UPPCO’s customers need bold solutions for problems

elise matz

The fact that UPPCO’s residential electricity rates are among the highest in the continental United States is old news to the people who pay the bills each month. As of June 1, the utility’s household rates were 68% higher than the Michigan average, in a state that has the 12th highest rates rates in the country.

So why is UPPCO electricity so expensive? And what’s our way out of this mess?

The answer to the first question lies, in part, with the utility’s history. As late as the mid-1930s, 90 percent of America’s rural homes did not have electricity. But the Keweenaw Peninsula was one of the first regions of the country to be electrified due to the copper mining boom that took place there from around the 1850s through 1910.

According to UPPCO’s website, the Peninsula Electric Light and Power Company was formed in 1884, just five years after Edison invented the lightbulb. Later, it was acquired by one of the three companies that would merge to form UPPCO in 1947.

There was a very early profit motive in providing parts of the U.P. with electricity. Meanwhile, some areas had to wait longer. After Franklin D. Roosevelt signed the Rural Electrification Act in 1936, nonprofit cooperatives formed in agricultural districts to serve homes and businesses there.

Today, some portions of the U.P. are served by member-owned electric cooperatives. Co-op customers have the ability to elect representative boards from among their membership to oversee the utilities’ operations. Additionally, co-ops are not driven by profit, but aim to keep rates affordable and foster economic development.

In contrast, investor-owned utilities like UPPCO are regulated by the Michigan Public Service Commission. By state law, they are allowed up to a 10 percent profit on money they invest in infrastructure and running their business.

In the past, UPPCO’s profits have been uneven at best. The fault in no way lies with the company’s dedicated employees. In fact, a recent white paper by a Green Bay-based utility industry analyst named Robert Benninghoff concluded that UPPCO’s day-to-day operations are likely as efficient as they ever have been.

Rather, Benningoff concludes that the utility’s low customer density (only 12 customers per square mile) and rugged service territory (spread across 10 UP counties) make it difficult to predict what revenues will be from year to year.

But UPPCO’s owner, a London-based private equity firm named Basalt Infrastructure Partners, is doing the best it can to profit from its investment. In order to squeeze as much money as it legally can from the utility, Basalt embarked on a risky financial engineering strategy to double-leverage its investors’ stake in UPPCO to achieve a maximum possible return.

As a result, Moody’s Investors Service recently downgraded UPPCO’s holding company debt rating to Ba-1, which is below investor grade and, by definition, “judged to have speculative elements and is subject to substantial credit risk.”

To make matters worse, because UPPCO’s holding company is owned by a private equity firm, we don’t know exactly why. Private equity firms are not required to file financial information with the Federal Securities and Exchange Commission–which is unusual for a publicly regulated utility.

We can do better. Michigan’s utility laws are supposed to ensure that customers have affordable power. Monopoly utilities are here to serve us, their customers–not enrich foreign investors.

In the past, UPPCO has signaled it would be interested in acquiring some of the UP’s nonprofit electric utilities under the guise of “synergy.” While collaboration is an idea seriously worth considering, I would hate to see a London-based private equity firm driving that process.

Instead, it’s time for ratepayers, our state’s legislators and Attorney General, and regulators at the Michigan PSC to strike a new path.

In the short-term, we must demand as much transparency as possible from UPPCO. Ratepayers deserve to have access to the holding company’s financial data in order to make educated judgements about the utility’s future.

But a long-term solution should go farther than that.

It is time to seriously consider alternatives to for-profit ownership of UPPCO. It may have made sense for the U.P. in 1884, but it presents a serious threat to our economic well-being today. Given the utility’s geographic challenges and low customer density, investors will always be challenged to turn a profit and provide customers with affordable service. So why do we keep trying?

Yoopers deserve to be in charge of their energy future. Let’s join together and to plan to convert UPPCO to a member-owned rural electric cooperative.

Editor’s note: Elise Matz is a Marquette resident and a former political staffer. In 2019, she was appointed to the state of Michigan’s Utility Consumer Participation Board, which provides grants to nonprofit residential ratepayer watchdog groups. You can find her in-depth analysis, “What’s the Deal With UPPCO?” on her Facebook page, Spark U.P., or on Twitter at @UPEnergySpark.