Owning Your Home’s Utilities
Ideally, utilities, such as water, electricity and gas, should be owned by its customers and not for-profit corporations. That would mean any money left over at the end of the year are passed on as future savings to ratepayers. In reality, this is not the case, and most Americans have at least one utility with for-profit ownership.
What’s interesting, however, is that these privately owned utilities are often publicly traded. So the everyday investor, with enough money, can actually purchase a chunk of their utilities and simulate the kind of customer ownership that publicly owned utilities have. The question is, what’s the right allocation? I’ve been thinking about this recently, and believe I have a full answer.
You want to buy just enough shares of the utility company so that the profit the company makes off of your usage equals the profit you make from your stake. If you have any more shares than that, then you’re taking some profits from other customers. If you have any less (or zero) shares, then an investor is capturing your profits.
So, my allocation formula looks like this:
Interestingly, earnings cancels out in this formula, so we don’t actually need to know about profitability, just revenue. We want just enough shares so that the revenue taken from us is equal to the revenue our shares represent. This can further be simplified to:
To determine optimal allocation, the two things we will need to calculate are personal spending and shares per revenue. Personal spending is not too hard to figure out, but number of shares per revenue is not a common metric you usually find in prospectuses - usually number of shares is in the denominator not the numerator. But there is a related metric we can use for this: Revenue Per Share (RPS). So the above formula can be rewritten as:
Since we cannot predict the future, we have to look backwards at these two metrics. For my own purposes, I am looking at 2023 numbers, which will hopefully even out some of the fluctuations in consumption that happens with seasonal changes.
1. Example
For this exercise, I’ve looked at my own utilities. I’ve omitted telephone & cable which I don’t use. I also excluded cellular which is not quite a monopoly where I am (U.S. cellular networks include AT&T, Dish, T-Mobile and Verizon).
| Utility | Ownership |
|---|---|
| Electricity | Invester owned |
| Water | Publicly owned |
| Sewer | Publicly owned |
| Natural Gas | Invester owned |
| Trash | Invester owned |
| Internet | Invester owned |
For where I live, water and sewer are publicly owned. All other utilities are owned by investors, and can be bought on the stock market. Here’s my spending for each of these utilities, as well as:
| Utility | Stock symbol | My 2023 Spending |
|---|---|---|
| Electricity | NASDAQGS:EVRG | $1,374.58 |
| Natural Gas | NYSE:OGS | $1,147.89 |
| Trash | NYSE:GFL | $229.05 |
| Internet | NASDAQ:GOOGL | $840 |
Some of this spending is rough estimates. Some percentage of spending in all of the above goes to sales tax, franchise fees, and other miscellaneous fees that may not actually reach the utility company. But, my opinion is a rough estimate is probably okay.
1.1. Utilities
1.1.1. Electricity
Evergy is the only utility of electricity in my area. I was able to pull financial data from its 2023 10-K:
| Evergy 2023 | (millions) |
|---|---|
| Revenue | $5,508.2 |
| Net Income | $743.6 |
| Number of shares | 230 |
This gives RPS of $23.95/share. According to the above formula, I need to purchase 57.4 shares of Evergy. As of end of day June 3rd, 2023, Evergy traded at $52.29/share. So this would require a $3,001.45 investment.
Notably, this is looking at the profitability of the whole company. It’s possible that my specific home is more profitable than the average Evergy customer. For instance, a big cost for electricity is getting the power line to the home, which has already been done in my case. Or maybe some regions are more profitable than others. However, the same thing I think happens in public utilities - some houses are cheaper than others, yet the rates stay the same. So, I think looking at it from a whole company view is both simpler, and closely mirrors how public utilities actually run in practice.
1.1.2. Natural Gas
One Gas is the only utility of natural gas in my area. I was able to pull financial from its 2023 10-K:
| ONE Gas 2023 | (thousands) |
|---|---|
| Revenue | $2,371,990 |
| Net Income | $231,232 |
| Number of shares | 55,600 |
This gives RPS of $42.66/share. According to the above formula, I need to purchase 26.91 shares of One Gas. As of end of day June 3rd, 2023, One Gas traded at $62.87/share. So this would require a $1,691.83 investment.
