kept all those promises. I mean, there’s been a few times for our rates were slightly higher, but the vast majority of these 16 years, we’ve been cheaper than the predecessor utility. Reliability went from a 360 minute SAIDI, which is the average outage time that every customer experiences during the year, down to below 50. And so, I mean, we’ve really delivered on the reliability front and, you know, of course the big part of that is you get those power lines out of the trees. You don’t have that conflict. It wasn’t easy, but yeah, we delivered on those promises.

John Farrell:

I think I heard at one point, and this was a while ago when I was looking into Winter Park’s efforts, that you were able to describe it as like a blinking clock problem that when you have, it was, many but short outages. And so people were walking to go around and reset their clocks all the time.

Randy Knight:

Yeah. That was one of, one of the more effective campaign pieces the political action committee in favor of buying the electric utility put out was that blinking clock, everybody could relate to it.

John Farrell:

Absolutely. You kind of alluded to this already about having a neighbor city that had a municipal utility to help you deal with what the incumbent utilities said about municipalization. These investor-owned utilities are often saying things that, cities shouldn’t municipalize, they shouldn’t take over, they won’t have the technical expertise. They won’t have the capacity to hang handle big outages. How did you overcome some of those arguments? Do you have any regrets about the decision? Are there any, are there any, any unexpected benefits, things you hadn’t thought you would get out of the decision, but that you have gotten?

Randy Knight:

So let me start with how we overcame the argument. And then of course, I’ll forget the second question by the time I get through with this answer.

They had a lot of great mail pieces they put out to fight us. One of ’em was that we would have four guys in a pickup truck, if there was a power outage and that, that would be our response team and it, and, they said, we’d be having to subsidize the utility with taxes, all those type of things that were some of their pieces. But we just came back and said, look, we run a very successful water and sewer utility. Now we already serve you, we can do it, we’re already billing you. So, you know we can bill and we will hire people who know how to run an electric utility to run this one. And we did. We went out and, you know, we did a national search for companies that could run the electric utility and we hired one. We have subsequent to that, we brought it in house and they’re all our own employees now, but for the first, almost 10 years, we did it with an outside contractor for the maintenance of the poles and wires. We’ve never once subsidized it with property taxes, you know, the revenue of the system, it’s always been adequate to pay the bills.

We succeeded, but convincing the residents of that was the interesting part before the referendum. Cause we had to go to voter referendum to do this. We had a lot of public debates where they stood on one side and made those accusations and I stood up there and, and, well, here’s how we’re gonna do it. And you know, I said, I don’t know how to run a police department, but I have hired a police chief to run the police department. I don’t know how to run the water sewer utility. I hired a director. I don’t know how to take care of a golf course, but we can do it cause I hired the right people to do it. And we can do the same thing with an electric utility. we’ve been noted in Winter Park for our strong customer service through the residents. And so that local control and accountability message carried the day. And ultimately when we did go to referendum, it was a 69% vote in favor of buying it.

The second part of your question, I guess, was what unexpected benefits maybe.

John Farrell:

Yeah, if there are any unexpected benefits, things you didn’t think about that have happened from owning it that have been helpful. And then if there’s been any regrets, you know, anything that you’ve thought about doing, to take over, you’re like, well, that didn’t turn out the way we’d hoped.

Randy Knight:

Yeah. So one of the, I won’t say unexpected one, one of the things we said on faith when we were trying to convince people is that if we own our own electric utility and there’s a hurricane, all of our resources are gonna be dedicated just to Winter Park. Whereas when you’re part of a giant utility, we were 1% of the predecessor utilities system. Keeping their workers in Winter Park after a hurricane, we had no control over that. And so we talked about, we may only have 14 people in our electric utility, but all 14 are gonna be working in Winter Park. From the time the first outage happens until we get the last customer restored. And that worked way better than even we anticipated, because not only did we have our linemen, we also had our forestry crews that we controlled and our street crews that can push the stuff out of the way. And so we controlled all of the pieces of restoration. And so that worked way better than even we anticipated, even though on faith, we said it would be better. It worked out even better than we thought.

As far as regrets, there were a lot of things I would do differently if I knew then what I know now. You listed some of those and the notes you sent me – we could have done a better job with the separation and reintegration work, which is, once you separate from another utility, you’ve gotta sever all the lines that cross your corporate boundaries and serve it from a new spot. And so we could have done a better job of that initial design. We ended up in that first summer after we took it over with a couple of places that were so overloaded with load, that we had some lines that actually melted where they had been repaired during a previous hurricane before we bought the system. And we had to put some emergency feeders in to bypass and split some load into multiple locations. So there were a lot of things like that. We certainly could have borrowed a little more working capital to start with, cuz we didn’t realize how much of those type of fixes we were going to do early. But from a, have we ever regretted owning it? Not at all. It’s been great for the city in every aspect.

