STATE LEGISLATION AND XCEL’S LOBBYING NARROWS THE SCOPE FOR THE ENERGY OPTIONS MINNEAPOLIS CAN TAKE

THE LOST REVENUE STRIKE AMENDMENT IS THE LINCHPIN FOR EVENTUAL SUCCESS WITH MUNICIPALIZATION

   

The municipal utility route may be the only alternative path to negotiating higher franchise fees and right of way terms that state law clearly lays out for cities. However, state law still imposes a hefty financial obstacle even for this one alternative path it provides.

 If the City of Minneapolis were to acquire electricity distribution infrastructure currently owned by Xcel, state law MN 216 B 45 suggests that the price figure would have to consider the profits the utility would have made if municipalization had not taken place. NOTE 1   To draw a comparison, consumers who switch phone companies face a similar dilemma where they have to pay compensation for the loss of future revenues to a phone company whose service they no longer use.

Many constituents and City Council Members who were supporters of municipal power in principle, felt municipalization would be unaffordable for Minneapolis if the city is required to reimburse Xcel for the lost future revenues that it would have made.

This state legislation passed in the early 1970’s, hugely inflates the cost for cities to form their own municipal utilities.

Having to pay a utility compensation for future lost revenue is the poison pill that dissuades cities like Minneapolis from following through on municipalization even if a PUC-sanctioned feasibility study decides that a City of the Lakes Power and Light can otherwise do a better job than Xcel.

 Not surprisingly, new municipal utilities ceased to be formed in Minnesota after that particular statute took effect.

During the 2013/ 2014 MN State Legislature, there was a proposed strike amendment SF 911 / HF 945 to remove the six words in the statute that requires that the state’s Public Utilities Commission factor in lost revenue to a utility company when determining how much a city should pay a utility for its’ the line, pole and substation infrastructure.

Going forward will take a substantial grassroots coalition to act as a counterweight to the utility lobbyists who are determined to keep the lost revenue provision as their poison pill.

NOTE 1 https://www.revisor.mn.gov/statutes/?id=216B.45

HOW ABOUT FORMING ENERGY COOPERATIVES IN MINNEAPOLIS?

  Formulating an argument on how state law makes municipalization unaffordable for cities begs another question.

    Couldn’t several smaller, multi-neighborhood electric co-ops accomplish the same goals that Minneapolis Energy Options laid out for clean, affordable, reliable, local energy at far less cost than buying up all poles, electric lines and other Minneapolis equipment from Xcel to form a municipal electric utility? Electric co-op utilities are owned by their own customers, elect their own board to run the utility, and return the profits back to the customer base. Wouldn’t creating energy co-ops within Minneapolis be a more practical way for the city to introduce completion into management?

 Forming a new energy cooperative is indeed an exciting idea for those reasons. Unfortunately, Minnesota state law does not give Minneapolis or parts of Minneapolis the option to switch directly to a co-op owned utility. In order for an energy generation co-op to form within the city, one of three things would have to happen. 1: The incumbent utilities would have to agree to buy power from such a cooperative 2: The city would have to form its own municipal utility 3: A major state law change would have to take place to allow a competitive non-monopolistic energy service in Minnesota. Let’s assume that Xcel is not going to support a local clean energy co-op that would eat into their market share. Now if the state legislature doesn’t overthrow the legalized monopoly statutes that protect Xcel from competition by prohibiting cities from accessing alternative suppliers, then what are we left with?

The only legally-provided option is to form a municipal utility and then have that muni contract with such member-owned co-ops to provide power to the city utility.

Once again the only path the city is allowed to take other than continue service with their incumbent utility is to get voter approval to explore a municipal utility and to proceed only if the findings of a feasibility study meet expectations.

XCEL WANTS TO BE HELD IN CHECK BY THE STATE LEVEL NOT THE CITY LEVEL

State law sets up huge political and financial obstacles for cities to form their own municipal utilities. In addition, it would take a major change in state law to form a cooperatively owned utility.   

There is yet another much more feasibly applicable but politically blocked path for cities like Minneapolis that want its energy utility companies to meet a whole range of their adopted climate action plan goals.

