THE ENERGY PATHWAYS STUDY RECOMMENDATION OF FORMING A CITY-UTILITY PARTNERSHIP BRINGS UP QUESTION ABOUT THE ROLE OF CITIES VS. THE ROLE OF THE STATE ON UTILITY REGULATION
FEB 2014: THE MINNEAPOLIS ENERGY PATHWAYS STUDY IS RELEASED
February 21st 2014 was the date that broke the long period of silent inactivity for Minneapolis Energy Options. That was when the long-awaited Energy Pathways Study was released. The City Council approved this study on alternative pathways to the status quo energy system specifically to provide the city a guidebook for the renegotiating of the franchise agreements with Xcel and Centerpoint. The big takeaway what that the study recommended Minneapolis form an innovative, first-in-the-nation “Clean Energy Coordinating Partnership”
On Monday February 24th 2014, the Health, Environment and Community Engagement Committee (HE&CE) of the Minneapolis City Council heard a presentation of the Energy Pathways Study.
While, the lead study author
Mike Bull, as the lead author of the Energy Pathways study (and as staff for Center for Energy and Environment), introducing the Energy Pathways Study to the HE & CE committee.
Mike Bull quickly provided the context and relevance of the 4 different specific energy pathways in light of the status quo where the city and energy utilities work very independently from each other aside from sporadically forged narrow-scoped franchise agreements. He stated:
“We realized early on that the status quo was not an option…that it would not allow the city to achieve its climate action plan or goals or its energy vision.”
This message of the status quo not working fits in well with the message that Minneapolis Energy Options had run on in 2013. The status quo is one which rates continue to increase, where reliability is not improving and where the robust investments in energy efficiency and renewable energy were not coming through to the communities who most need them. That was the basis for studying 4 different energy pathways that give the city varying degrees of greater influence and control. Here are the 4 energy pathways ranked from the city having least amount of influence and control to the city having the greatest.
1: Enhanced Franchise agreements that include a broader set of goals
2: A City-Utility Partnership with a coordinating entity to set and track mutual goals
3: Community Choice Aggregation where Minneapolis contracts directly for energy supply through Xcel’s grid
4: An independently owned and operated municipal energy utility
At the February 24th hearing, Council Member Alondra Cano asked a straightforward question of which pathway could possibly get us to a destination of 100% renewable energy by 2030. The answer given was pathways #2, #3, or #4 but not #1. Achieving pathways #3 or #4 would make it far easier for the city to control its mix of energy sources.
For the immediate term, the Energy Pathways Study recommended a dual strategy that combined pathways #1 and #2 yet still left pathways #3 and #4 open for the city to explore on a longer-term scale if acting on pathways #1 & #2 don't result in effective action.
Following pathway #2 means establishing a “Clean Energy Coordinating Partnership” where City leadership and both utilities agree to pursue program and policy goals that focus on achieving the ambitious clean energy and energy efficiency goals Minneapolis set in its 2013 Climate Action Plan.
The Partnership idea was described as a formal agreement between the City and the utilities to mutually implement the City’s adopted energy vision for an energy system that is affordable, reliable, clean, efficient, local, collaborative and improves social equity. NOTE 1 The purpose of a partnership is to hold both utilities accountable to advancing the Minneapolis Climate Action Plan by marketing, tracking, coordinating, and reporting progress on broadly defined clean energy activities in the City. A strong case for a city-utility partnership is that energy programs will be most effective when the city can integrate its regulatory authority over housing and businesses and its neighborhood engagement systems with the utility’s programs, incentives, financing methods, and infrastructure.
From my observation of being present at that February 24th HE & CE council hearing, the greatest consensus among all parties was centered on pathway #2. According to Cam Gordon
“I think we are really in a good position right now carving out these middle pathways to see where we might go. I did have an opportunity to call the leadership of the utilities and had some discussion and I think there is a real willingness and openness to keep looking into these and move forward with these…”
Support for pathway #2 was foreshadowed in the August 8th, 2013 letter from David M. Sparby of NSP/ Xcel to Mayor Rybak.
A successful pathway #2 is where the technical expertise, funding and financial assets of the utilities are married with the regulatory, oversight, and relationship assets of the city including community engagement potential and tapping into existing networks with skilled residents. Some intriguing possibilities the Energy Pathways Study suggested for such a partnership included a rental energy efficiency program, as well as a “green zones” pilot program for neighborhoods in need as recommended in the climate action plan.
Such a partnership could combine these complimentary assets into a powerful force for meeting public climate action goals. That can set a huge precedent for other cities to follow because it could be easily replicated. Mike Bull has said such an arrangement:
“will put the city at the forefront of a utility business model transformation discussion that has been going on around the country”.
