When Power Goes Out, Who Is Held Accountable? (Episode 84)

Date: 31 Oct 2019 | posted in: Building Local Power | 0 Facebooktwitterredditmail

Host Jess Del Fiacco talks with ILSR’s John Farrell and Chris Mitchell. They talk about the power outages in California brought on by PG&E’s negligence and how a distributed energy system could avoid future outages and detrimental fire damage. They also discuss:

  • Why it’s easier to hold essential utility providers accountable at the local level.
  • What community choice aggregation is and how it can play a role in making energy systems more distributed and democratic in the U.S.
  • How a “utility fee” can create widespread high-speed broadband Internet access competition and offer a low-cost option for all households.

 

We’re wrestling with similar questions about who owns critical infrastructure between these two things. With your internet service, you have a similar problem that you have in the utility sector where you have this legacy of monopoly management that has led to very high prices and poor service… In both cases there’s an opportunity for the public sector to step in and find ways to make sure that services remain reliable and accessible to everybody.

 

 

Hibba Meraay: Welcome back everyone to another episode of Building Local Power. This is Hibba Meraay, I’m the Communications Manager at the Institute for Local Self-Reliance and this week we have a conversation between Chris Mitchell, John Farrell and Jess Del Fiacco. So Jess is on with me today to give you a little sneak preview. Hey Jess.
Jess Del Fiacco: Hey Hibba. Yeah. Just to introduce myself real quick, I do communications within the community broadband networks team here at the Institute for Local Self-Reliance. I’m looking forward to talking about this talk that we had.
Hibba Meraay: Yeah, actually Jess, is this your first time on Building Local Power?
Jess Del Fiacco: It is my very first time.
Hibba Meraay: Awesome. So the first topic you all talked about was basically the disaster that’s going on with PG&E right now and how they’re shutting off electricity for folks to avoid additional wildfires and things like that. Can you tell us a little bit more about that and how it’s tied to distributed energy?
Jess Del Fiacco: John and I talked about what’s been all over the news coming from California. Pacific Gas and Electric has started turning off the power due to wildfire risk. And just a little context on them. PG&E was recently found liable for damage from wildfires last year and they’re now going through bankruptcy proceedings.

And just hundreds of thousands of people have been affected from that and are likely to be essentially hung out to dry from all their losses. The reason they’ve gotten to this point is basically because they didn’t invest enough into their maintenance. They did not want to invest to trim trees, which is now, you know, trees fall on the power lines and spark these wildfires.

Hibba Meraay: Right. It seems like such a simple thing, but I think what it comes down to is that it’s a lot easier to hold people accountable the closer they are to you, right.
Jess Del Fiacco: Absolutely.
Hibba Meraay: You talked a little bit about how if the person you have to complain to is your local City Council or municipal government, they are much more accessible than a giant shareholder owned utility. I think that’s really the thread that runs through the two topics. Because the second topic is the utility fee model, which is a new way of financing municipal broadband that could really solve the digital divide.
Jess Del Fiacco: Yeah. That’s a model where everyone pays and everyone gets connected. It’s a tax increase, which wouldn’t necessarily pay for the network itself, but almost guarantees a certain amount of success. Communities can make that investment and they know people will get connected. And because you have everyone paying that smaller fee, everyone gets at least a basic connection to their homes. So it’s a really equitable solution, which we haven’t seen implemented anywhere yet. But it’s looking like we’ve got a few communities considering it and we’re really excited to see where that goes.
Hibba Meraay: Right. Again, it’s like a really distributed model.
Jess Del Fiacco: Yeah. It’s all about the benefit of local control. So when the community owns critical infrastructure, they can decide what their priorities are and how to take care of people essentially. And when they fail at that, people who rely on them can hold them accountable.
Hibba Meraay: Right. And I think that’s true with energy or internet. So you summed it up nicely. Definitely enjoy the episode folks, it’s an interesting time. Chris almost compliments Comcast and also confesses to being a libertarian. So-
Jess Del Fiacco: There was some was some rowdiness in our conversations between John and Chris.
More than a little tension, but that just makes it fun. So tune in.
Jess Del Fiacco: Yeah, I hope everyone enjoys.
Chris Mitchell: So last night I was thinking about the importance of the electric grid as a massive storm woke me up. Woke my dogs up, woke my wife up, woke my child up and we were all awake listening to hail and massive lightning illuminating the entire upstairs. It was pretty dramatic and just made me think about, I’m pretty impressed that our electricity stayed on, which may be something we’re talking about here.
Jess Del Fiacco: Okay, thanks for that non-sequitur of an introduction Chris. John Farrell is going to talk about PG&E in California and what’s happening with the wildfires out there.
Chris Mitchell: Hey, who are you?
Jess Del Fiacco: This is Jess Del Fiacco, the communication specialist with the broadband team here at the Institute for Local Self-Reliance.
Chris Mitchell: Who’s not annoyed. She just sounds that way because she has to work with me.
Jess Del Fiacco: This is my perma-voice here in the office. And John Farrell’s going to talk about PG&E in California and then Chris is going to talk a little bit about-
Chris Mitchell: Comic relief.
Jess Del Fiacco: And maybe he’ll even get to the utility fee model that we’re seeing cropping up in communities around the country.
Chris Mitchell: Yeah. For broadband networks in particular. Yeah. It’s actually going to be really good. So no matter how boring John gets, I urge you to stick around.
Jess Del Fiacco: Don’t turn off this recording. It’ll get better. So John, lots of drama recently in California. What is happening out there?
John Farrell: There’s a lot of things happening in California Jess, thank you for asking. So I’m John Farrell, I’m one of the Co-Directors at ILSR, the Institute for Local Self-Reliance. We’re going to talk about California. And one of the things that is happening in California that is making national news is the fact that they are turning off the power.

