Minneapolis’ Energy Future

 

What Will Our Options Be?

 

Introduction

The City  of Minneapolis has adopted aggressive goals for dealing with the most pressing environmental problem of our time, global climate change.  But our current electricity provider is not doing enough to help Minneapolis residents and businesses to reduce our energy use and increase the percentage of our energy we get from clean, renewable energy sources.  They are continuing to raise rates even as consumption falls, and those rates are going in part into questionable investments in outdated nuclear plants, private jets and corporate profit.  Reliability is not improving, and the electrical grid is more sensitive to external shocks than it needs to be.

It would be irresponsible for us not to seize this moment to put our energy economy on a different path, either by improving the behavior of our existing utilities or by forming one of our own.  Other cities have their own energy utilities, and by and large they do as well or better than investor-owned for profit utilities like Xcel on key performance measures like cost, reliability, and renewable energy.  The City also has a proven track record in providing cost-effective, highly popular utility services.

A vote by Minneapolis residents to empower the City to create a municipal utility would not be the last word.  The City would have to do much more study to see if forming our own utility would be the best way to meet our energy goals.  In the proposed resolution to put this on the ballot, the City makes clear that we will only form a utility if we can provide energy as or more affordably and reliably as Xcel.  And a second authorization from the voters will likely be required for the City to bond for the cost of the infrastructure. 

Even if we choose not to go down the path of forming a municipal utility, an affirmative vote by the people of Minneapolis this fall will strengthen the City’s hand in franchise negotiations next year.

 

A vote this fall is not the end of this process, but the beginning. A first step is achieving the energy future we desire and deserve and that the health of our economy and future generations demands. 

 

The City has adopted strong energy goals

The City of Minneapolis has been a leader on recognizing the dangers of climate change.  Recently, the City has adopted aggressive climate goals, including reducing carbon emissions by 30%, increasing energy efficiency in commercial and industrial buildings by 20%, generating 10% of our electricity from renewable sources by 2025, all from a 2006 baseline.

 

The Minneapolis Climate Action Plan adopted on June 28, 2013, includes many strategies for increasing energy efficiency and renewable energy that are not currently available through the utility service provided by Xcel Energy.  

 

The status quo is not working

The city has utility franchise agreements with Xcel Energy (Northern States Power) for electricity and CenterPoint Energy for natural gas. These agreements were signed in the early 1990s and both expire at the end of 2014.

In the Minnesota Public Utilities Act of 1974, the Minnesota Legislature deemed it in the public interest to allow electric utilities to serve designated areas on an exclusive basis as regulated monopolies. It also reserved to the state the right to regulate the rates utilities charge.

So in Minnesota, for-profit electric companies can be granted exclusive monopoly rights and are regulated by a state commission, the Minnesota Public Utilities Commission (PUC).  The PUC determines services, programs, service territory and rates of energy utilities. The PUC – not the city, nor Xcel customers, nor any kind of free market – regulates what Xcel does and approves the rates they can charge.  And they consistently do so in a way that guarantees Xcel a certain rate of return, usually around 10%.

Right now Xcel Energy has exclusive rights to provide all the electricity used in Minneapolis.  Xcel has a monopoly and is the only entity that can legally sell electricity in Minneapolis at this time.  

The City has limited ability to negotiate for options to better meet our energy goals and realize our energy vision as part of the franchise agreements.  Under existing state law, the City’s authority in the franchise agreements is limited to the amount of a fee that can be imposed and is passed on to customers, the fee structure, how the fees are used and some conditions on the use of the public right-of-way, such as repairing streets after construction work.

The City Council is supporting legislation that would allow franchise agreements and negotiations to include more options for making progress towards its goals for clean energy, improved air quality, equity and green jobs.  Xcel opposed these efforts at the legislature in 2013.

Seventy-eight percent of the electricity used in Minneapolis is generated by non-renewable sources (35.1% coal, 29% nuclear, 13.6% natural gas).  Electricity use in Minneapolis generates over 2 million metric tons of carbon dioxide per year.