It would be to open up utility franchise agreements to be inclusive of a city’s energy efficiency, renewable energy and local jobs goals rather than the scope be restricted to a narrow focus on public right of way.

There was some legislation SF 1450 / HF 1490 introduced in the 2013-2014 session that would allow goals for clean energy, improved air quality, equity and green jobs to be included into utility franchise agreements.

The Minneapolis City Council supported this 2013 legislation which would have allowed cities more flexibility in franchise agreements and picking their own fuels or transmission delivery systems.

 Even though passing the legislation would have taken away much of the drive to consider a municipal utility, Xcel lobbyists still fought Minneapolis legislators’ attempts to ensure these more efficient and renewable energy goals could be included in new municipal franchise agreements. In 2013, the Star Tribune quoted Xcel lobbyist and director of regional government affairs Rick Evans said the company “would fight the proposal if it gained momentum in the Legislature.”   NOTE 1

As a result the Minneapolis-backed bill SF 1450 / HF 1490 languished in the Minnesota Legislature when it had a moment of opportunity in 2013.

Utility lobbyists usually say that giving a legislative pathway for cities to have more control/ influence will lead to “balkanization”. They argue it would be economically inefficient if each city wants something different AND that state government can still overrule what individual cities want anyway when there is a mismatch.

I noticed this pattern for myself during the 2013 Minneapolis Energy Options campaign.

The statements I heard Xcel spokespeople use against Minneapolis Energy Options at neighborhood meetings typically did not argue against the merits of the campaign’s environmental goals and in fact they spent a lot of time touting Xcel’s environmental credentials. Instead, Xcel spokespeople have argued the legalistic technicality that environmental goals are supposed to be done at the level of state legislatures and the PUC rather than by individual cities.

Here is the more general picture as to why Xcel lobbied against pro-local control legislation SF 1450 / HF 1490. The utilities like to steer their public process for decision making into centralized arenas like the PUC and the state legislature where they can most easily manage. This concentrated ability to influence and lobby is something they can’t do with 50 different communities setting their own goals.

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 )

THE EXTENT OF XCELS LOBBYING PRESENCE

Could Xcel perhaps be setting up a trap for us by making claims that the state and the federal governments are the only ones who have standing to set the environmental friendly standards?

If Xcel were so trusting of the state then why would Xcel so heavily lobby the legislature? Or do they trust the state because they basically run the show at that level? According to the Center for Public Integrity, Xcel Energy Services inc. has spent $2,360,000 in 2011, $2,430,000 in 2010 and $2,627,326 in 2009 on lobbying in the State of Minnesota. That is a larger expenditure than any other association or business group on the list provided by the Minnesota Campaign Finance Board. It is even higher than the MN Chamber of commerce spent on lobbying in those respective years.

On one hand it feels awkward to demonize energy utilities because they are supposed to provide an essential service to us. Yes real people work for the utilities and when we need them we call them. The role of providing a service does include having employees to report to the PUC. But why should this role of providing a service include sending 45 registered lobbyists to the capitol to interfere with the people's public decision making though elected officials? It is questionable whether it should even be legal for regulated monopolies to do lobbying of that extent, but it is too normalized.

When customers pay their utility bills, they are also paying the utilities’ lobbyists to advocate for the companies’ own interests even when they come up against our own potential collective interests. It was utility lobbyists that made it prohibitively expensive to form a municipal utility or too legally complex to do community controlled energy.

In addition, there is no box on your utility bill that reads: “check here if you want your money to go toward lobbyists for community-owned power rather than paying for Xcel’s lobbying presence.”

In this way Xcel has hence engineered a catch-22 where they can’t lose. As the utility gets bigger from more mergers (such as the merger that turned NSP into Xcel), it snowballs more political clout, thus making it harder for state level regulators to exercise any real control over them. Average citizens can’t even come close to competing with Xcel at the state legislature.

