Independence has three city-owned utilities; water, sewer, and Independence Power and Light (IPL). While these are budgeted separately from the regular city budget, water and sewer are organized under Municipal Services as their activities overlap with their other responsibilities.

Electric, in the form of IPL, is run separately from most of the city. There is some overlap (for example, they are partially supported by the city’s finance and IT departments via the interdepartmental fund), but for the most part IPL does their own thing.

The utilities represent a large part of the city’s overall spending at 62% (they are the Enterprise Funds listed in the budget), with IPL being 41% by itself. IPL also has notorious high salaries. IPL vehicle maintenance workers make significantly more than the same workers at the city’s Central Garage, and even IPL meter readers make 50% more on average than Independence Police patrol officers.

The utilities are supposed to be financially separate from the city, but city leaders have always tried to use IPL funds for normal city business. The city lost a lawsuit over this in 1980 (City of Independence v. Pearson), but even despite that ruling they have found ways to pull funds from IPL in ways that are technically legal.

One of the General Fund’s biggest sources of revenue are franchise fees and PILOTs. All utilities (including cable and internet) have to pay the city franchise fees in order to use the city’s right of ways. The publicly owned utilities legally can’t pay these, so instead they pay the city in the form of PILOTs (Payments In Lieu Of Taxes). Combined, these franchise fees and PILOTs represent $29.6 million of the General Fund’s $78 million budget, more than the actual taxes collected by the city.

In addition, the utilities pay the city in more indirect ways. The city has a special electric rate that is lower than it would otherwise get, and the utilities pay into the Interdepartmental Fund that provides services like HR, IT, Finance, etc. The utilities also help pay for city facilities, most notably the former GEHA building that was recently acquired.

Moving forward there will be discussions around whether to keep IPL or sell it to a private company. My position is not firm, I am always willing to change my mind with additional evidence, including the report the city commissioned that will arrive this summer, but right now I lean against selling.

There are essentially two main arguments for selling. One is that Independence has a poor customer mix that makes our utility rates higher. It costs utilities more money to serve residential customer than it does industrial or commercial, so the higher the percentage of residential customers there are the higher rates will be.

91% of IPL customers are residential, compare to 88% for Missouri as a whole and for Evergy specifically. If we join a larger private pool like Evergy with a better customer mix, the argument goes, then we would get to enjoy being part of that better customer mix and we could have lower rates.

This argument makes sense in a way, but I have trouble buying into it economically. Why would a private company pay money to make their own customer mix worse while giving us better rates? They would by definition be losing money on former IPL customers. Most companies don’t make money-losing acquisitions.

The other argument is that IPL has long been mismanaged and has not been financially stable, so it’s best if we can get somebody to take the headache off of our hands for us, someone who can run it better. This is a fact that’s hard to deny, as few would argue that IPL has been well run. But I still don’t think it’s impossible for us to have a well-ran public IPL, and a well-ran public utility is preferable to private ownership.

In the 2021 rate study Finley looked at other regional electric providers and compared them to IPL, seeing how their rates would look if they had the same customer mix as Independence. For most utility companies they found that they couldn’t offer rates as low as IPL if they had our customer mix, but Springfield was the exception. Springfield has a public utility, yet even adjusting for customer mix is able to provide lower rates than IPL.

With the evidence I have available now, I would prefer to move to a Springfield model with IPL. IPL is currently run by the city council, which causes two issues. One, council members are rarely qualified to run a utility. Two, they are often susceptible to political pressure that can cause bad deals like Rockwood and Missouri City that cost IPL millions. Springfield, in contrast, has a Public Utilities Board made up of experts appointed by the city council to run their utilities.

In general, I believe the default position should be for keeping IPL. Not that it should be an automatic no to selling, but it should require strong evidence that keeping it in city control is not viable. Having local control, and a belief that we should be able to run it as competently as a private company without having to pay for profit, will always be a benefit of public ownership.

In addition, there is the issue of retirees. As city employees, IPL workers pay into and eventually receive retirement benefits. If we do sell IPL, we will need a good answer on how we’re going to continue pay benefits for former IPL employees without any current IPL employees.