The city of Glens Falls found itself playing the role of David, pitted against Niagara Mohawk's Goliath, when it looked into becoming a municipal utility during the late 1990s.

The story, however, ended differently.

“You're in a titanic battle with a multi-national corporation,” said Richard Dudley, a former councilman in Glens Falls.

The city of Auburn is just beginning that battle. Although it has been discussed for some time, the city began seriously looking into full municipalization this summer when the Auburn Municipal Power Agency decided to move forward on soliciting a feasibility study. The city may also partner with the county in exploring municipalization.

The last municipal utility to form in the state was Massena in 1981, but the 25-year stretch is not for lack of interest or effort. Instead, it can be attributed to a myriad of factors.

The municipalization initiative Glens Falls undertook came to an abrupt halt when residents overwhelmingly rejected a referendum in 1996 that would have created a public utility.

Paul Kemnitzer, who was treasurer in the city at the time, said after a couple of years of research, proponents behind the city's public power initiative, spearheaded by its industrial development agency, determined that the city could save its customers 50 percent on electric utility rates by forming a municipal electric utility.

Then, NiMo, now called National Grid, threw Glens Falls a curve ball, saying in addition to the acquisition and other related costs of municipalization, the city would also have to pay NiMo $60 million for what is called “stranded costs.”

The concept of stranded costs, Kemnitzer said, at that time was very new. But in past cases, the lower courts had ruled stranded costs to be legitimate - the concept is based on the idea that the investor-owned electric utility made an investment in the community under the assumption that they would be providing that community with power for a long period of time. By losing that customer base, the company loses a significant investment.

The figure NiMo presented, $60 million, would have “wiped out” any savings Glens Falls would have encountered in utility rates charged to customers, Kemnitzer said. So Kemnitzer, now an attorney in Washington D.C., did his own analysis and came up with a figure of $10 million based on numbers NiMo filed with the Securities and Exchange Commission.

In adding the $10 million to the total amount the city would have to bond for - about $30 million to acquire the distribution system, $5 million to cover the first couple of years' operating expenses and $10 million for stranded costs - the rates savings for the city dropped, but Kemnitzer said the city would still have been able to offer a 40 percent reduction on electric utility rates.

Proponents of the initiative believed they were on the right track.

“(NiMo) knew if the referendum passed, it would have essentially been a fast-track,” Kemnitzer said. “We had solid numbers based on their own numbers.”

But the referendum didn't pass - almost 63 percent of the voters opposed the measure.

Dudley, a chief proponent, believes it was NiMo's massive advertising and polling efforts that swayed the public against the city's municipal ventures.

According to Dudley, NiMo undertook a large advertising effort through the local media, creating full-page newspaper ads with photos of elderly individuals shivering from a lack of heat during the winter. The intent was to convince the public that the city did not have the expertise to effectively run its own electric utility system.

“They just scared the living hell out of people,” Dudley said.

The Glens Falls initiative also faced opposition from a portion of its Republican party. Dudley, a Democrat, said if the initiative had widespread political support, it might have helped.

While proponents of the initiative believed they had the answers to people's concerns about municipalization, they didn't have the forum to provide the answers because they weren't able to match the power company's costly ad campaign. For every quarter-page ad the city's IDA took out in the local newspaper, the power company had a full-page ad or two.

“The other side has got all the ammunition,” Dudley said. “They hated us.”

Eugene Nicandri, who was the attorney in Massena at the time of its successful municipalization, recalled similar resistance from Niagara Mohawk, the power company serving them at the time. Nicandri wasn't surprised.

“Why give up something that you know? Who wouldn't go out and lobby against it?” he said. “They're not going to roll over and play dead. They're going to resist it and that's a good business decision on their part. They weren't going to make it easy for Massena.”

National Grid did not return phone calls for this story.

Lewis County, in the northern part of the state, began looking into the issue at the end of the 1990s. The county performed a feasibility study in 1999, which concluded that undergoing municipalization would be economically feasible for the county. But in its recommendations, the company added the disclaimer, “It is obvious to us from our involvement to date that this will be the equivalent of a hostile takeover ... (NiMo) made it clear and unambiguous that they have no interest in giving up any part of their franchise. If Lewis County elects to pursue municipalization, there should be a clear and unambiguous commitment to such a process.”