John Farrell:

We’re going to take a short break. When we come back, we discuss whether renewable energy was an interest among municipalization advocates in Winter Park and whether it can help or hurt contemporary campaigns. We also discuss what the city could have done better, and what Winter Park got right that other cities should be sure to implement. You’re listening to a Local Energy Rules podcast with Randy Knight, City Manager of Winter Park, Fla., about the city’s successful municipalization campaign.

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John Farrell:

One of the things that I see in a lot of the public power and municipalization campaigns today is that they have aims of lower greenhouse gas emissions, they, or things maybe they’re focused on affordability specifically for low income residents. Was that ever a part of your goals? Do you have a like greenhouse gas emission goal or renewable energy goal in Winter Park? And do you think that those broader aims for the campaigns that are happening now make their efforts harder? Or do they make it easier? You know, because they might align with what the public is thinking about that they want from a utility.

Randy Knight:

It is interesting when we set out to do this, that was not a goal. Ours was strictly about reliability and the aesthetics of getting the power lines underground and that local control. Within the last, I would say four years that has become a bigger issue amongst our city commission. And we’re starting to implement a lot more effort towards that goal, we’ve bought into 20 megawatts of solar farms. You know, that it’ll be providing our, some of our power beginning in 2023 and 10 megawatts of it in 2023 and another 10 in 2024. The commission just approved a study of how we could move towards 50% renewable and ultimately a hundred percent renewable and a feasibility study of how to get there, not a, not a pie in the sky, we’re gonna be at a hundred percent by 2030, but what’s reasonable. What is actually actionable and doable in the state of Florida with the generation mix that exists in the state of Florida. And so it has become a bigger thing.

To answer your second question, I’m not sure if it’s a help or a hindrance. It probably depends on the makeup of the community. I would think in a community like Boulder, where it’s, you know, very much a green state and recycling and all those things that that’s probably a help, that that’s the goal and the reason for doing it. Back when we did this 15 years ago, 16 years ago, we were probably a lot more on the conservative side of the mix of politics. And it was way more about owning the business that you can reinvest the profits locally into the right things. The results are the same, ultimately, cuz you get to control how your community wants to spend the profits of the system and how that best benefits you, whether that’s green energy or that’s undergrounding or lower rates.

John Farrell:

You already mentioned some of the things that you thought the city might have been able to do better. And in fact, in the presentation you gave, I think it was to South Daytona, which I’m gonna link to in our podcast notes. You outlined, I think a total of six things that you thought you could have done better. Now that you’ve had, you know, 15, 20 years under your belt and thinking about some of these other cities that are considering public power, what do you think are like the two most important things that you did well that they should try to repeat? And what are two things maybe you’ve already talked about the two things that mattered the most that you wish you could have done better they could learn from?

Randy Knight:

Things that they can learn from the biggest one is keep your promises. You know, if you’re gonna campaign and say, you’re gonna do X, Y, Z, make that your focus. First of all, you gotta have the elected officials buy in. That is the reason we’re doing this. Right. But deliver on those promises because people will hold you accountable. One of the things we said is, and we were somewhat guessing, but we said we were gonna underground, but we wanted, but it was probably gonna take 20 to 25 years. So we took over in 2005 and currently our undergrounding plan should be complete by 2026. So it’s right at 21 years. Now with some of the global things that are happening right now and the cost of transformers and that type of thing have, you know, gone way, way, way, way up. It could delay that a little, but we’ve shown to the customers, hey, we’re doing what we said we’re gonna do.

And then, the second thing is, make sure it, that it’s always a community owned utility. you take input from the residents. And if, we’ve recently adjusted the way we were handling service drops because of a lot of input from residents. And so, you know, you have to recognize that we work for the customers and it’s their system. And so you gotta listen. Other things that we do differently. I mean, most of ours were mistakes we made very early in the process, the way we bonded, that was back when auction rate security bonds were popular and they blew up on everybody that did auction rate bonds. That was a mistake that you couldn’t foresee at the time. I mentioned we didn’t bond enough money. And we didn’t challenge stranded cost and, I don’t wanna get into the complicated nature of what it means, but it’s a cost you pay for the investor-owned utilities having relied on you as a customer into the future. Right? And so in our case, we were a hundred megawatt system. Progress Energy alleged that they built their generation based on delivering a hundred megawatts of power to the city of Winter Park. And when we left as a customer, we stranded their cost in their generation for a hundred megawatts of power. They didn’t have a way to recoup it. Well, when we went out to bid for bulk power, they became our provider. And so they still were providing that same hundred megawatts of power. So we shouldn’t have had to pay the stranded cost. We could have challenged that legally and probably won, but our commission said, Nope, we’re done. We’re gonna pull the trigger by this thing and move forward. And not spend another three years in court fighting over that issue. That’s $10 million we spent that we didn’t have to spend.

