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Ten Tools for Defeating Government Takeovers
Jamie Firth is president of Firth Associates, a public and government affairs consulting firm that has assisted numerous electric utility companies in defeating local government takeover attempts.
FOR A shareholder-owned utility, an attempt by a municipality to take control of its territory is a difficult challenge on many levels. Besides the potential loss
of assets, customers, and revenues, a takeover attempt can produce divisive public debates and damage company images.
The past two years have seen a new wave of local government takeover attempts. The American Public Power Association (APPA) has estimated that 30 municipal takeover efforts are currently at some stage of consideration.
A review of recent proposed takeovers makes for daunting reading. (See Table 1.) Several takeover ballot measure initiatives played out in last November’s general elections. Most widely reported were votes in San Francisco, CA, where the measure was defeated, and Clark County, NV, where the measure passed. In addition, the city of Wagner, SD, voted against a takeover initiative; several Florida city council elections were colored by candidates’ stands on proposed takeovers; and a statewide vote in Montana decided that the state should not take control of electric utility-owned hydropower dams. Voters in Elk City, OK, defeated a takeover attempt by special referendum election in December. A renewed effort to engineer an electric system takeover is underway in Multnomah County and Portland, OR. More California cities are now studying the feasibility of municipal takeovers. A coalition of cities and towns in Iowa is advancing a regional effort to take over the state’s electric systems. A number of cities and towns in Florida are seeking control of local electric systems as current service franchises come to an end. Several towns in Massachusetts are actively studying the takeover of the electric system within their borders. Likewise, several communities in Pennsylvania are eyeing a takeover attempt.
Why this renewed interest in municipal takeovers of electric utility distribution systems? It is a notion raised perennially, forcing electric companies to disprove it perennially. In the last two years, the electricity crisis in California, the Enron debacle, and continuing industry fall-out from both have provided plenty of new ammunition for local public power advocates. At the same time, trust in government at all levels is at a high point because of terrorist threats, while confidence in business has declined due to recent accounting scandals. Recent industry merger trends and cost-cutting campaigns may also have contributed, albeit inadvertently, to new interest in local government takeovers as companies have reduced their presence at the community level. An additional new wrinkle stems from current poor economic conditions—proponents of municipal takeovers argue that cities and towns can realize significant new revenue streams by owning and operating the local electric system.
Given all these factors, it is perhaps not surprising that a new wave of local government takeover attempts has emerged. Based on the recent experiences of a number of companies that have faced takeover attempts—some of which have failed and others that have not—these tools can help prepare the uninitiated for the possibility that they, too, may face a government takeover attempt.
ONE: Communicate a Clear Corporate Position
Leaders and customers in communities that may be considering a municipal takeover need to know that the incumbent electric utility is opposed to, and will contest, a takeover attempt—as obvious as it sounds. In several instances, communities have advanced takeover plans, developed feasibility studies, and established study committees, without realizing that the incumbent utility was not prepared to sell its system. Letting interested parties know of the company’s position early on may help subdue proponents’ enthusiasm for the concept. It also sends a clear signal to company allies in the community, including customers, and encourages them to caution proponents about moving forward.
In one recent case, officials at a company indicated to municipal leaders that, under the right circumstances, the company might be willing to sell the relevant portion of its distribution system to the community. This vague pronouncement may have encouraged the community to pursue its buy-out strategy more vigorously. However, in another buyout attempt, the affected company repeatedly issued a very clear statement that it was not interested in selling its system and would fight any attempt to buy it out. This helped rally support for the company among key customers and other important interests.
TWO: Get Involved Early
Takeover battles typically involve extensive litigation and ballot measure campaigns, both of which are expensive and require draining time commitments by company personnel. Electric companies are well-advised to develop strategies to discourage or defeat takeover attempts before they can snowball. Often, what might initially appear to be minor levels of activity can mushroom into serious takeover efforts, sometimes involving a coalition of communities working together. Also, once the issue has been framed by proponents in terms of potential benefits (lower electric rates or new municipal revenues), it becomes politically difficult for local officials to oppose consideration of the concept, even more so if proponents call for a community-wide vote.
In other cases, even when electric utility companies do not succeed in stopping takeover attempts, they put themselves in a stronger position by tackling the issue early. For example, on the heels of a rash of municipal takeover attempts in a neighboring state, a company was faced with the early but serious stirrings of similar interest in several communities in its service territory. By sharing information with key customers, company allies, and municipal leaders in the largest community, the company helped convince the city council not to pursue a similar takeover attempt. Indirectly, this also contributed to a halt in takeover activity in the smaller communities. By adopting a similar strategy of sharing information with customers and allies and encouraging them to communicate with local officials, another company was successful in preventing a mayor committed to a municipal takeover from gaining sufficient support among his city council to schedule a takeover referendum.
Companies that have not engaged “on the ground” until a takeover attempt has gained real momentum in one or more communities find themselves scrambling to develop community allies, communicate effective messages, and properly frame the debate for their customers and the voters affected.