The study determined that Lewis County could save customers anywhere from 9 to 30 percent on electric utility rates, said Bruce Krug, chairman of the Lewis County Legislature.

On paper, Lewis County is a municipal utility - the referendum was put to the people, and it passed.

But the initiative has been at a standstill. Krug believes municipalization is something that can still happen in Lewis County - its Achilles heel was its uncertainty.

“There was a big unknown on stranded costs,” Krug said. “There were so many extra fees and costs.”

Niagara Mohawk, the power company serving Lewis County, was estimating daunting costs to the county should it chose to proceed with municipalization. Aside from the cost of acquiring the system and even stranded costs, Krug said “there were some even stranger things showing up.” NiMo, for instance, said it might charge the county for any future profits the company would have earned had it still owned the system.

The county was having difficulty determining a solid figure for what the final costs would be -there was too much uncertainty involved and the county didn't want to involve itself in a risky business.

The feasibility study, while acknowledging risks, had still advised the county to proceed, stating that “a prudently managed acquisition process seem to us to outweigh the costs and risks.”

While Krug said the issue should be re-visited, Lewis County attorney Richard Graham said the conclusion a couple of years ago was that municipalization in the county was not affordable.

“The cost to form a municipal utility, to completely pull off the grid, is very cost-prohibitive,” Graham said. “There was a savings, but the savings were ultimately so small, it wasn't worth going into it.”

The city of Watertown reached a similar conclusion in the early 1990s when it explored municipalization. The city had extensive talks and held several public hearings addressing whether it should become a municipal utility. Then, in the 11th hour, Niagara Mohawk, the power company serving Watertown, approached the city with an alternate idea. Because Watertown owns its own hydroelectric facility, NiMo agreed to purchase excess power from the city if Watertown sold its transmission and distribution facilities.

In 1991, city officials accepted the deal and scrapped the idea for a full-fledged municipal utility. Today, any excess power the city generates after powering its city-owned buildings is sold to National Grid. Mary Corriveau, Watertown city manager, said the city brings in about $2.5 million annually from the deal.

“We were looking into going totally municipal,” she said. “It went to the point where we were ready to do it and then they came and had a different offer. ... At that point, the city believed it was the best option.”

In Corriveau's opinion, the largest obstacle to city's looking into municipalization today - and part of the reason there hasn't been a successful municipalization effort in the state since Massena - is the stranded costs.

“It ends up being cost prohibitive,” she said. “It's not as good a deal as it used to be.”

There is also an issue as to where, if a municipality were to form its own utility, it would obtain its power. Many of the current municipal utilities in the state receive some low-cost hydropower from the New York Power Authority - most of which is tied up in long-term contracts until 2025 and, thus, not available to newly formed municipal utilities.

“It is, for the most part, fully assigned,” said Mike Saltzman, spokesman with NYPA.

Kemnitzer, however, said while that was the official stance NYPA took with Glens Falls as well, unofficially, Glens Falls was told by some individuals involved with NYPA that chances were good that it may have had access to some of the preference power had it municipalized.

John Montone, who was chairman of Auburn's task force studying public power two summers ago, said a municipal utility can save ratepayers by charging less for distribution alone, regardless of the costs of obtaining the energy.

“The biggest factor is at the distribution end of it,” Montone said. “That's where (the investor-owned utilities) make their money.”

At this point, Auburn is in the process of selecting a consultant for its feasibility study. One of the largest concerns facing the city's initiative is whether the total costs of acquiring the system and paying for stranded and other costs could exceed the amount the city is able to bond for. The city can only bond for an additional $18 million before it reaches its limit of $44 million.

The assessed value of NYSEG's distribution system alone is about $19 million.

While this wasn't a concern for Glens Falls, Massena ran into a similar situation and was required to apply for an exemption from the state's constitutional debt limitations.

The state Constitution allows for debt limit exclusions for “a public improvement or service owned or rendered by a municipality.” To be granted approval from the state comptroller's office for the exclusion, a municipality must be producing an annual net revenue on the project.

The coming feasibility study will determine whether the municipalization process makes sense in Auburn or Cayuga County. But, if the other municipalities are any indication, that determination will be only the beginning of a long, difficult battle that requires unity, will and persistence to find success.

“It's a lot of work,” Dudley said. “You're in a for a real battle.”

Staff writer Anne Gleason can be reached at 253-5311 ext. 248 or at anne.gleason@lee.net