So unlike Chris’s experience here in St. Paul, Minnesota, in California, they are turning off electricity to hundreds of thousands of customers as a preventive measure due to wildfire risk. And there is a lot to this story in terms of, it is a utility that has already been slapped with liability from previous wildfires.

It has filed for bankruptcy. It’s actually one of the largest utilities in the country, Pacific Gas and Electric and like I said, they’ve been having these rolling blackouts to basically de-energize power lines to reduce the risk that there will be a fire caused by trees getting knocked down.

Chris Mitchell: And just wanted to jump in for a second. This is not the first time this has ever happened. A friend of a ILSR, Matt Rantanen, who runs a a wireless network in 20 tribal areas in San Diego County. In that part of the state, the co-op will often cut power during periods of high risk of fire. And so this is perhaps not the first time we’ve heard of this sort of a thing, but it is impacting far more people than than it has in the past and people who are not expecting it, I think.
John Farrell: Yeah. And I’m actually glad that you shared that story because I was not aware of there being a practice generally of shutting off the power. I think the expectation for most folks is that electricity is an essential utility that they need every day and that the utility company will work as hard as possible to make sure that it’s always available.

So that’s kind of one of the things here is that there’s sort of this social compact around electricity and the understanding is, I’m always going to have it. And now the utility is voluntarily choosing to shut it off, which is not usually what we expect. We expect there’s a big storm, the power goes out for a little while, but we know they’re working as hard as possible to turn it back on as quickly as possible. So part of this is in some ways a lesson in history.

So what we found, one of the problems is essentially that if you have power lines, one of your goals should be cut down the trees that live near them so they don’t fall over and hit the power line. And unfortunately, Pacific Gas and Electric and unfortunately other utilities like it have sometimes not invested as much money as they ought to in these preventive measures. So that instead of having to turn off the power grid to prevent a fire when trees are falling on power lines, you instead have cut down the trees ahead of time or prevented them from growing. And there’s some good evidence, unfortunately, that Pacific Gas and Electric has not been doing enough.

Jess Del Fiacco: As we know, California is not the only place in the country that has natural disasters or trees that need to be trimmed. When hurricane Sandy hit the Northeast coastline, we did see municipal utilities recovering faster, maybe managing the situation a little bit better than PG&E has done in California. Could you talk a little bit about that, John?
John Farrell: Yeah, I think that’s a really good example of the issues that we’re facing. Because we have with hurricane Sandy, there were a number of news stories afterwards showing that folks who are served by municipal utilities, city owned utilities, often had power back within maybe a day or two, even less than 24 hours despite the severity of the damage caused by Sandy.

And yet customers of some of the larger utilities that were investor owned, like National Grid, were out for as long as a week. And what a lot of the, when you dig into this, this is actually a pattern that you see. If you look at national stats on reliability in terms of the average amount of minutes that you’re out of power on a given year or the number of outages, municipal utilities tend to be among the best. And there’s a lot of reasons for this but one of them is they invest really well in their maintenance budget.

So when we were talking about tree trimming before and Pacific Gas and Electric, there is a history there of skimping on their maintenance budget. So this actually goes back to 1999 when they were in trouble in front of state regulators for not investing enough. And they had to settle a case about investments that they had not been making and beef up their budget to do more tree trimming.

And again, in April, a federal judge found as part of the bankruptcy proceeding that Pacific Gas and Electric is going through, that their tree trimming budget was insufficient. And in fact, I want to read a quote from that judge that was in the paper back in April when the story came out. The federal judge said, “PG&E pumped out 4.5 billion dollars in dividends and let the tree budget wither.”

And so very clearly this tension for investor owned utilities, which are set up to help pull profits to shareholders between doing the basic maintenance that makes sure that the grid is reliable and paying their shareholders. And of course when you get to a situation like this in California where you have climate induced wildfires that are getting worse and worse, the problem is that you can no longer really escape from the fact that you have been under investing in the grid system and in doing that basic maintenance.

