Through our local industrial development agency, Monroe County politicians have wasted millions of our tax dollars in a largely unsuccessful effort to stimulate more investment, create jobs, and generate superior economic growth. State politicians gave away more, almost $60 billion since 1980.
However, there is a smart way to make the Rochester area more attractive for new investment. This technique will also benefit existing businesses while lowering costs for every person, business, and government in Monroe County and six surrounding counties if they want to join in.
The solution? Create a nonprofit public power agency to replace our Spanish-owned electric utility, Rochester Gas and Electric, known for not cutting tree limbs, resulting in power outages, and sending crazy bills like the one I got for $9,000. It provides such poor customer service that state regulators fined RG&E $6 million last year.
Paying 70 percent less
In contrast, Fairport residents, who have been served by municipally-owned Fairport Electric for more than a century, pay about 70 percent less than RG&E customers for the same amount of juice.
Nationwide, investor-owned utilities charge residential customers 13.9 cents per kilowatt hour, while nonprofit public power charges 12.4 cents, about 10 percent less.
Significantly, these savings occur even though nonprofit electric utilities typically pay property taxes or their equivalent, honor union contracts with utility workers, and invest more in reliability. Their culture is about service and lower prices, not profit maximization.
According to the American Public Power Association, which represents nonprofit electricity providers, customers of corporate utilities like RG&E spent an average of $267 more on electricity in 2021 than public power customers. According to federal census data, that means Monroe County’s 310,000 households—excluding Fairport and Spencerport which have public power—wasted almost $83 million.
More local profits
Replacing RG&E with a locally controlled nonprofit public power agency would improve local business profits. From the owners of bodegas and floral shops—who pay a lot to refrigerate flowers and ice cream—to hoteliers to landlords, when electricity costs go down, profits rise. Building values also rise with cheaper electricity.
The lower public power cost numbers come from detailed reports that all electricity providers—corporate, cooperative, and municipal—file with the federal Energy Information Administration.
Investor-owned utilities also pay outrageous compensation to their CEOs even though electricity distribution is monopolistic, not a competitive business. For example, PG&E in California paid CEO Patti Poppe $51.2 million in 2021.
Iberdrola, RG&E’s corporate parent paid $7.1 million to CEO Jose Ignacio Sanchez Galan in 2023.
A competent manager to run RG&E could be had for far less. Martin Adams, general manager of the Los Angeles Department of Water and Power, makes $477,000. The Sacramento Municipal Utility District pays General Manager Paul Lau $778,000. Fairport pays its municipal electricity manager, Byron White, $135,445.
Enriching Europeans
RG&E’s financial report shows $173 million of pretax profits in 2022. Those profits don’t cycle through our community as dividends to investors. Instead, the profits flow to Spain.
RG&E also shows almost $16 million in corporate income taxes, but that’s just a bookkeeping entry. The taxes typically aren’t turned over to the government for years because Congress requires corporations to keep two sets of books, one for reporting to shareholders and a separate set for reporting to the IRS.
The differences in these rules create a wedge in which companies tell shareholders their nominal taxes now but don’t, thanks to the grace of Congress, pat the taxes until much later. The money listed as income tax expense but not yet paid over to the government is then invested, allowing Iberdrola and other for-profit utilities to earn extra profit by investing that unpaid tax money. Meanwhile, the value of the delayed tax money is eroded by inflation.
In effect, the delayed taxes are a form of zero-interest loan that utility customers give to Iberdrola. Sometimes, our government never gets the tax money, as I proved years ago. By acquiring tax shelters, both legitimate and shams, and making certain other investments unrelated to electric service, companies can arrange to pocket the tax money without being required by the state Public Service Commission to give the money back to customers.
In 2002, I revealed that delays in handing taxes over to the government convert the burden of taxes into profits. My New York Times editors heard many complaints that I must be crazy. Luckily, my work inspired a congressional investigation, a three-volume, 1,800-page report that showed I was right—for many companies, especially utilities, taxes are a profit center.
As a journalist interested in efficient and effective economics and exposing rip-offs, I’ve written more about electricity pricing, regulation, and the financial games that corporate utilities play than any other journalist in America over the last half-century.
