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”
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
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.
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.
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.”
“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.”
XXXXXXxxxxx
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”
“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
COMMITMENT TO THE
CITY-UTILITY PARTNERSHIP FORMALLY ACKNOWLEDGED AT PUC HEARING
On Tuesday April 29th,
the Public Utilities Commission (PUC) 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.
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.
XXXXXXXXXXXXXXXXXXXXXX
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 1
Eric 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 2
Could
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
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 - 5:38 AM )
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 1
Mike 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 1
Here 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.