And is also this issue, and Chris has mentioned this a lot in podcast that he’s done, about the benefits of locally owned broadband networks is there’s no strangle effect. It is much harder to reach out and strangle somebody responsible for the problem when it’s a huge investor owned utility that serves half the state as opposed to when it’s a local municipal utility. You can show up at City Hall, find their office and be like, hey, I’m really mad about this.

Jess Del Fiacco: Yeah, you’re getting glares in the grocery store checkout line instead of the occasional angry email.
Chris Mitchell: Let’s not get too caught up in the the strangle effect as long as I’m the boss around here. For at least my program.
John Farrell: What was that, co-director?
Chris Mitchell: So I just wanted to note, I think this really comes back to local self reliance and an issue that we’re going to have in coming years, decades, frankly as we wrestle with these types of issues. Because from a perspective of PG&E it makes sense to slash the tree maintenance budget. Because you know for sure you will be giving more money to your investors today and in the future it’s possible that that will have negative repercussions, but your shareholders will probably not be be on the hook for that is what the assumption is. And that’s certainly been true in what we’ve seen in the history of many of these companies slashing their budgets in that way I think.

And so what it comes down to is then, because we know that PG&E has that tendency and those incentives, we rely on regulators to try to stop them from doing that. To look at this sort of thing. In theory, there is a public utility commission or public service commission that’s supposed to be looking over their practices. But as you know, those people, the regulator, it gets forgotten by the public and the only ones that attention to it are the regulated.

And so they have a strong influence over that body. And this gets back to our preferred solution, which is not to just hope we’ll have better regulators, but to have systems where you will get a glare if you’re doing a bad job. Where there’s a real accountability. Where a person, you know, I think shame is something that we don’t have enough of in certainly the current political climate, but like in general at the local level, there’s repercussions if you screw the community over.

And I think that’s something that we don’t have right now. And we’ve tried to cover for that with a very flood regulator system. But fundamentally, this all goes back to something that I harp on a lot, which is when you do something wrong, is there going to be repercussions? Is it going to be visited upon you or can you externalize it to someone else? For PG&E they clearly have not believed there would be a real repercussion for them slashing those budgets.

Jess Del Fiacco: Do you think there are going to be consequences for this John or are Californians just going to get used to the power being shut off during wildfire season?
John Farrell: I’m going to answer that in just a second, but I just wanted to say that in the spirit of shame that I think I need to have a conversation with Chris after this podcast interview about your performance.

I mean I think this is the crucial question, is what is the consequence going to be? And I think what we’ve seen in the last couple of years is, especially with this issue of wildfire risk, is PG&E the reason they are bankrupt right now is because they are actually being held accountable for the wildfires.

So there was a direct connection made between trees falling on their power lines, as the result of poor maintenance, causing the fires that caused billions of dollars in damage and as much as 80 lives in the 2018 fire season.

Chris Mitchell: Right? I mean let’s just be clear, like billions of dollars in damages, but people’s homes destroyed, memories wiped out. I mean you can’t put a price on the lives that are lost, the amount of damage that’s done to people’s, their families and things like that. I think it’s worth noting that and you’re saying they’re paying a price and I just want to note, I don’t think that some shareholders losing some money is the appropriate penalty for this level of damage, but that’s the best we can do under the system that we have, it seems like.
John Farrell: Are you thinking about tarring and feathering Chris?
Chris Mitchell: But only when there’s a low risk of fire should we do tar and feather in point.
John Farrell: I think there’s a couple of things I think that are really interesting tied into this in terms of implications. So when we talk about responsibility, so the company is now bankrupt. Of course, bankruptcy is often a way for an investor owned companies to shed liabilities and responsibilities. And then to come back and hand out profits to shareholders.

So this is actually one of the big questions going on right now, is how is California going to resolve this crisis in a way that’s fair for folks. And one of the ways that we’re talking about this is about the potential of shifting to public ownership. In fact, this is kind of already happening. For the last decade, hundreds of thousands of Californians have already been installing their own solar arrays.

So they’ve already said, in effect, we can get a better deal producing power for ourselves. And now they’re starting to talk about adding battery storage. In fact, that’s unfortunately one of the things that Pacific Gas and Electric is essentially saying to people is, we’re going to shut off the grid so you better have your own power system.

And the problem is that that solution by itself is not very equitable because of course only people who have lots of money can have access to that solution. The other thing that’s been happening though, really quick though, is just that we are seeing a growth in public ownership of utility systems through a policy called community choice. And so as many as half of Pacific Gas and Electrics customers are going to be served by public agencies within the next year.

Chris Mitchell: I want to come back to that because I think it’s an important point, but I wanted to know, David Morris has talked about this in the past, and I don’t know if it’s been on Building Local Power or not, but one of the things that he’s talked about is how for years, for decades, there’s been arguments about high voltage lines versus more distributed generation.

