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”.
NOTE 1
Minneapolis
to study city-run utilities
April 16, 2013 BY: DYLAN THOMAS
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