Electricity powers our homes, businesses and the infrastructure that makes our communities livable and commerce possible — street lights, airports, ports, subways, schools, hospitals, police and fire stations, courthouses, libraries and the like.
In the United States, more than 49 million Americans in every state (except Hawaii) and every U.S. territory are served by community-owned, not-for-profit public power utilities. These utilities serve roughly 18 million homes and 2.6 million businesses. Other communities are served by for-profit utilities or customer-owned electric cooperatives.
Powering our nation’s homes and businesses requires lots of infrastructure. Public power utilities alone own and operate natural gas, coal, nuclear, hydropower, wind, solar and geothermal electric-generating plants; more than 35,000 miles of bulk power transmission lines; thousands more miles of local distribution lines; approximately 8,000 distribution substations; and a myriad of other facilities.
In the last decade, to help continue providing affordable and reliable electric power, public power utilities invested $100 billion to replace aging or outdated facilities, upgrade existing facilities, protect the environment, increase efficiency, improve reliability, and bolster security and safety. Demand for electricity has been, and is expected to remain, flat for several years, and so investments have also leveled off, but public power utilities continue to make investments to keep their electric systems reliable and resilient — $5 billion in 2016 alone.
As community-owned, not-for-profit entities, public power utilities are limited in how they finance these investments. They cannot allow partners to “buy in” and cannot issue additional stock to shareholders. Likewise, they do not amass large cash reserves, which would amount to using excess revenues collected from past customers to build infrastructure to benefit future customers, and there are no large federal programs funding such investments.
Thus, public power utilities rely very heavily on tax-exempt municipal bonds to finance their infrastructure and capital investments. Because interest on a municipal bond is not taxed by the federal government, bondholders are willing to accept a lower interest rate on their loan. Coupled with the flexibility to refinance debt at lower interest rates over time if conditions permit, issuing tax-exempt debt can reduce overall financing costs by as much as 25 percent. Put another way, absent the ability to issue tax-exempt debt, all $5 billion spent on new investments by public power in 2016 would instead have been used to pay additional interest on existing debt.
As policymakers consider “innovative” ways to finance $1 trillion in infrastructure investments in the next 10 years, I would make one point: In the drive to innovate, policymakers should not harm proven, existing financing tools such as the tax-exempt municipal bond.
As discussed, tax-exempt bonds have built public power. Even more important, tax-exempt bonds have built America. Nearly two-thirds of the nation’s core infrastructure is financed with municipal bonds — roughly $2 trillion in infrastructure investments in the last decade and as much as another $3 trillion over the next decade. In fact, municipal bonds are the original public-private partnership. Private entities and individuals lend their capital to public entities to finance the roads, bridges, sewers, airports, ports, schools, and, yes, public power utilities, that make our communities livable and commerce possible. In sum, as policymakers look for new ways to fund and finance our nation’s infrastructure, they should also look for ways to support municipal bonds, and, at the very least, commit to do no harm to this vital and time-tested financing tool.
• Sue Kelly is President and CEO of the American Public Power Association.
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