Student Post: Nebraska Shuns the Investor-Owned Utility

Out of all of the States in the Union, Nebraska is the only one that does not allow investor-owned utilities (IOU) to operate within its borders.  Nebraska Power Association claims that “their electric prices do not include a profit.  That means Nebraska’s utilities can focus exclusively on keeping electric rates low and customer service high.”  Is Nebraska right in their ban of IOUs from their state, or do IOUs serve a purpose towards the overall benefit of the generation, transmission and distribution of electricity.

According to William Pentland, a contributor to Forbes magazine online, “the prevailing business model for investor-owned utilities is flawed, antiquated and deeply ineffective.”    Mr. Pentland goes on to discuss the fraud which he claims has gone unpunished at Consolidated Edison of New York.  In most situations IOUs have some kind of government regulation controlling some aspects of their business, but it appears that Mr. Pentland believes that these regulations are not enough and IOUs are still operating in ways that are not in the public interest.  Despite Mr. Pentland’s criticism, he doesn’t go on to offer any solutions to this problem.  He doesn’t discuss whether we should modify the current IOU system or switch entirely to a new system, such as publicly owned utilities (POU).  Instead he seems to provide only one example of a corrupt IOU and says something should be done.  In my opinion, corruption can occur in any business structure, so there must be other reasons for choosing one system over the other.

A good way to examine the benefits of IOUs versus POUs is to look at a state that provides both, such as California. According to Anaheim Public Utilities (APU), POU’s provided electricity at rates 41% lower than what IOUs provided them at in 2003.  APU elaborates on these benefits by arguing that POUs are willing to develop in areas that need the electricity, not just areas that are profitable, are controlled on a local level with more community influence, and have higher transparency for the utility provider. 

Although there seems to be many arguments for the benefits of POUs, there still is the question of why Nebraska is the only state that goes completely without IOUs.  In fact it appears that many states are doing just fine with having IOUs.  According to the Energy Information Association, Nebraska had the ninth lowest electricity rate in the nation in 2009.   Although this is still quite low, it still isn’t the lowest, which means other states are providing cheaper electricity then Nebraska with IOUs.  Although these cheaper states range from Washington to North Dakota, it isn’t clear what exactly makes them able to afford lower electricity rates then Nebraska.  One thing is made clear; removing all IOUs from your state doesn’t necessarily mean that your state will have the best energy prices, and thus to make a ban of IOUs really worth a states while, the state must really value the other attributes of POUs, such as greater local control.