And one of the arguments has been that it would be too costly to do distributed generation in part because, I think, the way that the high transmission line economics work. The costs are paid in different ways that are externalized to some of the people who really benefit. But fundamentally what we’ve come at now is a point at which PG&E is saying, “Having built all these high voltage power lines with other people’s money, well now you also need to do all the costs of decentralized generation and power storage.” Which means that we effectively are paying the price for both systems but getting the benefit of neither one, which is just really dumb.

John Farrell: I think this is why that in the end I am optimistic that PG&E will not be managing the system anymore as a private utility. Whether it’s because out of the bankruptcy proceeding that the government in California and the regulators decide it needs to be in some sort of public receivership, or whether they decide to break up the company, or whether it’s simply because the customers are already leaving. Already, like I said, about half of their customers who buy electricity from Pacific Gas and Electric will have started taking power from a public agency like San Francisco’s Community Choice Agency Marin County.

I mean a lot of the Bay Area already is… Customers are actually going to be served by these independent community based agencies that make the power supply decisions. Now the issue is they don’t buy the grid from Pacific Gas and Electric. So we’re getting into this weird situation where all of the purchasing authority is going local and in ways that I think are really going to make smart investments in decentralized power generation, but Pacific Gas and Electric still owns the poles and wires or at least their creditors do at this point. And so one of the difficult questions is going to be how much more of that infrastructure do we build? It’s really big. And how do we maintain the stuff that we have? There are lots of people writing and talking about this and energy Twitter is all the flutter about, well what do you do about these power lines? Do you bury them at the cost of like $10 million a mile? Is it really just enough tree trimming? Would that solve the problem?

My instinct is, and what we find with other utilities in California, if we just spent more on maintenance, we might have a much smaller problem that we’re talking about right now. And there may be some other things we also need to do to make the system more resilient, but at the basic level, we just need to invest the right amount of maintenance and to acknowledge the fact that it may be more expensive than we thought to have this big centralized system because it is more vulnerable in a climate charged world than we initially expected.

Chris Mitchell: Well, that actually in some ways ties us to the second topic, which we don’t have to jump to right now, but if San Francisco or some other public entity takes over the PG&E assets, there is a tremendous opportunity to include fiber optics if anything’s buried. There’s already a lot of ducts throughout the city of San Francisco that would be then available for fiber optics to improve internet access because it’s similar in a lot of ways to the electricity in terms of needing to have wires everywhere.

But the other piece of it is San Francisco had thought about and rejected doing a utility tax. So it all comes back to that. But I do actually just want to ask you one additional question John, and that’s, once again, we’re spending a lot of time talking about California. What is happening elsewhere with community choice aggregation?

John Farrell: So pleased that you teed up this question, Chris, because we’re about to publish a report that gives an update on a lot of the developments across the country. And what we’re seeing is it’s really starting to spread. That in the last five years a number of states that have not had this option for communities before have adopted it, Virginia, New Hampshire and New York.

We’re seeing new growth in states that haven’t had programs before, Massachusetts, New Jersey, and so it’s spreading further first of all to more states, and even in the states that have had the policy for a while, we’re seeing more and more communities signing on to do it.

It’s typically in states where there’s already competition at the retail level. So you’re not finding a state like Minnesota where the utility is vertically integrated monopoly. It means it owns everything from the meter on your house all the way up to the power plant, do this because it would be a significant restructuring of how things work. They’re doing it in states where there was already competition where an individual already had choices, but what they found is that individuals don’t have any leverage, so they don’t really get good choices. They get options like, “Hey, sign up for this promotional pricing package for six months and we won’t tell you how much it’ll cost after that.” Which may sound familiar.

Chris Mitchell: You can’t get away with that and we’ve never see that in an essential utility service. Come on.
John Farrell: So Community Choice is not only growing in terms of giving more power to communities to choose where their energy comes from. So this is usually meaning lower prices or at least competitive prices. It’s meaning a lot more investments in renewable energy, well over half of the community choice entities across different states are offering higher mixes of renewable energy, so more wind, more solar power. But California is really… I hate to keep bringing it back to California but it’s in California where we’re seeing their real innovation happening with community choice, in terms of these agencies going… Like where you mentioned San Francisco and this notion of if they took over the poles and wires they could integrate broadband service.

We’re not seeing that yet obviously because they don’t own the infrastructure but we are seeing them integrate the community choice of energy supply with other community level decision making. So things about zoning or permitting for clean energy resources, integrating with electric vehicles and transportation investments and thinking about how, “Hey if we offer like discounts on heat pumps for homes and we offer discounts on electric vehicles, those folks can get inexpensive clean electricity to power those vehicles from our community choice electricity service.