Saving a billion dollars
My New York Times reports promoted changes in utility tax rules that saved customers $1 billion in just one state, Oregon. I’ve also exposed corporate utility tricks that raise prices by manipulating the lax laws governing the so-called electricity markets. I’ve also shown how to make electric utility rate increase proceedings fair, not one-sided.
When RG&E earns profits today but pays its taxes by and by, it is, in effect, borrowing money from you at zero interest and then years or decades later paying its delayed tax bill with dollars eroded by inflation. Your pocket gets picked, coming and going.
The costs can be huge for consumers. My bestselling subsidy expose´ “Free Lunch” revealed that Warren Buffett’s sprawling Midwest, Oregon, and Utah electric utility arranged just such an interest-free loan through delayed tax payments—$666 million, only half of which would be turned over to the government after 34 years.
Imagine how rich you would be if you could pocket the interest on two-thirds of a billion dollars for a third of a century. Now imagine how much poorer you would be if you were on the other side of that deal, putting up the money but not receiving any benefit.
If a local power agency replaces RG&E, these pocket-picking games will end because nonprofits don’t pay corporate income taxes.
Cheap Niagara Falls electricity
To be sure, nonprofit public power agencies must charge more than their immediate costs to earn a modest surplus for investing in maintaining and improving the electric distribution system. A Monroe County public power agency wouldn’t need more than a thin slice of RG&E’s $173 million pretax profit and wouldn’t need $16 million now to pay taxes due in the distant future.
Another cost-saving benefit is that nonprofit electric utilities enjoy much greater rights to access cheap Niagara Falls hydropower than for-profit utilities like RG&E. Most of that power is allocated already, but in years with heavy flow through Niagara Falls a new public power agency would likely get more than RG&E would.
Arousing the interest of business owners is the key to making this beneficial change to nonprofit ownership of our monopoly electric distribution company.
Advocates should ask business owners and executives this question: Why would you pay 10 percent more for electricity than is necessary? The 10 percent or so in excess costs could be used to expand your business operations, pay yourselves more, or increase worker pay. So why would you send that money overseas?
I’ve talked with Rochester Mayor Malik Evans about the benefits of replacing RG&E with nonprofit power. His cautiously worded responses conveyed a sensible message: when the business community demands cheaper electricity through a nonprofit public power system, Evans will work for it.
Citizens, especially local business owners, must demand that Evans, County Executive Adam Bello, and others fight for lower electricity prices for local businesses and residences. We should not let them stand idly by while Bilbao benefits at our expense. They should be put on the defensive with this question: “Why are you favoring a European corporation over your constituents and local businesses?”
Study Costs
Advocates for replacing RG&E have estimated that a feasibility study would cost more than $1 million. This is utter nonsense.
Robert McCullough, the former chief economist at Oregon’s Portland General Electric and a prominent utility cost consultant whose insights I’ve relied on for decades, says $50,000 is more like it.
One last point: RG&E won’t give up easily. No one gives up easy-to-make monopoly profits without a fight, especially when all it’s entitled to is the depreciated value of its physical structures plus cash on hand.
Decades ago, the Edison Electric Institute, the corporate power lobby, commissioned and quietly distributed a thick book detailing how to stop conversions to cheaper nonprofit power by confusing voters and scaring elected officials.
I have a copy of that document, which I admire perversely for its Machiavellian advice on deception and trickery.
Key strategies include threatening costly litigation, waving the flag, and tamping down discussions of lower juice prices.
Paying Less
Don’t be fooled. Focus on what matters: paying less for electricity.
Lower prices would benefit existing businesses, help attract new investments, and benefit all consumers. Leaving things as they are allows a European company to extract huge sums from our community through payments passed up to the corporate parent.
Iberdrola will certainly argue that under the “just compensation” clause in our Constitution, it is entitled to a huge payment and would seek future revenue. But as I showed in my book Free Lunch and elsewhere from case records in Connecticut, New Jersey, New York, Ohio, and Texas, our governments typically pay only a fraction of what property is worth, often 15- or 25-cents on the dollar.