Let’s take a look at all parties present at the March 17^th 2014 informational hearing and break them down by the number of registered lobbyists each party had:

Xcel Energy Services Inc has 58 Registered Lobbyists total and 45 without any termination dates
CenterPoint Energy MN Gas  has 33 total registered lobbyists 30 without termination dates 
  MN Power (ALLETE)  has 32 total registered lobbyists 27 without termination dates.
 Otter Tail Power Co has 18 registered lobbyists total 15 without termination dates.   
 Missouri River Energy Services has 11 total registered lobbyists 8 without termination dates.
 The MN Municipal Utilities Assn has 8 total registered lobbyists
 The City of Minneapolis has only 8 registered lobbyists without termination dates.
 Center for Energy & Environment has only 5 lobbyists
 MN Rural Electric Assn  has 4 registered lobbyists without termination dates.
 Southern MN Municipal Power Agency (SMMPA) has only 3 registered lobbyists.
  Minneapolis Energy Options and Community Power collectively have 3 registered lobbyists.

Given these numbers, it is rather duplicitous for Xcel to argue that the state regulators and the PUC are the rightful ones to keep them in check while spending more than any other entity in lobbying the state of Minnesota.

Yes, the Public Utilities Commission is the quasi-judicial body in charge of directly regulating the utilities. But it is basically a five-person court appointed by the governor. Even though the PUC technically takes public commentary, the PUC as a body is a lot further removed from we the people than local city councils or state legislatures who are more face to face with their constituents.
Here is the end sum of all the roadblocks that the interplay between state legislation and Xcel’s lobbying have brought forth: Either Minneapolis takes the path of pursuing Municipal Utility or Xcel and Centerpoint agree to meet Minneapolis’ climate and energy goals. As a campaign, Minneapolis Energy Options decided that we can’t have the advantage of the latter without pursuing the former.

CORRECTING COMMON MISCONCEPTIONS OF MINNEAPOLIS ENERGY OPTIONS

The most common misconception about Minneapolis Energy Options was that voter approval of such a ballot initiative would be an automatic jump straight to the city acquiring the power grid to form a municipal utility as if there were no steps in between with the PUC or a feasibility study.

Even if Minneapolis’ voting electorate had approved the ballot initiative to authorize formation of a municipal utility, it would not have required Minneapolis to go forward with the actual acquisition immediately or even at all.

If Minneapolis voters had been offered the referendum and passed it then it would have required that the City be able to document it can pay back the municipalization bonds in a timely and cost-effective manner without increasing long-term rates before the city could can go ahead with acquisition. City Council Member Cam Gordon, who proposed the referendum, made it clear he only intended for the City to be able to create a city-owned utility if it can meet several criteria, including meeting climate change and energy efficiency goals and increasing locally generated renewable energy.      The questions in the feasibility study includes whether this municipal utility will have the capital needed to hire crews when needed, to manage its workers, to purchase the needed equipment, to provide a call center for ratepayers or to offer targeted help with billing services.

From this perspective, there was no risk in voting yes for the ballot initiative. Even if the ballot initiative had materialized and had been successful, there was still a chance we could have ended back up with Xcel anyway if that is what the feasibility study were to recommend.

There is a positive precedent for the feasibility study process that Cam Gordon was suggesting. The City of Boulder invested $3.3 million into a feasibility study that found that the city could get 40 percent of its electricity from wind and solar, effective immediately, and without raising rates, if it took the municipal utility path. Boulder’s feasibility study suggested that the city can reduce greenhouse gas emissions by 50% through increasing renewable energy production by more than 54%, which is far above Xcel’s targets, while reaching lower utility rates than Xcel (for residential, commercial, and industrial sectors) with as good or better levels of system reliability projected over an estimated 20-year span. NOTE 1

A big debate during the heat of the Minneapolis Energy Options campaign in mid-2013 was a question on how many bonding dollars municipalizing would cost Minneapolis and the extent to which Minneapolis could be compared with Boulder in that regard.

      A formal feasibility study (not to be confused with the City Council-approved Energy Pathways Study) is the detailed analysis that would determine the cost of buying back all the power lines, poles and other equipment from Xcel. But as described earlier we were in a catch 22 in getting the actual numbers people on both sides of the debate wanted.