1.1.3. Trash
GFL is the trash service used in my neighborhood. Unlike the previous two companies, GFL is headquartered in Canada. However, it is still listed on the NYSE, so it can easily be purchased by Americans. The financial data is included in its 40-F instead of 10-K.
| GFL 2023 | (millions) |
|---|---|
| Revenue | $7,515.5 |
| Net Income | $32.2 |
| Number of shares | 408 |
This gives RPS of $18.42/share. According to the above formula, I need to purchase 12.43 shares of GFL. As of end of day June 3rd, 2023, GFL traded at $34.73/share. So this would require a $431.69 investment.
1.1.4. Internet
I’ve saved Google Fiber, now called GFiber, for last because I think it is a special case in this. Alphabet (Google) is a huge company, and GFiber is only a small part of that. In financial statements, Alphabet has a broad category called "other bets" which includes GFiber as well as Waymo, Verily, and X. Other bets as a whole posted losses in the last couple of years. So most likely Alphabet is not making a profit on my $70/month I pay for GFiber. As a result, I think it doesn’t make sense to purchase shares in Alphabet.
1.2. My Asset Allocation
Here is what my asset allocation would look like:
| Investment | % of company | Allocation | |
|---|---|---|---|
| Electricity | $3,001.45 | 0.00000025% | 59% |
| Natural Gas | $1,691.83 | 0.00000048% | 33% |
| Trash | $431.69 | 0.00000003% | 8% |
| Total | $5,124.96 | 100% |
While it may seem like a lot of money, this is actually much cheaper than I first thought it would cost. Most people don’t have this kind of money just sitting around, though.
Unlike most asset allocations, the percentages will change every year. For example, increased consumption of natural gas would mean higher allocation of natural gas. Increased price of natural gas, however, should be neutral on natural gas’s allocation because while revenue per share is going up, so is your personal spending.
The price of these shares will also change over time, but the allocation is really based on number of shares, not price. So, any price change shoudn’t require reallocation, but every time new revenue numbers come out, you may want to rebalance.
2. Open Questions
What’s the risk to this allocation?
I think by purchasing utilities, you are taking on risk that are held by the shareholders. So, in the event of bankruptcy, your equity would be wiped out. However, I’m skeptical that public utilities wouldn’t be bailed out in the event of insolvency. Also, publicly owned utilities already have this problem - ratepayers (and maybe also taxpayers) would be on the hook if the utility were insolvent, so it may not be much worse than that. I haven’t yet researched any cases of for-profit or pubicly owned utilities becoming insolvent.
What if you own your utilities through an index fund already?
I think you can think of your index fund as a separate pool of money from your direct ownership of utilities. Index funds are used to reduce overall risk, while this strategy is intended to capture the profits from your utility payments.
What if everyone did this?
It would be interesting if every ratepayer did this by buying all the shares of each utility. Would the utility become de facto publicly owned? Would company management care as much about rates as profits? All are fascinating questions that I don’t think we can answer.
Another crazy idea: what if publicly owned utilities gave each of their ratepayers shares: 1 share for $100 in spending. It would let ratepayers sell their shares if they needed money in return for higher realized rates rates. But it would be unclear how you would ensure future ratepayers also get equity. Perhaps it could work similar to how ESOP programs work in some workplaces.
Don’t state energy regulators represent consumers already?
State regulators do have a large role in regulation of energy and natural gas. They seem to mostly focus on pushing the utilities to keep rates low. But even the strictist state regulators will recognize a profit needs to be paid to shareholders each year.
What are some other applications of this?
You could take this allocation formula to other applications where you consume goods. For instance, if you regularly spend $100/month at Amazon, you could buy ($1200/Amazon RPS) shares in Amazon (where Amazon’s 2023 RPS is $55.78). This probably doesn’t work for Amazon in particular since they are a very diverse business and product sales like Amazon.com is probably less profitable than service sales like AWS. If you could purchase just the Amazon.com side of the business, you could perhaps do something like this. It might even be possible to do it yourself with some clever use of options trading. Perhaps, a business relying heavily on AWS would want to reap some of the profits they contribute to. There’s also a risk of being doubly exposed to risk in Amazon however - both your cloud platform and your balance sheet are effected if AWS becomes unprofitable.