Furthermore, under electricity law, a utility is entitled only to the depreciated value of its assets, cash on hand, and relief of debts. Utilities have worked hard to make sure no appeals court puts that into an appellate court decision. In California, for example, rather than risk an almost certain adverse appeals court decision, PG&E walked away after a trial court decision stating just this in a municipal takeover near Lake Shasta.
But even assuming Iberdrola received full compensation based on shareholder value, the interest cost on bonds for a buyout would be about half the return on investment that Iberdrola collects on its equity, a level set by state utility regulators.
Iberdrola’s existing debt is under 6 percent, while its equity return is above 10 percent. A municipal agency would issue tax-free bonds that would pay even lower interest rates than Iberdrola’s taxable bonds. If it can retire the taxable bonds the net expense would be lower still.
Nothing that matters in life is easy – not winning our independence from a British king, not eliminating slavery, not extending voting rights to women, and not replacing high-cost and inefficient corporate electricity with identical but lower-cost public electricity under local control.
We should ask ourselves: Do we have the political will to make our politicians improve our economic lives, or will we keep wasting money that enriches Bilbao at the expense of Rochester?
David Cay Johnston, a Brighton resident since 1993, is a Pulitzer Prize-winning investigative reporter and four-time bestselling author who teaches at Syracuse University College of Law.
The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].
For the folks who have been following this, I would encourage you to go back and read Kent Gardner’s thoughtful piece here: https://rochesterbeacon.com/2023/09/28/exploring-a-community-utility/.
A representative from RGE told me that they installed new software for billing in 2022.
Ironically the billing issues, erratic charges and inaccurate readings began in the fall of 2022.
“I’m from the government and I’m here to help”. President Reagan once said to be aware of this. Government has shown over time to be inefficient. Our Social Security system, and Medicare system are on their way to insolvency. We have a federal debt of over $34 trillion, runaway inflation due to poor government decisions. The United States rushed the withdrawal from Afghanistan and reportedly left over $80 billion of weaponry and equipment, and an airbase to the Taliban. Biden is proposing a $7-8 trillion budget which will add another $2-3 trillion to the federal debt. The administration open border policy has allowed an invasion of millions of illegal aliens who have created financial and crime crisis in many of our cities. The government energy policy has resulted in permanent high prices in many sectors of our economy. Faulty COVID policies created supply chain problems. People are fleeing NYS because of some of the highest taxes in the United States with mediocre services. The federal government employs well over 20 million. Many of these same jobs are duplicated in the individual states. FDR once warned against public employee unions. It turned out he was a prophet on this subject. Recently, there was a serious BID movement by the private sector in downtown Rochester because some needed services was not being provided by the City inspite of high property taxes. The City’s Police Accountability Board debacle is very concerning. This is only the tip of the iceberg of governmental inefficiencies.
These are mostly incomplete and or false talking points from the political right. What most economists will tell you, and they have the numbers to back it up, is that since Reagan $50 trillion has been transferred from 90% of the people to the richest 10% with much of that going to the richest one percent. Privatization of public lands, goods, and services have been a major key in that wealth theft. David Cay’s books on this system, or the data it is based on, have not been successfully countered. The fact is we pay to this entity about $150 million more per year now for the service we received from the old RG&E. Most of the community agrees that their service, utility infrastructure such as pole replacements and tree trimming, are now worse. At this point the only thing anyone is asking for is a study and RG&E’s current owners lied about the cost. What is there to lose with a study?
Thank you, this article is SO relevant and important to the community. I am trying to dispute RGEs outrageous and erratic billing of KWH with the PSC and that doesn’t look too promising.
I provide information and they ask for the same information over again.
I couldn’t sell my house with the current electric bill and $1900 a month for electric is a bit expensive!!
Thank you for publishing this and hopefully more to come.
Thank you, David. I didn’t get it before. Now I do. I plan to act.
Great article. I would be interested
in contacting an existing group of people who are organizing to support this effort.