Only with the municipalization option approved by a vote of the people, could Minneapolis then have standing in front of the PUC to do a formal feasibility study and determine whether, how and under what circumstances to pursue the option to municipalize.

The differing claims as to the overall price tag of starting a municipal utility vary widely depending upon whose interest is at stake. For example, the city of Boulder estimated municipalization will cost the city about $290 million, while Xcel came up with figures that put the payment due at about $1.2 billion; a dramatic difference of about 4 fold. NOTE 2

Boulder’s feasibility study found that even if Xcel’s wildly-exaggerated cost estimates were applied, the city they could repay the bonds needed to finance a city utility using only the revenue from electric sales – no taxpayer money – keep rates the same or lower and reduce power outages.

Doing such a feasibility study for Minneapolis would be so informative for inquisitive or skeptical voters who understandably want to replace the cloud of uncertainty with actual numbers and figures on municipalization.

However, doing a $2.5 million formal feasibility study would be a waste of time and money if the city doesn't even have the legal OPTION (from its voters) to municipalize. Why invest $2.5 million into doing a formal feasibility study unless voters show that are at least confident of a good outcome?

NOTE 1 MUNICIPALITY MODELING RESULTS SHOW PROMISE FOR FUTURE BOULDER ELECTRIC UTILITY http://cleanenergyaction.org/2013/02/28/municipality-modeling-results-show-promise-for-future-boulder-electric-utility/    FEBRUARY 28, 2013 CHARLES CIPRIANI 

NOTE 2  Boulder Likely to Adopt Its Own Green Utility—and Risks of Going Solo  http://insideclimatenews.org/news/20130120/clean-energy-renewable-energy-climate-change-global-warming-boulder-municipalization-xcel-energy-coal-germany  By Maria Gallucci, InsideClimate News  Jan 23, 2013)

 

MINNEAPOLIS ENERGY OPTIONS PAVED THE WAY FOR THE CITY TO NEGOTIATE A SHORTER FRANCHISE AGREEMENT AND A CITY-UTILITY PARTNERSHIP IN 2014

    Minneapolis Energy Options campaigned for a municipal utility authorization ballot measure so the city would have a “big stick” to wield in case Xcel and Centerpoint showed resistance toward negotiating the renewed franchise agreement to be more compatible with the climate action. Having the option to municipalize was also promoted as an escape hatch the city could use to where we could take our energy future into our own hands in case the incumbent utilities did end up being intransigent.

(Here is a spoiler alert to anyone who does not yet know the ending of the story.)

The Municipal Utility Option did not materialize because City Council did not end up putting the initiative of the ballot (described in detail in a later chapter). However, Minneapolis Energy Options ended up pushing a key strategic lever. Just the mere fact the city and the campaign brought up the possibility of municipalizing proved to be powerful leverage for negotiation regardless of whether there ended up being a ballot initiative. Passing the ballot initiative would have changed Minneapolis’ franchise negotiating position with Xcel by creating the presence of another OPTION. However, just the mere presence of a big city bringing up the prospect of forming their own a municipal utility pushed the envelope for the franchise agreement renegotiation far enough to where the utilities had no room to publicly show an intransigent attitude.

Kudos to city officials who have flexed their muscle in order to open up this level of dialogue with Xcel and Centerpoint. It helped get Minneapolis into a much greater bargaining position for the 2014 franchise negotiations and a position that led to the formation of the Clean Energy Partnership.

As a matter of general principle, it is generally not advantageous to start negotiations on a multi-year contract by folding up and conceding on too many possibilities on the front end or refusing to examine key possibilities. It is common sense negotiating in the business world: Why renew a long-term contract with a service provider without doing some research and study beforehand? What is a negotiating session without the ability to walk away if a satisfactory deal can’t be reached? If you go into negotiations without the ability to walk away then it's not a negotiating session, it's a surrender.