John Farrell:

That’s such an interesting issue about stranded of costs. Minnesota has a particular piece in its statute of municipalization that requires a city that does a takeover to pay 10 years of lost profits to the utility. And it’s just sort of an interesting interaction with the franchise contracts, cuz as you mentioned, you sign a 30 year contract. It had a buyout provision at the end. One might ask why Progress Energy had any expectation you’d still be a customer after 30 years since it was clearly in their contract that you might not be.

Randy Knight:

And that was the exact argument we made before the arbitrators and Castleberry won on that issue. They won and they were, and Progress Energy was awarded no stranded costs from Castleberry. So had they gone through with it, they would not have paid any. And we had two of the same three arbitrators that they had and they ruled we did have to pay it. And so they, I guess I would say Progress Energy probably did a better job of making their argument the second time. They learned their lesson after the Castleberry case. But that was a big hit.

John Farrell:

Is there anything else that you would offer, obviously, you know, we talked a little bit about how the incumbent provider Progress Energy in this case spends a lot of money advertising, getting involved in elections and other ways to foil the efforts for municipal takeovers, which is, it’s understandable, they’re losing a customer, they wanna do that. Do you have any thoughts about how communities deal with that elephant in the room as they consider this? Cuz it’s not just like a monumental decision for a city to think about, let’s become an electric utility, you’ve got this big powerful institution that’s trying to oppose you as you do it.

Randy Knight:

I’ve given that a lot of thought and I’ve answered that question a lot of time times over the years. And the answer is, if you’re going into it on a three – two vote, like we did, I think the chances of succeeding are very, very slim. if you’ve got 5 – 0 going in, you might be able to weather that storm of them trying to take out elected officials. But we got lucky and we have some very, very solid commissioners that talk to a lot of people to keep from losing. Don’t know how you get there. They will outspend you and municipal elections typically don’t raise a lot of money in a campaign. So when one candidate has three or four times the amount of money of another candidate, money talks.

John Farrell:

Do you think there is a role for a state government or a public service commission to make rules that make the playing field a little more level for cities that consider this or you think that’s just kind of the way that it is?

Randy Knight:

Yeah. It probably varies so much by state. Cuz you know, a lot of states don’t have franchises like we had, they don’t have built into ’em a right to purchase for example. So the answer to that probably varies by state and each public utility commission or, I would say in, in Florida, it would’ve been nice if they made it a level playing field, but you run into the freedom of speech argument when you try to regulate campaign contributions, which is basically what that is. It would probably not hold up if they tried to put a law in place.

John Farrell:

Any last thoughts or advice for all these communities out there thinking about public power?

Randy Knight:

Just that if you’re gonna look at it, hire somebody that’s independent, somebody that doesn’t just always say, yes, it works. try to find a consultant that really will evaluate your situation and make their best estimate of whether the numbers work or not. The utilities pretty much all hire the same contractor to say it won’t work. But there’s a lot of people out there doing the other side and just, ask the real question. Don’t put out a fake number that this is gonna work, show us how it works and how you come up with that. And I, and that’s what I think we were very fortunate to have a consultant that said, look, I’m gonna tell you whether it’s good or bad. And they were honest with us and they said, hey, this will work.

Thank you so much for listening to this episode of Local Energy Rules from the Institute for Local Self-Reliance, featuring Randy Knight, city manager of Winter Park, Florida. We discussed the city’s successful public power takeover, its benefits for local residents, and what lessons it provides for public power campaigns across the country. On the show page, look for links to the slides from Randy’s presentation to South Daytona about Winter Park’s success, a link to ILSR’s research hot spot on taking over your utility, and numerous interviews with leaders in cities that have past or present public power campaigns. Also, if you have an interest in finding more resources about doing a public power campaign, please reach out to ILSR to learn about our forthcoming resource guide and our networking calls with advocates. Local Energy Rules is produced by myself and Maria McCoy, with editing provided by audio engineer Drew Birschbach. Tune back into Local Energy Rules every two weeks to hear more powerful stories of communities taking on concentrated power to transform the energy system. Until next time, keep your energy local, and thanks for listening.