THREE: Designate a Project Leader and Team
This is an extremely important step. Teams usually include representatives from a variety of departments—such as operations, finance, community relations, legal, etc.—who can provide expertise. Successful teams often are led by an officer of the company who is able to make strategic decisions in a timely manner. It helps when senior management makes clear the high priority of the team’s mission and the need for all departments to help support the team.
This step is particularly important when companies are facing ballot measure campaigns or special referendums on the takeover issue in communities they serve. Political campaigns require rapid decisionmaking and deployment of resources; companies that do not organize themselves to be effective in these ways will face extreme difficulties in executing winning campaigns.
In a classic case of defeating a municipal takeover referendum in a medium-sized city, one company rapidly formed a project team as soon as the referendum was scheduled. The team was made of representatives from various departments of the company and had a vice president at the helm to make timely and strategic decisions. Using this structure, the company was able to quickly retain campaign and communications experts, develop an effective strategy, and implement a comprehensive campaign that resulted in a lopsided defeat of the takeover attempt.
FOUR: Use Experienced External Issue Managers
In addition, companies facing serious and well organized takeover attempts must assess what kind of external resources they may need. Companies may not have the kind of political or legal experience required to mount a successful municipal takeover defense. Even if these capabilities do exist internally, the individuals involved may not be able to devote the necessary amount of time to the issue. Early in the process, companies should retain political, technical, and legal consultants with experience in defeating municipal takeover challenges in order to help shape and implement effective strategies. (See the sidebar, “Takeover Defense Resources.”)
Several Northeast companies have reported that retaining such political and communications experts was key to defeating takeover attempts in their territories. These experts are skilled at assessing political disputes and circumstances, evaluating public opinion, identifying effective messages, and implementing comprehensive communications programs—all very rapidly. This has been particularly crucial in situations where local government takeover challenges suddenly have been scheduled for community-wide referendum votes by the municipal governing body. In these circumstances, companies only have a matter of weeks to get the word out, and the assistance of outside political and communications experts has helped bring focus and discipline to the effort.
Similarly, numerous companies have retained technical and legal experts to help quickly address and manage other facets of municipal takeovers. Technical consultants can prepare critical analyses of feasibility studies prepared by, or on behalf of, takeover proponents. Attorneys and law firms experienced in takeover challenges can help address the legal issues. While larger electric utilities generally have significant in-house talent in all these areas, they often do not have direct experience dealing with rapidly unfolding local takeover attempts.
FIVE: Use Public Opinion Research
Defeating a takeover, especially when it involves a community vote, requires an effective communications strategy. This means framing the debate on the company’s terms (rather than the proponents’) and providing information to the community that persuasively makes the case against takeover.
Public opinion research is an invaluable early step—it can point to the messages that are the most persuasive, which individuals and organizations are viewed by the community as most credible, and which communications venues are best for getting the word out. Companies that neglect this risk mounting a program that may have ineffective or even negative effects.
One company faced a very sudden ballot measure in a city in its service territory. The city council scheduled a special referendum within just a few weeks of the takeover idea surfacing. The company quickly conducted research that revealed a high degree of support for the proposed takeover, due largely to dramatic and recent rate increases. However, the research also showed that many citizens had several unanswered questions regarding the takeover idea, which had not been fully explained by proponents. Using this information, the company crafted a successful campaign to defeat the takeover simply by emphasizing that there were no credible answers to citizens’ questions—what will the takeover cost? can the city guarantee rates will go down?—and arguing that the takeover question needed more study.
SIX: Encourage Credible Allies and Third Parties to Participate
In some takeover battles, the utility itself may not be the most credible messenger or spokesperson. This could be because voters see the utility as having too much vested in the outcome, rendering its arguments ineffective. In other instances, if customer dissatisfaction with the utility company is high (often because of rate increases or service problems), the utility also becomes the wrong entity to deliver persuasive messages. Consequently, voters often turn to other, locally trusted individuals and interests for guidance. (Good public opinion research will indicate which individuals and groups are most credible.)
In several recent takeover battles, incumbent electric utilities helped organize third-party communications campaigns in affected communities but played a low-key public role. For example, companies organized citizens’ committees that led efforts against takeover ballot measures. Often, these committees included a number of well-known community leaders from various sectors—business, retirees, civic organizations, etc.—who served as the primary media spokespersons and appeared in print and electronic advertising. Even when the companies involved provided funding for such activities, the efforts were very effective due to the personal credibility of the committee members.
In another example, a respected economics professor at a local university prepared a white paper critiquing a proposed takeover attempt. The paper, widely disseminated in the community, proved influential.
Other groups—company employees and retirees who live or work in the area—can be useful in defeating takeover challenges. They can describe the political dynamics that may be in play as well as the various personalities involved in the debate. They can also help build bridges to potential allies and supporters.
Finally, they can be effective spokespersons, particularly in communications relating to quality of service issues—such as storm recovery capability and other customer concerns.
In these and other ways, the debate becomes less about the community versus the utility, and more about respected and credible local interests speaking out against a flawed proposal.
