Minneapolis to study city-run utilities

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April 16, 2013
By: Dylan Thomas
Xcel Energy's headquarters on Nicollet Mall.
By Dylan Thomas
Dylan Thomas
Study planned as franchise agreements with Xcel and CenterPoint set to expire

Before the city locks into new franchise agreements with its gas and electricity suppliers, Minneapolis will first explore the possibility of setting up its own municipal utility.

Twenty-year agreements with Xcel Energy and CenterPoint Energy are set to expire in late 2014. By then, city leaders aim to refine their goals for a cleaner, more sustainable energy system and examine all the potential routes for reaching those goals.

One option is for Minneapolis to take charge of providing gas and electricity to its residents. Proponents argue that route would speed Minneapolis’ progress in reducing greenhouse gas emissions, improve the reliability of the services and add jobs.

The City Council voted April 12 to spend up to $250,000 exploring that scenario and others over the next nine months with the Energy System Pathways Study.

“We want to let our current utility providers know these are our goals and we are serious about trying to find a path to better achieve our goals,” said City Council Member Elizabeth Glidden (8th Ward).

At the same time, city leaders are following half a dozen bills at the state Legislature that could weigh on their decision, including two key pieces of legislation.

One would expand cities’ power in negotiating utility franchise agreements, allowing them to set energy-efficiency goals and requiring utilities to provide regular reports on local energy infrastructure. Right now, cities can discuss franchise fees and the conditions for utilities to work on their streets, but the Minnesota Public Utilities Commission has the only voice in negotiations with utilities over, for example, the mix of renewable energy sources used to generate electricity.

“State law tells us you can talk to Xcel about how much they pay [Minneapolis] for right-of-way use, but we can’t under state law have a discussion with Xcel [asking], ‘Well, we want you to provide 10 percent of our energy with clean, renewable sources,’” explained Glidden, who chairs the Council’s Regulatory, Energy and Environment Committee.

If Minneapolis decides it can do a better job than Xcel, current state law also requires the city to purchase the utility’s local infrastructure — all of the lines, poles and substations in town — and reimburse Xcel for future revenues.

Another key bill in the state Legislature would strip future revenues from that reimbursement formula, reducing the potentially huge costs facing cities as they transition to municipal utilities. Initial estimates indicate Minneapolis would spend hundreds of millions and perhaps more than a billion dollars taking over utility operations.

The current law has been on the books since the 1970s, and Glidden said that was one reason why the state hadn’t seen any new municipal utilities created in the nearly four decades since. Still, they aren’t necessarily rare. According to the Minnesota Municipal Utilities Association, there are 125 municipal electric utilities serving cities as large as Rochester and another 31 municipal gas utilities.

Other cities around the country, citing concerns about role of greenhouse gas emissions in climate change, are also considering municipal utilities. In April, city leaders in Boulder, Colo., were nearing a vote to end the city’s contract with Xcel and establish a municipal energy utility.

In Minneapolis, the targets set by the City Council aim to reduce citywide greenhouse gas emissions 15 percent by 2015 and 30 percent by 2025, as compared to a 2006 baseline. To reach those goals, city leaders want more detailed information on just how energy is distributed and used, even down to the neighborhood level.

Representatives from both utilities said they planned to cooperate with the study.

Xcel spokesperson Laura McCarten said the company was “eager” to participate in the study and would work with the city to explore energy conservation strategies. But Xcel opposes the proposed changes to franchise agreement negotiations, and McCarten cast doubt on the idea of negotiating energy standards city-by-city.

“That’s where our grid is not designed by city boundaries,” she said. “I don’t even conceive of how we could do that.”

While city leaders ponder the energy future of Minneapolis, they have a citizen-led campaign pushing them to stay tough in franchise negotiation with CenterPoint and Xcel.

Dylan Kesti of Minneapolis Energy Options said the city has a “unique opportunity” now to make progress toward its clean energy goals. The campaign isn’t advocating a municipal utility as the only solution, but Kesti noted that Boulder, Colo., moved forward when a 2011 feasibility study indicated a municipal utility there could significantly reduce greenhouse gas emissions while maintaining rates and reliability at similar levels to Xcel.

Glidden said City Council members, too, are open to whatever outcome leads to cleaner, more reliable energy for the city.

“Clearly, there are a lot of communities that provide municipal energy,” she said. “The questions, I think, for us, is how realistic is that as an option.”