We need a public utility authority
The proposal by Covington Mayor Ronnie Johnston to give senior citizens a discount on electric and gas rates is a compassionate and well-intentioned move. However, it is also a bad idea.
The city already spends more to buy and deliver electricity to residential customers than it recovers in rates. Government should not be in the business of subsidizing a commodity purchased by consumers.
When my wife, Kim, ran for mayor in 2007, we studied every aspect of the city’s budget and operations to build her campaign platform. We found Covington charged the highest summer electric rates of any provider in the state from 2003 to 2007, based on the Residential Rate Survey published by the Georgia Public Service Commission.
As then-mayor Sam Ramsey explained, the city’s rates were driven by the cost to purchase power. More to the point, Covington had not planned for Newton County’s rampant growth in the late 90s and most of the 2000s. Lacking adequate base power, the city was forced during peak summer months to buy 30 percent of its electricity on the open market at spot prices. Rates re- flected that harsh reality.
In office, Kim addressed the situation by securing additional short and long-term capacity. As a result, Covington went from ranking 94th out of 95 suppliers in the 2007 summer rate survey to being 37th best in 2011. Over that same period, the city’s rates improved from being 22.6 percent higher than the state average to being 1.2 percent below average. Working with City Manager Steve Horton, Utilities Director Bill Meacham and city staff, Kim’s administration lowered electric rates the responsible way — by reducing the cost to buy and deliver electricity.
Mayor Johnston means well, and compassion has a place in government. But selling a product below cost is bad business. In 2010, the council was advised by the city’s rate consultant to increase residential rates and lower those charged to commercial customers. The consultant showed resi- dents were getting electricity below cost, while businesses paid 28 to 36 percent more than the city’s actual cost of power. The council lacked the political will to do the right thing then. There is every reason to expect them to follow the mayor’s lead this time, which will make the imbalance even worse.
That’s the problem. Men and women whose place in office depends on the voters should not set those prices those voters pay for a necessities of life. It’s asking too much of an elected council to make fair, sound business decisions when votes are at stake.
It’s not fair that small business owners are overburdened to subsidize residential consumers. Also, it’s not good leadership to create an unbalanced revenue structure where basic city services are increasingly subsidized by rates and taxes paid by business. Short-term relief feels good, but overdependence on industry and small business eventually drives them away and leaves residents facing sudden, unmanageable increases in utility rates and/or taxes.
The council should leave the mayor’s proposal tabled. They should also explore removing the running of the electric and gas utilities from the political arena. Those utilities generate $60 million a year in revenue. That’s a large business to be directed by a board of six elected men and women with no qualifying requirements related to business experience or technical expertise.
Rather than the council having full say over all utility matters, the city should explore setting up a gas and electric authority with an appointed board similar to the Newton County Water and Sewerage Authority. Such a board, with technical and business expertise and an absence of political interests, is best positioned to set long-range plans to prevent another situation like the rate increases of the mid-2000s.
An authority is also more suited to making fair, responsible pricing decisions. It won’t be easy to transition, since the city is dependent on profits from gas and electricity to cover such basic services like public safety. With careful planning and consultation, it should be possible to establish a model for an authority that returns the necessary profit, while doing so in a balanced and responsible manner.
That is where I would urge our Mayor and council to focus.