 

Meanwhile, electricity rates for Minneapolis residents and businesses continue to risesteadily, with Xcel Energy revenue per kilowatt-hour increasing by 32% since 2006.  Xcel recently asked for a 10.7% rate increase, but was forced by an administrative judge to reduce that rate increase to 4.7%.  One major reason for these rate increases is to increase profits.  Profits to Xcel’s shareholders increased 26% in the first quarter of 2013, and much of this rise ($75 million of the $237 million in total profits) came from similar rate hikes in Colorado, South Dakota and Wisconsin.

 

The track record is less than perfect

Since 2009, Xcel has used over $1.2 million in ratepayer dollars to ferry its executives between Minneapolis and Denver on their private jet.

Just this summer, it was announced that the costs to extend the life of the Monticello nuclear plant have doubled from $320 million to $640 million.  To put that in perspective, that’s more than $500 apiece from each of Xcel’s 1.2 million customers in Minnesota.  

Xcel’s plan for the new transmission line parallel to Lake Street was to string it above the Midtown Greenway.  Only once the City of Minneapolis, the Midtown Greenway Coalition, Hennepin County, and many residents, businesses and others opposed this plan within a contested case hearing was Xcel to bury the transmission line under 28^th Street.  Before planning this project, Xcel did not have to do a Certificate of Need, and it is clear that the company did not do an in-depth study on addressing the increased demand in the midtown corridor through energy efficiency and local renewable energy.  (Legislation requiring such a study was passed by the Legislature, authored by Representative Karen Clark, but vetoed by then-Governor Pawlenty).

When the City of Minneapolis spent Federal Stimulus funds to put 40 kilowatts of solar panels on the Haaf Parking Ramp in downtown Minneapolis, Xcel required the City to spend thousands of additional dollars to prevent these solar panels from putting renewable electricity onto the downtown grid.  Xcel argued that allowing this clean, renewable power to get onto the grid would put the grid at risk, which indicates that the grid is too fragile to accommodate local renewable energy generation.

Though the City doesn’t receive good outage data from Xcel, it is clear that power outages were already a problem before the recent major storm.  For example, portions of the Seward neighborhood had at least two outages already in 2013 prior to the storm.

Xcel’s original plan for the Riverside Coal Plant was something called the “Minnesota Metro Emissions Reduction Project (MERP),” which would have tried to reduce air pollution while continuing to burn coal.  (Even this inadequate plan was something that Xcel was compelled to put forward by legislation.)  Xcel only agreed to convert Riverside to natural gas after a major coalition of neighborhood groups, environmental organizations and policymakers – including Mayor Rybak, Clean Water Action, the Izaak Walton League, the Sierra Club, Environmental Justice Advocates of Minnesota, the Southeast Como Improvement Association and others – put together the Clean Energy Now campaign.

Recently, Xcel has advocated for the Public Utilities Commission to adopt such a restrictive set of “data privacy” policies that they would gut the building energy disclosure ordinance recently adopted by the City of Minneapolis.

Xcel has fought the City’s attempt at the Legislature to allow cities to put more renewable energy and energy efficiency goals into franchise agreements.

Xcel has made much of their recent investments in new wind energy capacity, but it is important to note that these investments are required by the State of Minnesota’s Renewable Energy Standard.  Similarly, Xcel has had to be forced by the Legislature to allow “shared solar” arrangements.  And as of 2010, the “Windsource” program accounted for less than 1% of total electricity use in Minneapolis.

 

The City has had an ordinance on the books since 1960 to require “that all existing overhead distribution systems and transmission lines of electrical and communication utilities be eliminated as soon as possible and that distribution lines and systems used in the supplying of electric, communication or similar associated services be placed, constructed and installed underground.”  Xcel has never complied with this ordinance, and the City does not have the power to compel Xcel to do so.  To this day, most of the homes and businesses in Minneapolis are connected to the grid by overhead wires.  This creates many problems, including substantially reducing the resilience of the grid: when there is a major storm and trees come down, the power goes off.  That isn’t necessary; it’s a choice that Xcel has made.  Overhead wires also require Xcel contractors to aggressively prune many boulevard trees in Minneapolis, reducing tree canopy.

