Municipalization

Municipalization is the transfer of corporations or other assets to municipal ownership. The transfer may be from private ownership (usually by purchase) or from other levels of government. It is the opposite of privatization and is different from nationalization. The term municipalization largely refers to the transfer of ownership of utilities from Investor Owned Utilities (IOUs) to public ownership, and operation, by local government whether that be at the city, county or state level. While this is most often applied to electricity it can also refer to solar energy, water, sewer, trash, natural gas or other services.On the other hand, municipal utilities face challenges that can result in higher costs. The acquisition cost for the municipalized infrastructure was in some cases significantly higher than what was being recovered by the IOU, putting immediate and long‐lasting upward pressure on rates. Operationally, IOUs often have economies of scale that can lead to lower legal, management, and purchasing costs per unit of energy. Municipal utilities are not typically monitored closely by a public service commission, and inadequate auditing can allow poor utility practices to continue unchecked. Finally, the incumbent IOUs had a single, focused objective: safe, reliable power at least cost. Municipal utilities, on the other hand, also focused on the pursuit of other policy goals, which can result in higher electricity costs. Municipalization is the transfer of corporations or other assets to municipal ownership. The transfer may be from private ownership (usually by purchase) or from other levels of government. It is the opposite of privatization and is different from nationalization. The term municipalization largely refers to the transfer of ownership of utilities from Investor Owned Utilities (IOUs) to public ownership, and operation, by local government whether that be at the city, county or state level. While this is most often applied to electricity it can also refer to solar energy, water, sewer, trash, natural gas or other services. Between 2006 and 2016, there have been 13 different communities in the United States that have successfully switched from an IOU to a municipal utility. Most of these communities consisted of 10,000 people or less. Although proponents of municipalization have attempted to municipalize via ballot initiatives, many have failed. The key motivation for municipalization stems from a difference in priorities and goals of the community members and the incumbent utility. While incumbent IOUs have a single, focused objective--reliable and safe electricity at the minimized cost, municipalized utilities also focus on the pursuit of other policy goals, especially sustainability measures and experimentation with alternative energy policy. Efforts to municipalize often also begin with the sentiment that the IOU is not managed well and the notion that by undertaking municipalization of electricity services, a city government can better capture profits and exercise greater control over electricity generation and distribution (also often tying this process to sustainability measures). There is also a neoliberal argument stemming from the historical formation of utility conglomerates. The transition from Direct Current systems to Alternating Current systems in the early twentieth century allowed for greater access to electricity for Americans and enabled the electricity industry to shift to a larger scale. The economies of scale associated with providing a utility created natural monopolies and the associated consolidation of different types of electrical service in urban areas: street lighting, building lighting, industrial machinery, and streetcars. The recent efforts to municipalize electricity represent a return to municipalization as a mechanism to curb monopoly power and corruption. It is also important to acknowledge that the monopoly power of many incumbent utility providers means that they have strong financial and political resources to resist municipalization. Additionally there is always a legal factor with municipalization and state laws governing municipalization vary widely across the country sometimes making the process impossible. There have been two main waves of municipalization in developed countries. The first took place in the late nineteenth and early twentieth century, when municipalities in many developed countries acquired local private providers of a range of public services. The driving reason in most cases was the failure of private providers to sufficiently expand service provision outside wealthy parts of urban areas. The second wave took place in the early 1990s, when after the end of the communist states in eastern Europe state-owned companies in many public service sectors were broken up and transferred to municipal control. This was typical in sectors such as water, waste management, and public transport, although not in electricity and natural gas. Such regional companies either remained under municipal control, or were privatized. Privatization was done variously: by selling them to investors, by giving a concession or a management contract. Examples include the water sector in the Czech Republic, over half of which has been privatized. In the United States, municipalization often refers to incorporation of an entire county into its municipalities, leaving no unincorporated areas. This generally ends de facto the county's own home rule, which in most states allows it to act as the municipal service provider in those unincorporated areas. The county is left offering only those services mandated of it by the state constitution, which are generally only extensions of state government like courts and sheriff departments. As with utilities, the county's assets usually end up being distributed among the cities, though this is less likely if the process is gradual rather than all at once. One example of municipalization is the Sacramento Municipal Utilities District, or SMUD, of Sacramento, California. In another, larger example, Fulton County, Georgia, which includes the city of Atlanta, is currently undergoing full municipalization. For a more complete discussion of this process in the Fulton County context, see the 'Politics' section of the Fulton County article. While municipalization is quite rare in the USA over the past few decades ('of these 900 municipal-owned utility firms, only 2 percent have completed municipalization since 1990') there are a few key, and recent, examples that are often cited.