Reconciling pathway #2 with pathway #1 was a recommendation by the study that a renewed franchise agreement should be far shorter term than the previous 20 years and that renewal should be contingent upon the utilities meeting the agreements made in their partnership with the city.
In exchange for Xcel and Centerpoint agreeing to meet the City's clean energy/ climate goals, the City of Minneapolis would have to suspend its state-granted right to pursue a municipal utility for the duration of the partnership agreement.
The recommendation the Energy Pathways Study gave for pathway #3 was to do a detailed study on how Community Choice Aggregation could operate in Minnesota given that the state does not offer deregulated retail electric service.
Here is where the hearing on the Energy Pathways Study took an interesting turn. HE & CE Committee chair Cam Gordon explained his ideal scenario would be to merge Pathway #2 with Pathway #3 so that a City-Utility partnership could accommodate Minneapolis generating, owning and managing some of its own power. That way we could reap some of the benefits of community choice aggregation (CCA) without jumping through cumbersome hoops at the state level to get CCA formalized.
The agenda that Cam Gordon clearly expressed the most interest in was for a partnership that is open to the city owning, managing and generating some of our energy like hydro or solar on parking ramps.
He would like the city to answer yes to a tribal community who asks “We have this property where we would like to put up a wind farm. We need someone to buy the energy so could the city be a buyer and partner with us?” In order for the city to purchase nearby renewable energy from potential partners who want to sell it, the city would need a side agreement with Xcel Energy as well as arranging some revenue to make the purchase. In this ideal outcome, Xcel would act as an agent for what is referred to as a “buy through arrangement” though that will probably at least require PUC approval.
NOTE 1 http://www.minneapolismn.gov/www/groups/public/@citycoordinator/documents/webcontent/wcms1p-113989.pdf
MINNEAPOLIS ENERGY OPTIONS GIVEN CREDIT BY COUNCIL MEMBERS
At the February 24th meeting of the Health, Environment and Community Engagement Committee Both CEE and City Council Members widely credited Minneapolis Energy Options with bringing this issue forward:
“The city has gained great momentum on energy issues. The advocates have done a tremendous job at driving a city wide conversation on energy options.”
Mike Bull, lead presenter of the Energy Pathways Study
“I did want to recognize folks in the room who are with Minneapolis Energy Options and all of the hard work, that the organizers and activists have done to help us to vision a new future and to help create that so your work is very much needed with the city and I am looking forward to continuing to work with you all, I know that my office is busy trying to engage communities of color around this very issue and connect them to the broader conversations that you guys are having so thank you because without your hard work, your voice and your courage we would not have this amazing product here today.”
Alondra Cano, Ward 9 council representative
“I wanted to express excitement actually for this, I think this is a really innovative strategy and I wanted to thank you (chair Cam Gordon) and council member Glidden for your leadership last year in taking all of the great work that advocates did and turning it into something that is really forward looking and I think it’s exciting.”
Lisa Bender, Ward 10 council representative
THE CAMPAIGN FOR A CITY-UTILITY PARTNERSHIP BEGINS
For Minneapolis Energy Options, the prospect of an innovative, first-in-the-nation city-utility partnership quickly replaced a municipal utility authorization ballot initiative as our beacon of hope to finally leverage positive innovations in the utility business model. If successful, the partnership could set an inspiring new national precedent for how local leadership can turn a mundane franchise contract renewal into a catalyst to influence shareholder-controlled utilities to meet mutual climate, justice, and local economic development goals. It became a more politically feasible pathway to fulfill our compelling vision of re-directing the 450 million Minneapolis spends each year on electricity/ gas into local jobs, resilient modern infrastructure and clean efficient energy that benefits our communities.
It was politically feasible because it presented a win-win situation for both the City and the utilities. By working with the City of Minneapolis and its communities, Xcel and Centerpoint can co-create new strategies for neighborhood-wide energy efficiency and community-owned renewable energy and demonstrate what is possible when utilities formally partner with the communities they serve.
Xcel Energy found itself an opportunity to become a national role model for how a utility can empower local economic development and community benefit through shared power and shared benefits in a 21st century energy system.
Furthermore collaborating with Minneapolis’ ambitious climate/energy goals will also help Xcel meet its own goals and mandates, for both the Conservation Improvement Program and the Renewable Energy Standard.