So that is the kind of cool thing that is happening on the edge of this policy right now that communities are really pushing forward.

Jess Del Fiacco: We’ll be back in a few seconds, but for now we’re going to a short break.
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Jess Del Fiacco: Okay Chris, so we’re on to topic two here today. And could you start by just giving us a definition of what the utility fee model is and what it offers communities that are thinking about investing in broadband infrastructure that other models don’t?
Chris Mitchell: I can try. I wanted to start off by noting that in no way am I frustrated that I’m once again playing second fiddle to John who has more Twitter followers than I do. The utility fee model is one in which everyone pays, and in fact, actually I’m curious if John knows much about utility fees. I have just kind of learned more about it in recent years, but I think the assumption is often that it’s for a service that everyone uses and therefore everyone pays into. And so the idea here is that you would connect everyone with fiber optics and everyone would pay some amount. In some cases it’s been forecast, like in San Francisco it may have been as much as 40 or $50 a month of an increase in attacks. But in other places that we’re looking at where I think it’s more reasonable and more likely to happen, it’s like $15 or 12.50 or something like that.

I think if you can keep it below $20 a month, it becomes much more reasonable. And in return for that, you get a basic internet connection, which may be different from community to community, but just by virtue of being in the community, you would have fiber optic access to the internet, which would be a high quality signal, but you might be limited to maybe a kind of connection that’s slower than your typical cable connection today, but would still be very good for families who could not afford anything better than that.

Jess Del Fiacco: And you always have the option to pay more for a higher level of service.
Chris Mitchell: That’s right. So that’s the next piece of it, which is that then you have that network everywhere. The costs are spread. That doesn’t pay for the entire network. It’s actually more that that is a a dedicated and planned revenue stream that will be there to help pay for some of the network. It gives investors more faith that this is a business model that will work out even if it struggles to get customers in early years. But fundamentally a lot of the money that would pay for the network would come from people who are saying, “I would like to get a gigabit.” The fastest that we see in the United States right now.

And that might cost on the order of $40 a month, which in addition to the utility fee would still be a very reasonable price compared to what people are paying on their cable bills today. We’re talking about a total cost to the household of maybe 55 to $60, and they would be able to take services from a variety of providers in that situation because the network would likely be open to multiple providers who would all compete on it. In the same way that those of us who have gray in our beards remember in the late ’90s when we had early DSL but also the dial up era of internet access, You had a dial up modem in your house and you could call any one of… If you were in a small town like I was, maybe two or three providers, but if you are in the twin cities, you could probably pick among 20 to 100 providers to get your dial up service from.

This approach, this utility fee approach would effectively build a common network that would allow multiple different providers to compete on it? And we haven’t seen it anywhere yet in part because I think elected officials have been afraid to propose a tax to pay for this sort of a thing, but we’ve seen more communities noodling it over. I think Kainesville and American Fork in Utah are somewhat public now about considering this approach.

And Davis has considered it in California as well as San Francisco, and they decided not to move forward with it there. But it’s something that I think is just terrific because it solves the digital divide issue in that everyone gets a basic connection.

Jess Del Fiacco: As you mentioned, communities haven’t actually started pursuing this yet or haven’t done it yet. So are there challenges to building this kind of network?
Chris Mitchell: Historically there’s been a challenge with open access networks, because you have a city that may build this network and open it to multiple competitors. So again, you’d have… Let’s just step back for a second. You have the cable network still, you have your Comcast or your Charter probably, you’d have the telephone network from AT&T or CenturyLink or Verizon or something like that. And then the city would build another network, and that network using an open access principle in the past has struggled to get enough customers because it was not using any sort of utility fee or tax at that time.

This resolves that issue in that everyone’s contributing and everyone gets a basic connection. And so we haven’t seen this attempted in this manner, but some of the lessons it draws upon are networks that have struggled to pay their bills because the open access model has been one that has really struggled. Utopia is famous for it, which is doing really actually wonderfully now. For many years it was considered a failure. I don’t think we can consider it much of a failure anymore, although it still is being supported by some sales tax in those cities in Utah that have been a part of it. But this model is one that’s been adapting over the years.

John Farrell: Chris, I’m really curious. I want to ask you the Obamacare question about this, which is, so if a city goes down this route, can I keep my doctor? Can I keep my current service provider, Comcast or whatever already has cable coming to my house? Do I have to sign on for this? Do I have to pay for it? Can I opt out of it? This actually reflects a little bit on the way that this community choice policy works in a lot of the states that it’s happening where it’s an opt out model. So by default you get subscribed to the community’s product, which is important because again, it gives them that sense of certainty we’re going to have enough subscribers to pay for stuff, but folks get an opportunity to opt out. So are their opt-outs number one? And number two, can I keep the service provider I already have? And then in that case, what do I have to pay?
Chris Mitchell: Well, you always have the option of keeping your service provider as long as they don’t leave town. You asked several important questions and I want to make sure that… Don’t let me get off the hook if I don’t answer them all, but there’s nothing a city can do to kick out a Comcast or an AT&T, and in our experience with municipal networks bringing competition, we’ve only seen a cable provider leave a market in two cases that I’m aware of, and both of them were small cities, one in Iowa, one in Kentucky. And so it would be very surprising if any existing providers left the market and you were no longer able to take services from them. Now you would have not just one new option from the municipal network, but multiple options of companies that would be using that network. And we presume that Comcast and AT&T and other large providers would probably not use that network because they’ve said for many years, “We will not use that network.” Because they want to maintain this monopoly approach.

