Power to the People – Oregon’s Utilities Industry

by Erik Knoder

December 1, 2017

Oregon’s utilities industry is unusual in several ways. It is small, high-paying, and has a significant public-sector component.

Compared with other industries in 2016, it was second only to mining for the fewest number of enterprises (464) and employees (8,920). Its annual average wage of $87,456 was second only to the $114,695 paid by the management of companies and enterprises industry (which includes holding company and corporate offices). Excluding general government itself, utilities had the second-largest share (49%) of public-sector employment of all Oregon industries. Only educational services (public schools), with 79 percent of its employment in the public sector, had a larger share.
Industrial Makeup

The utilities industry is split into three main sub industries: electric power, natural gas distribution, and water and sewage systems. About 57 percent of the industry’s employment was in electric power in 2016, 30 percent was in water and sewage, and 13 percent was in natural gas distribution.

Electric power includes generation as well as transmission and distribution. This industry provided nearly 5,100 jobs in 2016. It includes large enterprises, such as federal Bonneville Power and private-sector Portland General Electric, medium-sized public utility districts, and small businesses such as Farm Power Northwest, which converts cow manure to methane to electricity. There is a variety of specific electric generation industries in Oregon: hydropower, fossil fuel, and wind power – but one thing we technically don’t have is a solar power firm. This is because finance and tax considerations are usually very important in renewable energy projects. Firms, such as EDF Renewable Energy and Obsidian Renewables, which do have solar projects in Oregon, may be classified in the finance industry.

Natural gas distribution is the smallest part of Oregon’s utilities industry in terms of employment. In 2016, natural gas distribution provided about 1,200 jobs. This is because of the more restrictive definition of which firms are included in the industry. Distribution does not include companies that extract oil and gas (those firms are in the mining industry). Nor does it include firms that primarily transport gas from processing plants to local distribution networks, as they are in the pipeline transportation industry. The main reason for the industry’s small size is simply that natural gas distribution is not labor intensive; a big windstorm has little effect on buried pipelines and doesn’t require large repair crews. Northwest Natural is an important company in this industry, serving more than 730,000 homes and businesses.

Water and sewage systems include public and private enterprises, such as city water departments, rural water districts, irrigation districts, sanitary districts, and private contractors that operate these systems. An example of the latter is Veolia North America, which operates a wastewater treatment plant for the City of Gresham. This industry is characterized by its small scale and large public-sector component. The average size for a water or sewage enterprise is a little less than nine employees, and 84 percent of the employment is public sector. Because it is expensive to move water out of its natural drainage, and having a reliable supply of water is so important, people often prefer small, local systems that preclude economies of scale. The result in 2016 was 296 water and sewage enterprises for Oregon’s 36 counties.

The utility industry’s employment was less in 2016 than in 2001, but that is largely due to a drop of about 600 jobs in 2005. This was the same year that decommissioning ended at the Trojan nuclear power plant.

Employment has been growing the past couple years, mainly in the local government and the private sector.

Socialism and Capitalism Both Seem to Work Here

Utilities are often described by economists as being natural monopolies. For example, having multiple enterprises construct separate electricity networks to cover the same area would greatly increase the cost to deliver the same total amount of electricity to consumers. The lowest-cost solution is to have just one provider. In addition there is usually little difference in the product they offer. Electricity from one supplier is little different than electricity from another supplier, so there is little opportunity to differentiate products and develop brand loyalty. For these reasons utility companies often function as monopolies in their service areas.

As anyone who has played the popular board game about monopolies knows, running a monopoly allows its owners to wield a good deal of power. Compared with competitive markets, monopolies tend to set higher prices and produce less output. As a result, society typically has either regulated utilities to ensure that prices and output are controlled, or owned them outright and subjected them to the control of publicly elected officials.

Are privately owned utilities better or worse than publicly owned ones? Your author conducted exhaustive scientific research at his home (private electric company) and at work (public electric company), and discovered that the lights usually work at both places. More seriously, the quality of utilities services is apt to be more related to levels of capital investment and the competence of management than ownership. Whether prices are lower for public or private utilities is a complex issue beyond the scope of this paper. There are some employment differences between public and private utilities, however.

Wages are different between public and private utilities in Oregon. The average wage for all workers in the broad utilities industry was $87,456 in 2016, but this masks the difference between public and private utilities. The average wage at privately owned utilities was $95,292, for federal utility workers it was $103,647, and at local government utilities it was $69,273. Some of the difference may be due to the fact that the private sector comprises more of the electric power generation and transmission and natural gas distribution industries and the public sector comprises more of the water and sewage treatment industries. It is also probable that the mix of occupations is different for the different ownerships.

Although private-sector utilities companies are smaller on average than local government ones, the very biggest utilities companies in the state are private sector. In fact, the three largest employ more than 500 people each. This may, in part, explain the higher wages. Larger enterprises can achieve economies of scale that are denied to smaller operations, and this can allow large enterprises to earn disproportionate operating revenue. This is true for public or private enterprises. It is likely that the higher wages in the public sector are also earned at larger public enterprises. It just so happens that the largest utilities companies in Oregon are in the private sector.

Occupations

Oregon’s utility industry employed more than 200 different occupations in 2014, but only about 50 occupations had more than 20 jobs in them. Not surprisingly, many of the occupations require considerable skill. Power line installers, plant operators, engineers and similar technical jobs often require post-secondary education and apprenticeships.
As usual, higher skill results in higher pay. Many of the common occupations have average wages above $35 per hour – around $70,000 per year. The most common single occupation, electrical power-line installers and repairers, had an average wage of $90,508. Training to be a power-line installer can begin at a community college program, such as the Energy Systems Maintenance Technician certificate from Clackamas Community College. Apprenticeships to become a journeyman outside lineman are offered by the Joint Apprenticeship and Training Committee of the Northwest Line Construction Industry. Information, including internet links to training providers, about all the utilities occupations is available at QualityInfo.org.


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