XCEL ENERGY VICE PRESIDENT SAYS MINNEAPOLIS ENERGY OPTIONS CONVERSATIONS “CREATED OPPORTUNITIES”
Following the release of the Energy Pathways Study, Xcel Energy has made public statements to the State House Energy Committee, and the Public Utilities Commission, that echoed the language of committing to be collaborative partners in meeting Minneapolis’ energy and climate goals laid out in their 8-8-2013 letter to the City of Minneapolis,.
At a March 17th House Energy Policy Committee informational hearing on legislation Community Power was lobbying for, Xcel Energy regional vice president Laura McCarten spoke:
“As you have heard Minneapolis has strong progressive energy vision it plans and we are excited to work with the city to help it achieve its goals. The municipalization debate of 2013 created opportunities really for Xcel Energy to build on our strong existing partnership with the City of Minneapolis.” NOTE 1
From that point on it became apparent that Xcel Energy wanted Minneapolis to provide a counter-example to their adversarial handling of Boulder, Colorado which was deep in the process of pursing a municipal utility.
COMMITMENT TO THE CITY-UTILITY PARTNERSHIP FORMALLY ACKNOWLEDGED AT PUC HEARING
On Tuesday April 29th, the Public Utilities Commission held a hearing on Minneapolis’ ambitious energy goals and how Xcel Energy and Centerpoint Energy are responding. Excitingly, the city and both utilities confirmed formal recognition of that commitment to a city utility partnership in front of the four out of five members of the PUC present.
Chris Clark from Xcel Energy expressed excitement about opportunities for energy efficiency and renewable energy and that he was looking forward to working with those who are bringing new ideas. Jeff Daughtery from Centerpoint also stated that “our interests are aligned with the city” and wants to partner collaboratively.
The City of Minneapolis quickly issued a press release on the hearing that has additional background information, which can be read here. http://www.ci.minneapolis.mn.us/news/WCMS1P-124070
On behalf of the Minneapolis City Council, HE & CE committee chair Cam Gordon said “We don’t think the status quo is an option”, and expressed “great hope for this clean energy partnership.” He disclosed that Xcel Energy officials were already having monthly meetings with City Council members and staff.
After Cam Gordon spoke, the Center for Energy and Environment presented an updated expanded version of their energy pathways report slideshow that they presented to the Minneapolis City Council back in February.The presentation acknowledged that shorter-term franchise agreements with a near automatic renewal will keep things a lot fresher than the 20-year franchise agreements of the past and will accelerate commitment to modern technologies rather than the centralized machine utility model of the past.
A couple of most encouraging new slides in the updated CEE presentation were about innovation around the distribution edge as a way to meet energy goals. It included a bullet point about a “utility business model that supports consumer choice and locally tailored resources.” By our persistently pursuing distributed clean energy generation and energy efficiency, we are directly challenging the old utility business model that is based on a singular incentive to sell more kilowatt-hours. That slide in the CEE presentation presented a vision that utilities should pivot their business toward selling a full range of energy services such as mini-combined heat and power generation (CHP), battery storage, electric vehicle charging stations, and "demand response" services that reduce power demand during peak load times. It put forth to the PUC the idea that the incumbent utilities will miss the wave of the future if they treat such innovation around the distribution edge as a threat and hence instead should embrace it as a harbinger for entire new industries to sprout up as we have seen in Europe.
The Minneapolis City Council had just recently delivered some additional leverage to these productive discussions by setting a goal an 80% greenhouse gas reduction by 2050. However, even if all the programs, strategies and policies currently recommended by CEE in its energy pathways were put to use, will the CO2 reductions still be enough to fulfill the building sector goals that Minneapolis had just set? ANSWER QUESTION According to a chart in the CEE slideshow, the three programs that would offer by far the largest estimated CO2 reductions by 2025 are the large commercial building program, local solar development and an expanded opt-in green tariff. Therefore in a city-utility partnership described by CEE slideshow, meeting the city’s energy goals would greatly depend upon the incumbent utilities' willingness to pursue those three programs.
As for meeting several of the remaining CO2 reduction pathways laid out by CEE, Cam Gordon laid out a basic community engagement model in the hearing. Transparency around energy use (such as the commercial building reporting ordinance) will create a market for energy efficiency upgrades. Then organizations mentioned by Cam Gordon like Energy Challenge, Sierra Club and Minneapolis Energy Options could use social networks and outreach channels so more people are aware of the energy efficiency programs and opportunities.
WOULD STATE LAW BE AN IMPEDIMENT?
In the second half of the PUC hearing the elephant in the room was finally called out by one of the commissioners who asked the big question. The elephant in the room question was whether there are state statutes that would be roadblocks to the city meeting its energy goals, in particular in regard to owning, managing and generating some of our energy such as hydro or solar on parking ramps.