Now CenturyLink is operating on a network which is not a utility fee model, but nonetheless is a network that’s being built by Springfield, Missouri, and will allow CenturyLink as well as other providers to connect anyone in this city of more than a hundred thousand people in Missouri. And so we’re hoping that this is the beginning of an era in which a city would be able to build an open access network and a provider like CenturyLink would compete on it. Because that would give investors greater faith to invest in that physical network and allow cities to then build it.

Jess Del Fiacco: So Chris, could you touch on the opt out question?
Chris Mitchell: Yes. So this again will vary from community to community. The versions I’ve looked at, generally there’s no opting out. Much like I can’t opt out of paying taxes that go to the schools or the roads or things like that.
John Farrell: Anything triggering for you about garbage service right now, Chris?
Chris Mitchell: Saint Paul, Minnesota, I irrationally love my city. We’re having a fight about a poorly implemented trash program that we are not allowed to opt out from. I take opting out seriously, but at the same time, this is why I think it’s important to keep the rates low because everyone gets something. And I think it’s unfortunate. Like the libertarian in me says, well, you shouldn’t be forced to do something you don’t want. And yet the very fact of living in close proximity to other people means we have to make hard decisions about when we do force people to opt into things.

And I use the school example often. People who are not going to have children paying money that goes to upgrade the schools and they haven’t benefit from that. In this case, if you say, “I’m never going to use the internet.” Then in theory you’re not-

John Farrell: You’re a liar, but okay.
Chris Mitchell: There may be some people. Now it’s worth noting, there were some cities in Utah here in which they’re talking about perhaps having an opt out process, but it would be limited. So you…I could imagine that, again, because you’re doing this requirement, in part, to make sure that you have the numbers work out, the financials, and you want to have a dedicated revenue stream coming in, they would have a limited number of opt-outs. So perhaps 5% of a city could opt out, or something like that, and you’d want to be one of those people perhaps. But it’s important to note, even if you didn’t take that free service and use it and if you didn’t take a service from an independent company that was operating on that network, you would almost certainly still benefit from your cable television, your telephone service, which half of Americans still take, or your Internet access from a provider like a Comcast, or a Charter, or AT&T because they would be more competitive in the rates that they were offering in this new environment in which there was robust competition.
John Farrell: I think that’s really great that you touch on that competition piece. And I think this is another thing I have been thinking about as you were talking about this whole model, is a reminder to people that the way that we’ve been doing Internet service and telecommunications has generally been this monopoly or duopoly, where there’s not very significant competition in most places. And then you’ve developed some amazing maps to help people see this. And so I would definitely encourage people to go to the many networks at our website and check out these maps.
Chris Mitchell: The only place we see competition is on the op-ed pages, where people create fantasies and after cashing their checks from the big cable and telephone companies and say, “I don’t know what everyone’s problem is. I have 10 choices in my city,” which is actually not supported by any data anywhere.
John Farrell: Right. But I think what I wanted to get at, though… and I… Because I think what you’re highlighting here is a really important issue is that in some ways, rather than thinking of this as a utility fee, it’s a competition-enabling tax, right? It’s a way of a city saying. “This market does not serve… First of all, it doesn’t serve a lot of people.” So you mentioned the digital divide. We have millions of people who can’t afford basic Internet service and are relegated to cell phone data plans. And so these folks have never had access to something that’s low enough cost and reliable for them at the basic level.

But then you also have all these other folks, sort of middle class people who probably don’t think a whole lot about it, but do get to watch their cable bill continue to rise and rise and rise, who would really benefit a lot from their being at least enough competition to eliminate the monopoly profits model and to require the Comcast and the AT&Ts and the Verizons, to actually compete with somebody else and to reduce their margins from 50% on a customer to 20%.