SEVEN: Build Relationships with Local Media
In smaller cities and towns, local media outlets are often the primary sources of information and advocacy and, as a result, may wield disproportionate influence in a takeover battle. In one recent instance, a company’s opinion research indicated that the local newspaper was a primary source of information for over 70 percent of voters in a community debating a proposed takeover. In local print, letters to the editor, both pro and con, tend to become a separate battle within the larger battle, with each side submitting streams of letters from recognized citizens. Likewise, local radio stations often host discussions and debates with takeover advocates and opponents.
As a result, building relationships with reporters, editors, and publishers is a critical component in a takeover battle. But it is difficult to do in the midst of a takeover challenge.
A company needs to establish relationships with local media outlets very early. This is done best by undertaking background visits and sharing information openly with local media outlets—as well as enhancing personal media relationships, this establishes the utility company as a reasonable source of information.
A mid-sized electric utility company facing a quickly developing takeover challenge used this strategy with much success. The company’s CEO participated in an informal discussion with both the publisher and editor of the city’s newspaper, providing them with an unfettered opportunity to hear the utility’s arguments against the takeover. During the discussion session, the utility gave the newspaper officials contact information for a variety of third-party allies opposed to the takeover attempt, including state regulators, a well-respected local economist, and numerous business and opinion leaders based in the city. The visit enabled the utility to establish itself as a credible and trustworthy source of information for the newspaper. As the citywide ballot measure campaign progressed, there were a number of additional contacts between the utility’s CEO and the newspaper. As a result, the newspaper extended balanced coverage to the takeover debate.
EIGHT: Deal with Each Community Individually
Electric utilities confronted with multiple takeover challenges in different communities need to deal with each community on an individual basis. While issues may be similar across the board, each community has its own set of particular dynamics, personalities, and histories with the incumbent utility. As a result, strategies and initiatives may need to be fine-tuned. In recent years, one particular company has been confronted with takeover challenges in more than a dozen communities. The company’s officials learned to develop specific strategies for each community, rather than implementing a cookie-cutter approach.
In a community where the takeover idea has been advanced by a small number of community activists or a city employee, it may be possible to persuade the local governing body to drop consideration of the idea. In another, the local governing body may itself be the driving force behind the takeover attempt. A community that regularly experiences severe weather and related electric service outages may be heavily driven by concerns regarding outage restoration capability, while another community may be more driven by electric rate or economic development concerns.
Failing to understand the causes of support for a proposed takeover in each community can lead to ineffective communications efforts. In fact, a company with an across-the-board communications program can compound its problems by appearing to ignore local circumstances or conditions—particularly those critical to the takeover concept. Also, since local allies in communities are often key to defeating takeover attempts, companies must nurture their ally base on a community-by-community basis.
In a multi-community takeover effort, it is equally important to assess, from a political perspective, which communities play a leadership role on behalf of the larger group. If leading communities can be discouraged from proceeding, the effort in the smaller communities will likely dissipate.
One company, for example, discouraged a multi-community takeover attempt by focusing efforts in the two largest communities, which led the initiative. Leaders in these communities had sponsored and coordinated most of the municipalization activity (legal and regulatory initiatives, public discussions and events, media relations, meetings of the coalition, etc.). By working to dampen the efforts in two communities, the electric company was able to slow down the the multi-community coalition. (Ultimately, allies and third-party supporters developed in one community may sometimes be helpful in discouraging takeover efforts in surrounding communities.)
NINE: Learn From Experience Elsewhere
Comparing notes with other companies that have experienced similar government takeover challenges is enormously helpful. And there’s a lot of experience out there! At this point, there have been several recent full-scale municipal takeover campaigns in various parts of the country, and most electric utility companies, even in today’s competitive environment, are prepared to share information with industry counterparts to help defeat takeover challenges.
Very often, municipal takeover challenges develop quickly, and companies find themselves in the midst of a serious political campaign in a short period of time. Drawing from the experiences of other companies helps accelerate the development of an effective defensive strategy.
TEN: Stay in Touch with Local Communities
It’s the most important point: Maintaining and enhancing your level of effective relationships with local communities. Should interest in the municipal power concept develop in one or more communities, those companies with strong working relationships with community leaders and effective informal networks with opinion leaders will likely learn about the effort and be able to deal with it effectively.
Companies that are at some risk of experiencing municipal takeover challenges (generally speaking, these are in areas where takeover attempts have already occurred and that may be facing steep rate increases or quality of service issues) should take a hard look at the nature and extent of their relationships with key communities. Carefully weigh budget decisions about local charitable contributions, the number and location of regional or district offices, the company’s role in community economic development and other initiatives, and other items. Maintain company relationships with local media through regular contacts and occasional visits. Support retiree organizations to the greatest extent possible.
Even as companies seek to reduce operating costs and consolidate functions, it is essential to maintain links with local communities. Since defending against municipal takeover challenges, even in smaller cities and towns, can be expensive and draining, it can be much cheaper in the long run to invest instead in maintaining local relationships.
Forewarned Is Forearmed
Right now, there are more municipal takeover challenges on the horizon. Many companies that have been through one have found that the cost—in terms of management time, money, and corporate reputation—is immense. So, get your action plan together, enhance your position in the community, and take a look at the examples of both failed and successful local government takeover attempts. Doing so will help identify potential warning signs and provide an understanding of the kind of comprehensive effort you may need to make.
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