Mike Bull of CEE answered that there is a lot of opportunity under current state law and with the existing authority the PUC that can move us forward on the city-utility partnership pathway. The PUC has authority to arrange for Minneapolis using its buying power to own an outside wind farm to Power LED streetlights for example. The prevailing assumption was that we don’t need new legislation if the city and the utilities are willing partners, which has often not been the case in years past. Cam Gordon responded that it is difficult for the city to do a lot of innovative local renewable power supply arrangements in the current regulatory climate and that such popular projects should not be too much to ask for. For example, Cam Gordon told about a frustrating experience figuring out how to put solar on top of the convention center because the City could not legally be generating the energy under state laws protecting energy monopolies. The City ended up resolving the problem by leasing the space for someone else who owns the panels.
PUC Commissioner Beverly Heydinger made it clear that if there were state statute impediments in the way, “We (the PUC) at least needs to know about it." Though Beverly Heydinger did not make promises the PUC will be able to remove all obstacles, she did note that the times have changed and that we all will inevitably have to reconsider old rules. For this purpose Beverly Heydinger invited the city to actively participate in the PUC dockets. For the city to be successful, it would have to keep an extended presence in PUC deliberations. A good starting point would be a docket for the expanded opt-in Green Tariff because Commissioner Dan Lipschultz clarified that is the one idea in the CEE report where the PUC will have to be involved.
So before us now is a test: How quickly and effectively can Minneapolis and communities within intervene on PUC dockets and what resources will be made available to represent the city's interests at the PUC? Cam Gordon acknowledged the council has been pushed and pulled by residents and businesses and that the city is only able to move forward because of the citizens. This built the case for a city utility partnership that actively includes citizen input and guidance because that will keep the partnership dynamic as opposed to bureaucratic.
IS NEW STATE LEGISLATION NECESSARY FOR A CITY-UTILITY PARTNERSHIP?
The choice the City of Minneapolis made in taking a unique solution of forming a city-utility partnership was a route far less radical than forming a municipal utility or changing state law to allow CCA or new co-op utilities within Minneapolis. Yet the city-utility partnership option is also far more robust than using only the franchise fees and right of way negotiating space currently offered by state law. How does this City-Utility partnership settle with existing state statutes? Could a city-utility partnership be a partnership in the legal sense or would new legislation be required for a city and a utility to create a stand-alone nonprofit to act as a coordinating entity between them?
Minneapolis forming the Clean Energy partnership with Xcel and Centerpoint provides a test run to demonstrate whether new legislation is unnecessary for a city to have authority to apply its own renewable energy standards, conservation goals and greenhouse gas reduction targets onto utilities. The legal theory decided upon is that no new legislation is necessary because Xcel and Centerpoint signed a mutual agreement with the city and that it thereby does not intrude on the legal ground the PUC is supposed to cover.
In sum, there is legal space for Xcel and Centerpoint to make non-binding promises to the city without new legislation allowing competing energy management. It’s just that there would be no legal tool to hold both utilities accountable to the agreement.
STATE LEGISLATIVE BILLS FOR BROADER-SCOPED FRANCHISE AGREEMENTS GETS AN INFORMATIONAL HEARING
State law doesn’t explicitly say that cities can’t have an influential role in their energy goals. However utility lobbyists have fought against creating laws that would explicitly say that cities can have their own active control and influence over their energy goals.
In the 2013-2014 session there was some legislation introduced to give cities the explicit authority to enter into agreements with energy utility companies to meet a whole range of their adopted goals (such as the Minneapolis Climate Action Plan).
What the legislation H.F. 1450 would have done is provide cities the authority to create a formal collaborative structure with utilities, ratepayers and the community to mutually meet environmental and jobs goals together. H.F. 1450 would have provided a stable legal footing for formal agreements between cities and utilities beyond the typical franchise agreement process.
Content of this legislation included “getting a written commitment by utilities to carry out energy-efficiency measures, with energy reductions reflected in lowered electric bills, and mandate the utility to submit regular reports on the reliability of its system and how energy use within the city relates to state energy requirements. It would also require the agreement to include the utility’s procedures on connecting to alternative energy sources.”To sum up the situation, Xcel gave Minneapolis some room as a special case because of the mobilization last year for Minneapolis Energy Options. But without this legislation, each city and town across Minnesota would have to instigate a huge grassroots mobilization in order to get this same favor from Xcel. With this new legislation we would not have to invest so much time and resources into starting spinoff campaigns.