 

Municipal utilities are successful

One hundred and twenty-five communities in Minnesota and more than two thousand communities in the United States, including large cities such as Los Angeles and Sacramento, California, Seattle, Washington, and Austin, Texas, are served by municipal electric utilities.  These communities are home to over forty-seven million people and three million businesses.

Municipal utilities deliver reliable and affordable service.  Munis have been shown on average to have fewer and shorter power outages than investor-owned utilities.  Residential customers of municipal power utilities across the United States pay on average 14% lower rates than customers of investor-owned utilities.

Many larger municipal utilities are making much more progress on fighting climate change (with local renewable energy generation) than Minneapolis.  For example, the Sacramento Municipal Utility District has a goal of reducing emissions by ninety percent by 2050, and has installed one hundred times more solar capacity than Minneapolis has.

Right now in Minneapolis, the University of Minnesota, as a District Energy Organization, is not a municipal utility but illustrates what more energy independence can yield. It owns and operates a power plant, takes full responsibility for the distribution of its energy, and owns and maintains its distribution system. At its campus in Minneapolis virtually all the lines are underground and during the recent serious storm, for example, there was not a single power outrage from tree damage.

 

The City already runs successful utilities

The City of Minneapolis provides water, sanitary sewer, storm sewer and solid waste and recycling utility services to the people of Minneapolis.  In 2012 over 90% of Minneapolis residents rated themselves as satisfied with these utility services, according to the City’s annual resident survey.

 

Other cities’ experience

Minneapolis is not the first city in the US to explore forming a municipal utility in recent years.  Boulder, Colorado is also looking into forming its own utility.  Their preliminary studies indicate that they can form a utility that keeps rates low, keeps good reliability, and dramatically reduces the greenhouse gas emissions from their city.

 

Passage of ballot initiative would not force Minneapolis to form municipal utility

Next year, the City will be in negotiations with Xcel and CenterPoint on new franchise agreements.  Having the option to form a municipal utility will give the City leverage in these negotiations.

As mentioned above, Xcel is fighting the City’s attempts to use our franchise agreements to make progress on our clean energy goals.  Last session, they lobbied against the City’s bill that would have increased the flexibility of franchise agreements.

To give you an idea what kinds of issues the City wants to address as part of its franchise agreements, you can find a set of franchise goals adopted by the City’s Community Environmental Advisory Commission.

 

The City of Minneapolis will only create a municipal utility if it makes sense

In fact, the resolution placing the municipal utility question on this year’s ballot includes the following text:

“Be it Further Resolved that the City of Minneapolis only intends to acquire the property of a public utility and form a municipal electric utility if it can provide energy services.

1. Without raising electricity rates above the trend line established by Xcel Energy from 2006-2013
2.  As or more reliably than the incumbent utility
3.  In a way that meets the City’s aggressive emissions reduction and climate change goals
4.  While meeting the City’s energy efficiency goals and increasing locally generated renewable energy.”

 

 

Additionally, both State Statue and the City Charter include provisions that may require the City to hold another referendum before approving borrowing (or bonding) for the amounts of money that would likely be needed to become a municipal utility.  This would only occur after additional extensive research and community engagement were completed and if the Council determined to actually move forward. Minnesota Statutes, 475.58 OBLIGATIONS; ELECTIONS TO DETERMINE ISSUE as well as the City’s own Charter make it clear that any decision to bond for more than $15 million depends on “the approval of a majority of the electors voting on the question of issuing such obligations or incurring such indebtedness at a general or special elections.”

Forming a municipal utility is possible

When the people of Boulder, Colorado voted to authorize the City of Boulder to create a municipal utility, Xcel Energy warned that it would cost more than a billion dollars to purchase the electricity infrastructure.  That has turned out to be inaccurate.  A recent estimate by the City of Boulder – using cost numbers supplied to them by Xcel – pegs the price of the infrastructure at no more than $405 million.  And that’s the worst-case scenario.  Here’s more from their study:

 

“Acquisition costs were modeled with $150 million as the highest cost scenario. That amount was the value provided by an Xcel consultant in a presentation to the city. In response to the city’s request for Xcel’s estimate of its stranded costs in June 2011, Xcel proposed a worst-case stranded cost figure of more than $330 million, for the first year, and $255 million if the city left Xcel’s system in 2017. Therefore, stranded costs were modeled with a high of $255 million in 2017, a best case of zero obligation, and at 50 percent of the highest or worst case. Stranded and acquisition costs, also referred to as “legal” costs, were tested for sensitivity, but as described below, they were treated differently from other uncertain inputs.” 

