Minneapolis Energy Options was formed when it’s early thought leaders first learned that the City of Minneapolis’ had 20 year-long franchise agreements with Xcel and Centerpoint that were set to expire at the end of 2014. The franchise agreements give Xcel and Centerpoint the public right of way to construct and maintain electricity/ gas distribution facilities throughout the city. Utility franchise contracts govern the use of city property in delivering electricity and gas to the city homes and businesses. Usually for most cities, these contacts are negotiated in obscurity with little fanfare, were largely administrative rather than visionary in focus and resulted in little more than reaffirming the status quo for another round. But because of Minneapolis Energy Options, the City of Minneapolis was destined to approach their upcoming utility franchise agreement renewal a bit differently.
Ross Abbey (who was a Policy Associate with Fresh Energy and is now staff with SunShare) had access to the franchise agreement expiration information as chair of Minneapolis’ Community Environmental Advisory Committee. In the autumn of 2011, Ross Abbey notified Timothy DenHerder Thomas that the city’s utility franchise agreements with both Xcel and Centerpoint were expiring at the end of 2014. Ross Abbey recognized Timothy as someone who was doing a lot of community organizing around energy and so he asked Timothy if there was anything we should do in regard to the franchise agreement expiring.
Timothy DHT then passed the question about if this is worth organizing around onto Louis Alemaheyu (at the time with Environmental Justice Advocates of MN) and George Crocker (Director of the North American Water Office). George Crocker has been thought leader on innovating energy utilities for quite some time having done work on the issue dating back to the power line fight in late 70s early 80s in Western MN. (This story is detailed in the book Powerlines the first battle in energy history). Louis Alemaheyu was deeply involved in the environmental justice component of Minneapolis Climate Action Plan so he knew the city process well enough to determine if the franchise agreement issue was worth organizing around. This led to the November 2011 meeting in Louis’ living room where Minneapolis Energy Options was born.
The meeting concluded that even though there was a lot of great planning for climate policy action happening around Minneapolis, the city can’t accomplish substantial goals if the management of Xcel and Centerpoint stand in the way. In addition, the utility franchise agreements helped cement the status of Xcel Energy and Centerpoint Energy as regulated monopolies within the city. Therefore the expiration of the franchise agreements thereby also presented itself as a brief once in 20-year window of opportunity for expiring the form of monopoly control over energy that had long frustrated the early thought leaders of Minneapolis Energy Options. The expiration of the franchise agreement presented itself as a powerful opportunity for some leverage to move Xcel and Centerpoint in the direction of meeting the city’s climate goals. The original plan of Minneapolis Energy Options all along has been to turn a usually mundane administrative and obscure franchise contract renewal into a leverage point for an overall agenda of clean, affordable, reliable energy with more local control over our energy future. The Minneapolis Energy Options campaign was formed to take advantage of that opportunity. The objective was to get the City Council to carefully consider, research, explore and negotiate alternatives to passively letting the city renew the same contracts with the same companies.
In December of 2011, Timothy, George, and Louis set up a meeting with City Council member Cam Gordon and his policy staff Robin Garwood to have a discussion about how we can use this franchise agreement expiration to make Minneapolis a leader on meeting climate action goals.
Both Cam Gordon and Robin Garwood had independently heard from John Farrell with Institute for Local Self-Reliance and Ken Bradley (with Environment Minnesota at the time) about the franchise agreement expiring and what should be done about it. John Farrell and Ken Bradley quickly joined in with Timothy, Louis, George and Robin to form the early core of what would become the Minneapolis Energy Options steering committee. In January 2012, this early steering committee met with Cam Gordon and some staff from the political advocacy organization MPIRG and held a series of meetings initially about how to negotiate a new and broader franchise agreement with both Xcel and Centerpoint.
STATE LAW SETS ONLY A NARROW SCOPE FOR WHAT CITIES CAN NEGOTIATE IN UTILITY FRANCHISE AGREEMENTS
After just 3 months, this early steering committee found out the extent the deck was stacked against cities taking advantage of the negotiating opportunity Minneapolis Energy Options had envisioned. MN State law doesn’t say anything about a city’s clean energy goals, or local job creation being items for negotiation in utility franchise agreement. Items identified for negotiation in utility franchise agreements are in the more mundane and administrative realm of management, notices, rates, and liabilities.
Individual cities have limited legal power to do much else because a utility franchise agreement is more of a construct of state law rather than a pure contract between a city and a utility company.
It is also a construct of state law rather than city ordinance that gives Xcel Energy has the exclusive right to sell electricity in Minneapolis. It was the Minnesota Public Utilities Act of 1974 that allowed utilities to have exclusive control over designated service territories as regulated monopolies. This situation where for-profit electric companies had exclusive monopoly rights was considered to be in the public interest because of their subservience to the state body known as the Minnesota Public Utilities Commission (PUC). The PUC is given the final say on setting the rates utilities charge their customers, approving infrastructure utilities want to build as in the public interests, and guiding how the utility is going to meet energy demand. In return, the PUC approves rates in a way that guarantees Xcel a 10%- 12% rate of return give or take. Because Xcel Energy has exclusive rights to provide all the electricity used in Minneapolis it is the only entity that can legally sell electricity to Minneapolis residents and businesses.
Given that we have to work in the range of regulated monopoly, how does state law identify what considerations can be negotiated in utility franchise agreements? As things stand, cities have less power than the Public Utilities Commission to negotiate with utilities for the proportion of renewable energy added to their mix. MN statute 216 B.36 states that no city can pick their fuels or transmission delivery system. Without changes in state legislation, a city council can’t for example go straight to Xcel and require with accountability that they provide 10 % of our energy from anaerobic digesters and solar arrangements next to substations. The window that current state law does allow for is a city to negotiate how much Xcel pays them for right of way use.
According to Ward 8 City Council Member Elizabeth Glidden, who chaired the Council’s Regulatory, Energy and Environment Committee in 2013 “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. NOTE 1
Via the city’s two franchise agreements, Xcel and Centerpoint pay the City of Minneapolis between $26,000,000- $29,000,000 (and rising) annually in exchange for that right of way. The City of Minneapolis indeed receives this rising $26-29 million dollars EVERY YEAR from Minneapolis utility customers paying a 5% franchise fee on each of our utility bills.
The amount of franchise fees is the only leverage a city council has have under state law to negotiate in their utility franchise agreements. What advances toward larger goals could using this sort of leverage actually accomplish?
This franchise fee money doesn't come at the expense of Xcel or CenterPoint's shareholders. It’s all just a pass-through. So if the city negotiates a higher franchise fee, then Xcel will just pass these higher franchise fee costs onto the electric bills or city ratepayers. Under these most restrictive of circumstances, the lofty principle of a city having more leverage in franchise negotiations would be equated with charging ratepayers with higher electric and/or gas bills. Then the whole concept could be dismissed by critics as just a way for the revenue hungry city to skim more than $24 million dollars from its citizens each year.
Under that set up, there is no clear reason why Xcel or Centerpoint would take seriously the negotiations Minnepolis Energy Options had in mind. There would be no real threat for the utilities to just say no to such friendly negotiations. The utility spokespeople are very skilled at saying no in a polite way. An example would be, “We would love to do this for you but the PUC won’t let us”.
Minneapolis to study city-run utilities
April 16, 2013 BY: DYLAN THOMAS