The movement for energy democracy and the fight against corporate, for-profit control over basic utilities like electricity, gas, and water has escalated over the past several years. Catastrophes from California wildfires to the Texas winter freeze to the poisoned water of Flint, Michigan have all intensified demands for just, transparent, and democratically-owned utilities and universal access to the basic resources they provide. Our recently-released Power Lines project documented some local campaigns around utilities in Detroit, Chicago, and Washington DC.
But there’s another growing threat to the fight for energy democracy: new attempts by Wall Street – including big banks and private equity – to gain control over investor-owned utilities. If you’ve seen what these financial vultures have done to things like nursing homes, retail stores, and housing in order to extract profits – slashing budgets, firing workers, skirting safety rules, piling up debt, raising costs for consumers – you should be very worried about them getting their paws on the utilities we all need to survive.
This post highlights two recent and alarming reports that show how Big Finance is going after municipal utilities, reflecting trends that portend trouble for achieving more equitable, democratic utilities that meet human needs.
Private equity vultures are circling around utilities
Over the last several years we’ve seen the rise of private equity ownership in an array of industries from retail to hospitals to correctional telecom. In just the first six months of 2021 alone, private equity firms raised nearly $460 billion in capital from pensions, endowments, and high net worth individuals for their funds, which they will use to snap up private companies and assets. A recent report in The American Prospect revealed that these funds, sensing the opportunity to exploit the new infrastructure deal and lure in struggling cities, are increasingly eying under-regulated municipal utilities.
In one 2020 example, Louisiana-based private equity firm Bernhard Capital Partners approached city council members in Fayetteville, NC and offered to spend hundreds of millions on much needed infrastructure repairs and improvements in exchange for the right to operate the city’s public utilities – water and power – for 30 years. This deal would hand over all revenues from those utilities to BCP for three decades, effectively trading the city a short term capital bump for two key sources of long term revenue. Fayetteville, which is still struggling to address its infrastructure needs and is considering BCP’s proposal, was just one of dozens of struggling municipalities approached by the firm.
Private equity firms, which claim to bring immediate fixes and increased efficiencies, have a well-earned reputation for saddling companies with debt, stripping assets, laying off personnel, and taking millions in management fees. This is all before either flipping the companies for profit, taking them public, or sending them into bankruptcy. In fact, a Center for Popular Democracy report found that private companies owned by private equity firms were twice as likely to go bankrupt as public companies. These practices have cost millions of people their jobs and, in many cases, the loss of their hard-earned pensions.
This means that while private equity firms may make promises to local governments to fund immediate infrastructure improvements, these firms ultimately have one goal in mind: profits. The pursuit of profit above all else through utilities would be disastrous from both a consumer standpoint and for city revenues. Consumers of investor-owned utilities already pay an average of 11% more than those with public utilities. Consumers of private equity-owned utilities could expect the same rate hikes, especially during high use times.
Moreover, private equity prefers to limit personnel expenses in the name of efficiency, which for utilities could mean fewer workers available when there are disruptions and longer wait times when the power goes out. These kinds of delays, especially during extreme heat or cold, can be deadly. On the revenue side, once the immediate influx of money is gone, the firms still own the rights to these key municipal assets, which would limit a local government’s revenue sources and increase dependency on private money.
All told, the private equity mindset runs counter to the need for public goods that exist to meet the basic needs of communities.
Big Banks stealthy grabbing up utilities
In another recent example of Wall Street targeting utilities, a JPMorgan Chase-tied fund scooped up El Paso Electric, an electric utility that serves nearly a half-million customers in El Paso, Texas and other swaths of Texas and New Mexico.
The fund, called the Infrastructure Investments Fund, refers to JPMorgan as its “advisor,” but the connections between the governing heights of the fund and JPMorganChase are virtually identical. As David Dayen noted, JPMorgan was “effectively purchasing” the utility “laundered through an allegedly independent investment fund.” He went on:
“The “owners” of the fund appear to not be owners at all, but members of its board of directors, all of whom have ties to JPMorgan. And 48 executives of the investment fund are actually paid employees of JPMorgan, which is lending out their services.”
One local news station, in announcing last year’s completion of the sale, also stated the investment fund acquired El Paso Electric Company for $4.3 billion was “controlled by global financial giant JP Morgan.”
Dayen says that the fund “operates like a private equity fund” in that “investors can buy into it and earn dividends and awards as the portfolio companies rise in value.” One wondes if this also means that JPMorgan will be bringing the private equity profit model – relentless extraction of profits by gutting workforces, slashing pay, and cutting corners on safety while raising costs for consumers – to Texas El Paso.
Dayen also notes two reasons why the El Paso Electric acquisition could be especially lucrative for JPMorgan. First, in addition to the utility’s captive customer base, its service area includes the Permian Basin, the most productive oilfield in the world. Drilling operations in the territory gobble up huge amounts of electricity. As Tyson Slocum, who directs Public Citizen’s energy program, and who initially raised alarm about JPMorgan’s connection to the pursuit of El Paso Electric and the sketchy circumstances surrounding the merger process, observed to Dayen: “Fracking is power hungry… You’re hooking up a jet engine to force chemicals and water into that shale formation. El Paso Electric is in a good geographic position to become a pure utility for the Permian.”
Second, these kinds of commercial acquisitions by huge financial institutions increase economic concentration in the hands of fewer and fewer firms. These firms can then use this concentration to their advantage in various ways. As Dayen notes:
“These corporations effectively build conglomerates with the power to affect market dynamics. For example, if JPMorgan knows that El Paso Electric, or its suite of electricity generation companies, will be surging or shutting down power to the grid, they can use that information in trading in energy markets. On a larger scale, integrated banking and commerce giants can intimidate suppliers, abuse customers, and use their political power to obtain favorable rules.”
In addition to having its hands in direct holdings of energy infrastructure like El Paso Electric, JPMorgan Chase is also the world’s top financier of fossil fuels. Its longtime lead independent director was former ExxonMobil CEO and climate denier Lee Raymond, who only stepped down last year from the board after intense public pressure.
Utilities: Will they meet human needs or service Wall Street profits?
All this comes on top of Wall Street’s record of buying up power generation assets that service electric utilities – often fading dirty energy power plants that private equity wants to extract profits from while it still can. Private Equity Stakeholder Project’s 2020 report on private equity’s fossil fuel investments documents dozens of coal and gas power generation facilities that the major diversified, private infrastructure, and energy-focused private equity firms own.
The recent moves by Wall Street described above will further polarize the growing battle over the terms on which our basic utilities should operate: as vehicles for extracting guaranteed profits to put in the pockets of investors, often at the expense of rate-payers and the environment, or as institutions owned and overseen by the communities that depend on them, and who desire clean, sustainable and affordable energy?
As Wall Street firms eye public utilities as their next conquest in their pursuit of privatization and profit, the need to fight for public ownership of utilities is even more urgent.
LittleSis’ research resource hub PowerLines101.org offers an overview of why utilities are central to the fight for energy democracy and sustainability. Power Lines provides background information, research instruction, and inspiration for how to fight back against corporate interests.
Ready to get involved in a campaign or start one of your own? Check out PowerLines101.org to get started!