Chris Mitchell: 50% would be nice. I mean, I think some of these cable companies for the internet access product, they’re looking at a margin approaching 90% at times. It’s remarkable, but you’re right. I mean, you’re absolutely right. In fact, this is the way I like to try to think about this idea, which is very sales pitchy of me. I mean, maybe I’ll start shouting into the microphone like the Sham Wow guy. But the way to think about it is this. So I pay a $90 a month -ish for Comcast service in my home. For service which is slower than what I’d probably pay total costs on the order of 60 or $70 tops in this model. So you could finance-
John Farrell: You should come to Minneapolis, Chris. I have 300 up and down megabit service for $50 a month.
Chris Mitchell: Yes. Shout out to Travis Carter who doesn’t actually listen to this show, but runs US Internet, a wonderful local business in Minneapolis that has demonstrated how great it can be to have choice in competition. So here’s the thing, right? So I’m paying a lot of money for this. Basically, we are going to bring tremendous competition to your city. Oh, that sounds great. How are you going to do that? Well, we’re going to build this network and we’re going to have lots of internet independent service providers competing on it. Oh, that’s wonderful. That’s great. Well, who’s going to pay for it?

You are, and you’re going to pay for it by us lowering your bill. Because right now, you’re spending all this money that could finance this great network, but you’re overpaying in fact, but that money is going to Philadelphia or New York or Dallas. We’re going to keep that money in the community. Everyone’s already paying for it. We’re just going to distribute it better in ways that enable competition and the numbers actually work out that way. Now the threat is of course, that if Comcast or others wanted to try and strangle this model in the crib, they would come in and they’d start saying, “Well, we’ll offer you that Mr. Mitchell, that $95 a month you’re paying right now, we’ll cut it down to $35 a month and we’ll do that for two years.” And that’s the question for Attorneys General to answer, whether or not if that’s predatory pricing or not. But again, everyone’s benefiting in that scenario.

Jess Del Fiacco: So Chris, let’s say this model takes off, we see it in communities across the country. What happens to these incumbent providers? Where’s Comcast in 15 years?
Chris Mitchell: I don’t know where Comcast is in 15 years. And I think it’s a really good question. This is where people would be very confused if I’ve been abducted by my body double. Comcast actually provides high level good services for a national company of their size. I hold Comcast out as being much better than your AT&T’s, your Charters or others. The customer service is bad, the prices are high, but they have a very professional, high-quality network. I think they would continue to operate it.
Jess Del Fiacco: The bar is low, but they are clearing it.
Chris Mitchell: Well, so I mean, let’s be clear, Comcast gets connected 8 million Americans with this low cost internet essentials program. For all my criticism of Comcast, I try to keep a clear eye. I’m really glad I’m not a media comm cable monopoly customer. That would be really bad. But those cable companies have an infrastructure that can be upgraded. We’re seeing innovations in coming years in which they will be more or less able to keep up with some of the speeds, at least in the advertised rates. The quality won’t be as good over that cable network as it would be over the fiber optic network a city would build. But I think they would maintain… They’d be competitive because it would not be a lot of costs for them to maintain that infrastructure. It would be hard for anyone else to come in and build new infrastructure. But I think we would see multiple, what we call facilities based competitors. And that would be good. Because I think it would be bad if this model resulted in Comcast and AT&T leaving town.

I think fundamentally we want competition at the physical layer. We’re not going to get a lot of it. But having two providers is a heck of a lot better than having one where that provider, even if publicly owned could get lazy in some places. We see this with municipal electrics where on the whole, they are far better than the IOUs, but there are some in which I would say they’ve kind of forgotten their mission and they need to be reminded of that and hopefully they will be reminded of that, there are mechanisms to do that. But having a facilities based competition I think would be good. And so I think there’s a role for those companies to some extent. I think AT&T where it has fiber, would compete hard and then they’d focus on their wireless more. But I think Comcast would continue to grow and exist in that area and it would be a good thing because it would provide more innovation and competitive spirit in the market.

Jess Del Fiacco: So what do we want to see next, Chris? What should we keep an eye out to see if this model is actually taking off or if it’s dying an early death?
Chris Mitchell: I think we could see it start in some places, perhaps on a more limited basis. I don’t know that a city would have to do this across the entire city. We could have it in a district or something like that potentially where you’d still want to have more than 10000 potential customers. So a large city wouldn’t have to commit to the entire city but could do a trial in an area. I really think we’re going to see it in Utah first. Utah has a stronger collective spirit despite the fact that in many ways they are very reserved… really reluctant to use government. I mean there’s a lot of focus on collective action through the church and also Washington state theoretically. In both of those cases we have a robust set of of independent service providers that could operate on a network like that.

I think that’s another key is that if you build the network like this, you really want to make sure you have a few core service providers that are going to be really good because let’s just say we built Mitchell net in Saint Paul, Minnesota and the first two providers that were on it and we’re competing, were not good. People wouldn’t say, “Well that provider A and provider B aren’t very good.” They would say, “Mitchell net sucks,” and that would hurt my feelings. So I mean it’s really important that when you launch a network like this, you are professional and that you get a good reputation right off the bat with providers because people will assume if the service provider is not good, the network is not good despite the fact that they are decoupled.