SF 1450/ HF 1490 did have an informational hearing in the State House Energy Committee on March 17th 2014. The big takeaway from the hearing was how one Xcel spokesperson stated excitement to build a partnership to help Minneapolis achieve its progressive energy goals while at the same time another Xcel spokesperson opposed HF 1450 that would actually allow such formal collaborative partnerships to have explicit legal authority statewide.
Here is what Xcel chief lobbyist and director of regional government affairs Rick Evans said against HF 1450 during the informational hearing on March 17th, 2014:
”HF 1450 takes us back in time where we have a patchwork based on a variety of different franchise agreements of city to city that would set out new requirements for renewable energy, energy efficiency, for transmission and delivery systems...From Xcel Energy's point of view what is missing from the bill... is a description of how this patchwork of regulatory measures is going to fit on top of the extensive state regulatory measures that we currently have...Would the PUC determinations on resource planning, certificates of need, safety, reliability and rates be required to give way to the municipal's preference as stated in a franchise agreement?”
In 2013 Rick Evans was quoted in the Star Tribune stating “the utility serves hundreds of cities across the state and doesn’t have a separate system that would allow for the complexities and expense that would come with something more appropriate for state regulators.” NOTE 1Eric Swanson, an attorney claiming to represent Centerpoint, echoed Rick Evan's concerns
“We want to avoid duplicative regulation, we want to avoid balkanized regulation. There is a reason that we centralized regulation in the state some 40 years ago now and we don't want to forfeit the efficiencies and the benefits that have come from that...” NOTE 2Could what “balkanized regulation” Swanson referred to actually mean the rights to local self-reliance and determination? In principle, it is hard to argue against the sovereignty of a city having the freedom to choose where its energy comes from, and the ability to generate energy cooperatively for our city. Local control may be a very popular virtue among the public. But a regional regulated utility might not see it as virtuous to carve out one big city in a metro area for a different mix of sources of energy when it makes statements in the name of fairness to treat all of its customers across the region the same.
NOTE 1 ( CITATION FROM http://www.startribune.com/local/minneapolis/217856111.html Stakeholders
mobilize for hearing on Minneapolis municipal utility debate Article by: MAYA RAO , Star Tribune Updated:
August 1, 2013 - )
A CENTRALIZED UTILITY REGULATORY MODEL VERSUS THE SOVEREIGHTY OF INDIVIDUAL CITIES
Just because Xcel has a huge lobbying presence does not automatically imply that the content they are lobbying for is against the interest of the people. Could Rick Evans have a good point in the content of what he actually brings up? Could it actually be more difficult than it’s worth to carve out Minneapolis for special treatment in their whole service territory?
This opens up a multitude of questions: Does encouraging cities to pursue enhanced and more flexible franchise agreements create so much complication for a utility that serves hundreds of other cities across 8 states that they are justified in lobbying against it? Is there truly no separate system possible that would allow for the complexity of different cities having different standards in their franchise agreements? Is it too daunting to negotiate different standards or does Xcel already tailor their service to each individual city through franchise agreements?At the March 17th informational hearing Mike Bull of Center for Energy and Environment and chief author of the Energy Pathways Study staked out the Minneapolis position on this dichotomy between the virtue of local control/ and the primacy of centralized state regulation:
“Soon after we began our work (with the study), it became clear that the status quo in Minneapolis was not going to allow the city to meet its aggressive clean-energy goals...The city could not rely on the utilities alone to meet the cities energy goals... The utilities are organized to meet state and federal requirements within a strict regulatory framework. The utilities generally see the cities’ expectations on energy issues as something to be managed and not necessarily met.” NOTE 1Mike Bull continued with an explanation of why the changing energy circumstances of today mean the 40-year old centralized regulation policies from 1974 deserve to be updated.
“That stance was appropriate to the previous period characterized primarily by large central station generation and bulk power transmission lines the overarching policy being electrification everywhere as quickly, reliably and cheaply as possible. But that regulatory or utility business model framework is evolving to be more responsive to customers and their choices and to communities like Minneapolis.” NOTE 1Here Mike Bull further pinpointed what exactly is happening to make his case policy that made sense back in 1974 does not necessarily mean that it does today:
“The change is being driven by increasing cost effectiveness and reliability of distributed energy resources and by policies that facilitate local action to reduce environmental impact of energy use and consumption. In order for the city to meet its goals it needed more influence or control over energy services in the city and that is where we started in the pathways review.” NOTE 1
The issue of state versus local control over energy had been temporarily resolved, at least in terms of forming the Minneapolis Clean Energy Partnership.