 

Now is the time for this ballot question

The City’s franchise agreements with Xcel and CenterPoint expire at the end of 2014.  In order to give the City leverage in next year’s negotiations, a ballot question would have to pass this fall.

 

The Energy Pathways Study which is to be complete by next January will give the City some information about our franchise and municipal utility options.  That information will be useful in pursuing either franchise agreements that meet our energy goals or creating a municipal utility.  It will not, however, answer every question about the creation of a municipal utility.  If the City goes down that path, much more study will be required.  There is no reason to wait to put this question on the ballot until after the study is complete.

 

 

CenterPoint has come to the table

In response to recent community efforts to get better energy options for the future, CenterPoint Energy has already agreed with community advocates on a framework of commitments to improving their energy delivery systems and providing jobs to people from all Minneapolis communities.  This framework includes the following:

• A committment to pursue the City’s goal of reducing greenhouse gas emissions by 30% by 2025 and to assist all of its customers in reducing their energy consumption and the associated greenhouse gas emissions,
• On-bill financing for residential energy efficiency investments,
• A pilot comprehensive residential retrofit program featuring “hand holding” to identify potential energy-saving measures, assist customers with decision-making regarding implementation and contractor selection, and quality assurance inspections, possibly including a bulk contracting component,
• A comprehensive multifamily retrofit program,
• A study of energy savings potential and energy program participation specifically within the City of Minneapolis,
• CenterPoint Energy’s support for state data privacy and disclosure policies that facilitate the use of customer energy usage data for purposes of tracking consumption against goals and encouraging greater conservation,
• Combined Heat and Power, which offers significant energy savings at a system level where there are both electric and thermal requirements but which is not currently well-incorporated into state policy,
• Renewable energy technologies such as solar thermal and biogas,
• Reporting to the City about the amount of natural gas leakage in the CenterPoint distribution system and the steps taken to address methane leakage on an annual basis, and information from CenterPoint’s natural gas suppliers.  (This is important because methane is more than 25 times more potent than carbon dioxide as a greenhouse gas.)
• CenterPoint will work to meet the City’s goals for hiring a more diverse workforce that better reflects the communities in Minneapolis.

 

Conclusion

 

The City has long been a leader on calling out climate change as a major issue that needs to be addressed.  With the recent passage of the Climate Action Plan, the City has committed to a set of concrete actions to reduce our greenhouse gas emissions.  I believe that the City must do more to reduce the amount of energy Minneapolis residents and businesses use and waste through major improvements in energy efficiency, and to move ourselves off of fossil fuel and nuclear power to clean, renewable energy.  We can use the opportunity presented by the expiration of our franchise agreements with the energy utilities that generate two-thirds of our greenhouse gas emissions (Xcel and CenterPoint) to either align these utilities with our energy goals or create our own municipal energy utility. 

This is a justice issue.  The poor – both here in Minnesota and all around the world – are bearing and will bear the brunt of the impact of climate change.  And we owe it to future generations to leave them an inhabitable planet. 

This is an economic development issue.  This will mean jobs in our local communities.  Studies have shown that investments in energy efficiency retrofits and renewable energy create more local jobs than spending the same dollars on coal, oil, natural gas and nuclear.  More reliable, more affordable and cleaner energy is good for business. There is a new energy economy coming and Minneapolis can be part of it. 

This is a public health issue. Realizing a new energy vision would not only help reduce global warming but it will improve the quality of live in Minneapolis, and improve the air we breathe.

We owe it to ourselves and the generations to come to use this unique moment in our history to change the trajectory of our energy future.  Having the option, the authorization, to own and operate our own utility will open the doors to more positive partnerships with our existing energy producers and more possibilities for a new, innovative, vibrant energy economy for the future.

 

We can have cleaner, more local, more affordable and more reliable energy, but only if we’re willing to try.

 

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For more information you also may wish to visit the City's website and Minneapolis Energy Options.