Jess Del Fiacco: So it’s about picking the right partners and making it clear that there’s mutual benefits for both the community and the providers.
Chris Mitchell: Right, and I think a lot of this really comes back to lining up the incentives correctly. I mean, what we’re talking about is building digital roads. We have roads across the city, they’re paid for by the public, and the private sector gets to operate on them. I mean, there’s actually an interesting taxation question here because you issue bonds to build roads, they are tax exempt. If you build issue bonds right now to issue a fiber optic network in this manner, it’s considered taxable because of the private use or private benefit discussion. And so despite the fact that it’s a very similar model and I think in 10 or 20 years we’ll think of these networks as being public benefit despite the fact there’s lots of private benefit as well. Anyone who knows anything about taxes might be cringing in my discussion of this right now.
John Farrell: I’m going to say if there’s any bond lawyers out there who want to issue a pro bono opinion on behalf of Ilas Hardware, we’re willing to talk.
Chris Mitchell: Or just correct me on this, but in general there’s this sense that this is building a network in this way would be getting too many private benefits for certain entities and so therefore it’s not an appropriate use of of non-taxable bonds. Although the yield, the difference between taxable and nontaxable bonds today is actually lower than it has been. And on top of that, non taxable bonds are more appropriate for the kinds of big investors that none of us are. And so if we wanted to support our communities by buying bonds, in many ways, taxable bonds are better anyway, because that’s the kind of bond that I could buy in if I believed in it.
Jess Del Fiacco: I think we’re losing the plot a little bit on this conversation.
Chris Mitchell: This has never happened to me before.
Jess Del Fiacco: But John, was there anything else that you wanted to ask or talk about?
Chris Mitchell: Just take the mic away. that’s appropriate.
John Farrell: Before Chris sends us on a Bon voyage. I just wanted to emphasize I think that we’re sort of wrestling with similar questions about who owns critical infrastructure between these two things. With your internet service, you have a similar problem that you have in the utility sector where you have this legacy of monopoly management that has led to very high prices and poor service and in particular it’s coming to a head in a fascinating way in California, but it’s kind of a harbinger for what is going to happen with other electric utilities that have been monopolies, because like I mentioned before, hundreds of thousands of California electric customers are putting solar on their rooftops. Whether or not they need to do it to protect themselves from blackouts due to wildfire liability for the utility company. And so I think we’re just at this really interesting moment where competition is happening in interesting ways. And so in both cases there’s an opportunity for the public sector to step in, whether it’s through community choice or these utility fees and find ways to make sure that services remain reliable and accessible to everybody and that folks have choices.
Chris Mitchell: Yeah, and I would just… I would echo that and just note that as we work through this, I think there are lots of roles for the private sector. I think we’re going to be having these debates over socialism versus capitalism in ways that no one actually agrees on the definition of what those things mean. But at the end of the day, one of the things that’s really important is the incentives on the entity that’s doing stuff and whether they have skin in the game. Do they actually have a fear that if they screw up or that will they be punished for it? Will there be some consequence for them? Or are they playing with house money where it’s sort of this classic saying of, “Heads I win, tails you lose.” We don’t want to organize important infrastructure that way. Jess, was this your first Building Local Power?
Jess Del Fiacco: It was, yeah.
Chris Mitchell: Welcome to the Free Willing Building Local Power Podcast.
Jess Del Fiacco: It’s been great to be here and thank you guys for a good conversation.
John Farrell: Thank you.
Hibba Meraay: Thank you all for tuning into this episode of the Building Local Power Podcast from the Institute for Local Self Reliance. You can find all the links to what we discussed today at ilsr.org, clicking on the show page for this episode. That’s ilsr.org. While you’re there, you can sign up for one of our many newsletters and connect with us on social media. This podcast is produced by Lisa Gonzalez, me, Hibba Meraay and Zach Freed. Our theme music is Funk Interlude by Dysfunction Now. For the Institute for Local Self Reliance, I’m Hibba Meraay and I hope you join us again in two weeks for the next episode of Building Local Power.

 

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Audio Credit: Funk Interlude by Dysfunction_AL Ft: Fourstones – Scomber (Bonus Track). Copyright 2016 Licensed under a Creative Commons Attribution Noncommercial (3.0) license.

Photo Credit: Pendelton Marines

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Hibba Meraay
Follow Hibba Meraay:
Hibba Meraay

Hibba Meraay manages communications for the Institute for Local Self-Reliance. She works closely with all of our initiatives to build community power and combat monopolies. A native New Englander, Hibba is a graduate of Boston University. Contact Hibba for media inquiries.

Hibba Meraay
Follow Hibba Meraay:
Hibba Meraay manages communications for the Institute for Local Self-Reliance. She works closely with all of our initiatives to build community power and combat monopolies. A native New Englander, Hibba is a graduate of Boston University. Contact Hibba for media inquiries.