Having read the lengthy argument presented by David Cay Johnston, I feel at a loss to present an argument to the contrary. I am a long term local citizen with little experience in the energy business other than that of consumer. Granted, RG&E is a public utility and that demands government oversight at pretty much all levels of government. As a former manager of Rochester’s airport, I feel that I can speak with at least some authority about the public nature of RG&E’s business. Like any commercial airport, RG&E is a community asset supported by and providing a community-wide service. It should be like a government enterprise account operating on a break-even basis and not excessive in its charges due to unwarranted profits. For that reason, I believe there should be reasonable controls placed upon it by the community.
Is Rochester, Gas and Electric Corp. out of control? It would seem so! Would a publicly-owned Authority or a division of local government be a wise alternative? Maybe, but I would caution the community to consider the point slowly and carefully before demanding RG&E be replaced. The airport, in fact, operates under the blanket of a public authority. However, the reason for creating that Authority benefited the citizens by eliminating the possibility of public debt for the then new terminal. Limitations were placed upon that Authority with respect to the operation of the airport and the end result is, I believe, for the good of the community. Government is not a business and not all public authorities end up for the good of the community. For those who desire a county-wide operation the likes of the Village of Fairport, be careful what you wish for. My congratulations to Fairport for their efficient utility, but the County is not a village and the potential for future trouble under a public authority should be taken seriously.
I believe that’s what feasibility studies are for
Here in the Finger Lakes, we have had people from NYSEG tell us that they are working on their infrastructure to update aged components. The shortage of transformers needs to be addressed, too. Even if we had public power, blackouts would still happen if a transformer malfunctioned and couldn’t be repaired or replaced because there are not enough parts and no spares available. We recently, i.e. yesterday, switched propane companies. For years we were paying nearly $6 a gallon, plus taxes and fees that no other company charges to a propane company headquartered in New Jersey. Now we’re paying about $2.15 per gallon of propane by switching to a locally-owned company where we get to meet the people that run the company. There’s not much that’s better than knowing that your energy supplier has based their business on a foundation of honesty and hard work, and not just maximizing the bottom line.
David Cay Johnston’s data is compelling. However, when tested, some optimistic assumptions could change the equation of converting RG&E into a public utility. His proposal does not go far enough. When power utilities were deregulated, the industry was thrown into chaos. As a consumer, I’ve seen no benefit from deregulation. I’d need more space to describe the fragile state of electric generation, transmission, distribution, and regulation nationwide. Why not consider a grander solution? Have the New York Power Authority (a state agency) control all electric utilities statewide. NYPA already has significant generating and transmission responsibilities. NYPA could issue bonds to build new clean baseload power stations, upgrade transmission and storage facilities, and oversee and manage private utility operations so that all New Yorkers get the best reliability at the lowest possible cost. The structure is there; we only lack the political will. This is an emotional issue, and not all commenters adequately understand the industry. One of your commenters, Linda Saalman, is very well-informed on the details of the industry. Hosting a forum for a more comprehensive discussion about this topic might make sense.
Sounds good but it is the City of Rochester
I wouldn’t count on any thing being run efficiently by the City. Show one area that the city has run or managed effectively in 70 years!
Off of the top of my head, I would ask David Cay Johnston to elaborate further on five topics.
(1) How would he recommend that Monroe County go about standing up an entirely new utility, who would operate it, and how many years would he expect to elapse between a decision to conduct the $50K study and the date of the first bill rendered by a fully operational public utility? (Keep in mind that RG&E is no longer a standalone company, and even when it was, it operated well beyond Monroe County. Therefore, the process of separating a small geographic area from the overall enterprise will not be just a simple matter of buying the capital assets — it will be a complex process of building a lot of behind-the-scenes construction, operating, maintenance, and emergency response systems and processes and organizations from scratch, or outsourcing these functions to other for-profit service providers.)
(2) A price of $50K for a study would presumably be enough to extract data from some publicly-available documents, do some simple analyses, and draft and finalize a high level report. How can we assure ourselves that the quality and depth of the study will be sufficient to justify a go/no-go decision on a public utility?
(3) Where does natural gas fit into all this? Note that Monroe County energy users currently receive both electric and gas service from RG&E, and that there would be consequences (presumably both positive and negative) for becoming an electric-only public utility vs an electric-and-gas public utility.