While Minneapolis did not exactly have that municipalization option to walk away during the 2014 utility franchise negotiations, Minneapolis was able to avoid a worst-case scenario of signing another 20-year status quo franchise agreement that 1: does not guarantee helping Minneapolis to meet its greenhouse gas emissions reduction targets 2: is devoid of support for investment into localized renewable energy that would lower greenhouse gas emissions 3: offers no financial respect toward further energy efficiency incentives.

First of all, there was broad consensus on City Council that 20 years was an obscenely long amount of time for a franchise agreement given rapid rate of evolving technology.

Second of all, a middle-ground consensus gradually emerged between both Xcel and Minneapolis. The threat of municipalization gave Xcel had incentive to negotiate and sign the clean energy partnership deal and keep their market share over Minneapolis as a reward for signing onto the partnership.

What the Minneapolis Energy Options campaign accomplished by campaigning for the ballot initiative was laying the groundwork for a city-utility partnership that could very well build an impressive precedent national scene as a pilot project for other cities to follow the same suit. 

THE PRIMARY MOTIVE FOR MINNEAPOLIS ENERGY OPTIONS WAS BUILDING UP LEVERAGE FOR THE CITY’S UPCOMING UTILITY FRANCHISE NEGOTIATIONS, SO THE MINNEAPOLIS COULD MEET CLIMATE ACTION GOALS

THE PRIMARY MOTIVE FOR MINNEAPOLIS ENERGY OPTIONS WAS BUILDING UP LEVERAGE FOR THE CITY’S UTILITY FRANCHISE NEGOTIATIONS

Contrary to a common misconception, Minneapolis Energy Options was not intended to be a Municipalization-only campaign. Passing the Minneapolis Energy Options ballot measure in 2013 was not the end game for the overall campaign but was a powerful means to an end of achieving CLEAR (clean, local, equitable, affordable and reliable energy).

The initial messaging of Minneapolis Energy Options was that the expiration of the utility franchise agreements at the end of 2014 provided a deadline for a once in a 20-year window of opportunity to strategically apply political and public pressure on Xcel and Centerpoint.

The ballot initiative was the vehicle from which to apply the amount of political and public pressure that Xcel and Centerpoint will respond to in the negotiations for the next franchise agreement. Everyone at the time accepted the inevitability of Minneapolis negotiating a new set of utility franchise agreements because Jan 1^st 2015 would not have provided enough time for any municipalization process to be complete even if there were to be a positive vote by the people on Nov 5^th 2013. The best case realistic scenario was for the city to start a much shorter term 2 or 5 year franchise agreement in early 2015 that included emissions reduction, renewable energy and efficiency improvements incentives. 

Here was the basic strategy in a nutshell. In order to have some leverage to negotiate more local clean energy goals into the next franchise agreement, we had to put the “do it ourselves” municipal utility option on the table in order for the utilities to take negotiating for clean energy goals seriously. The strategic goal was to get as many concessions from Xcel as possible before signing any inevitable renewed franchise agreement. 

The early thought leaders of the Minneapolis Energy Options campaign came to a conclusion that only the prospect of the City forming its own municipal utility could provide the public and political leverage that will pressure Xcel and Centerpoint into offering an agreement where the utilities would ease up on their usual restrictive approach to localized clean-energy generation and lower the policy barriers to helping the city on every reasonable path to meet its greenhouse gas reduction goals.

 The campaign accurately predicted than the incumbent utilities would not take very kindly or welcoming to this ballot initiative. Unlike state legislation that simply requires more renewable energy or more conservation, forming a municipal utility would be a direct hit to Xcel and Centerpoint’s market share and hence ability to earn a profit in the first place. Minneapolis is a big enough market to call both company’s ability to earn a profit in Minnesota into question. Overall the Minneapolis market alone creates 13% of the profit Xcel gets from Minnesota. Xcel’s profit rates are close to 13%, meaning that if Xcel lost its Minneapolis service territory, they would lose basically their entire profit base for the state. Therefore Minneapolis is a big enough to have leverage to shift Xcel Energy statewide. Amazingly so, it took only about 35 or so active campaigners with Minneapolis Energy Options to hold a utility company’s feet to the fire.