(4) None of this will address the current customer service and billing issues that presumably triggered today’s interest in a public utility. How can we most effectively address those during the many years it will take to complete the transition to a fully-functioning public utility?
(5) How much would it cost to conduct a cost/benefit analysis that compares (a) pursuing a public utility with (b) becoming an effective advocate for the interests of Monroe County energy customers (especially residential, small business, government, and non-profit customers) in RG&E rate cases and other regulatory proceedings, where customer service matters are often negotiated and resolved?
Just a news update. According to WROC, Henrietta Town Supervisor Steve Shultz, and Unicon, the State Senate has approved $17 million for a new transformer in Henrietta. Unicon is a joint Construction Trades/Construction Contractor training and infrastructure advocate. A major development for business and a thousand housing units just south of RIT has pulled out to go elsewhere because RG&E says they cannot supply a transformer for 3 to 4 years. The utility infrastructure is there but RG&E built a substation without a needed transformer. Supervisor Smith claims this is a problem thru out Monroe County causing loss of business, jobs, housing, and sales and property tax revenue. In my opinion, a for profit private utility is still costing the taxpayers for necessary infrastructure to keep their profits for Execs and shareholders.
“Free Lunch” is a terrific must-read, and we are lucky to have DKJohnston in our midst. His many important observation about costs / profits of Rochester electricity and the opportunity to improve local costs are spot on.
I am not an expert, but in my opinion the QUALITY of our electric services continues to deteriorate. Many believe that the physical components of our electric grid have been allowed to deteriorate (many electric power poles with a 40 year lifespan now well beyond replacement date; trimming of overhanging branches neglected to allow increased storm related power outages). If validated, this decreased value of our grid is also an important part of the picture. For sure, the power outages to my home are more common now, so many of us have expensive back up generators which were not needed when the power company managers were our neighbors who also relied on the grid, not the grid in Spain. Unreliability is a huge expense.
How did control of our essential utility ever slip away? Daniel likely knows who made their fortune selling Rochester out, perhaps he will share? This question is not rhetorical. Citizen directed sunshine on those political “back-room” forces may prove to be one of the most effective things we can do to help the Mayor take the lead and do the right thing.
YES Daniel, we voters and business leader should get forcefully behind the opportunity you convincingly describe. Low cost and reliable electric power is one of the most certain ways for Rochester to attract and grow economic activity.
Caution is needed whenever trying to fix anything. The good bad examples of gross mismanagement of electric power is rolling black-out land, California; let us at lease be thankful that Iberdrola did not take us very far down the irrational parts of the green- new- deal electricity generation road. Let us be sure that local control will not lead to irrational electricity generation schemes here. On the positive side, perhaps with local control we could profitably tap more of the Genesee waterpower, which is the most green and inexpensive way to make electricity? Few communities have such a resource.
Daniel, what is the action plan? Can we contact you to offer support to a grass roots project?
The only thing I would add here is the infamous “Rolling Blackouts” in California happened when the privatized ENRON. moved into the state as the source of energy. Enron also cost California residential and business customers an added $10 billion in rates, a conservative estimate. The California city NOT affected was the state capital of Sacramento. No blackouts or rate increases. Sacramento had and still has a public utility.
An op-ed I wrote on this issue was published in the D&C and a longer article in my bi-monthly Labor column in the Rochester Business Journal. I could not believe RG&E was contemplating the sale to Iberdrola on the heels of ENRON. ENRON’s accounting firm was also mortally wounded for cooking their books. Employees not in on the scams lost jobs and investors lost almost everything.
Finally, real facts and data on the issue of privatized public utilities from the most credible source I know. Large shareholders and executives pocketing about $150 million in profits which comes from business and residential customers. Business tends to use more energy and has a heavier burden. What we get from the company will always be shaded to protect the profits taken.
Businesses are always looking to lower costs and need reliability and investment in energy maintenance. Time to get on board and stop this rip off. In Maine where this same company defeated such a vote, they literally outspent the grass roots campaign by tens of millions of dollars with propaganda of doom if the state went public or non-profit. You can bet some of Rochester rate payers funds were used in that effort. Demand County Exec Adam Bello approve at least a study of this issue.