Of course the 35 active campaigners in Minneapolis Energy Options could not have been so effective without some inside help from the City of Minneapolis. 

MINNEAPOLIS HAS GREENHOUSE GAS REDUCTION GOALS AND ITS UTILITY RELATIONS DETERMINE WHETHER THEY CAN BE FULFILLED

In mid-2013, Minneapolis provided some leverage of its own during the heat of the Minneapolis Energy Options ballot initiative campaign.

The Minneapolis City Council passed and approved the Minneapolis Climate Action Plan on June 28, 2013, the same day the public hearing for Minneapolis Energy Options was set. The climate goals Minneapolis adopted include reaching these goals by 2025, all from a 2006 baseline.

·        reducing carbon emissions by 30%, 

·        increasing energy efficiency in commercial and industrial buildings by 20%, 

·        generating 10% of our electricity from renewable sources

Localized renewable energy programs are what will make up the difference between the trend of a slow decline in energy demand and actually meeting the much sharper drop in emissions the Climate Action Plan requires. 

 In April of 2014, Minneapolis had increased the goal to an 80% reduction by 2050 in order to match the IPCC standard. Like Minneapolis, Boulder also set a greenhouse gas emissions reduction goal in 2006.  NOTE 1

 The Minneapolis Climate Action plan gave leverage to Minneapolis Energy Options because it provided goals for the utilities would have to meet in order to remain in good standing with the city.

According to the Minneapolis Climate Action Plan, two-thirds of the city’s greenhouse gas emissions come from our electricity and natural gas use in buildings. NOTE 2

This fact makes utility cooperation central to whether Minneapolis can achieving its 2013 Climate Action Plan’s goals. It is no surprise that Page 3 of The Minneapolis Climate Action Plan document identifies renegotiating of the municipal franchise agreement as a leverage point for opening more opportunity for localized renewable energy development. Likewise, the Climate Action Plan contained numerous renewable energy programs and energy efficiency strategies that Xcel Energy was not making available at the time.

NOTE 1 http://www.slideshare.net/JuliaEagles/setting-a-long-term-carbon-reduction-goal-for-minneapolis    

NOTE 2 http://www.minneapolismn.gov/www/groups/public/@citycoordinator/documents/webcontent/wcms1p-109331.pdf

THE OPTION TO AUTHORIZE FORMATION OF A MUNICIPAL UTILITY- A NEW STRATEGY TO ACHIEVE CLEAN ENERGY WINS, INSPIRED BY BOULDER COLORADO

THE OPTION TO AUTHORIZE FORMATION OF A MUNICIPAL UTILITY

So given the above situation, what sort of negotiating strategy would the utilities take seriously? The early steering committee decided the only viable option for using Minneapolis’ upcoming franchise renegotiations as leverage was to put the option to form a municipal utility on the table. The early thought leaders behind Minneapolis Energy Options found out that municipal utility was the only path Minnesota State law clearly laid for a city to take besides signing whatever franchise agreement that the incumbent utilities will agree to.

John Farrell, who eventually became the chair of the Minneapolis Energy Options steering committee, had been researching the topic for years and is frequently asked to speak on behalf of many of the cities about energy municipalization.  

In addition, City Council Member Cam Gordon had been interested in municipal power since he first ran for City Council in 2001. He gave Timothy DHT a very detailed guidebook he had on strategies to pursue municipalization and the typical counter offensive tactics the incumbent utilities use to try to stop it. Leslie Glustrom, who was very involved with the Clean Energy Now campaign in Colorado, told the early steering committee the story about Boulder’s activity pursuing muncipalization.

The rest of the early steering committee found out there are municipal utilities around the nation who have been doing a lot of cool stuff. In general their rates are 14% cheaper and have less power outage time than corporate owned utilities and are more sustainable, clean/efficient and /”smart” at least in big cities. For example the Municipal Utility of Austin, Texas has committed to reaching 35% renewable energy by 2020.

In addition there are close to 2,000 municipal utilities that are in operation across the United States with 125 Municipal electric utilities in Minnesota and 31 municipal gas utilities including Rochester, Moorhead and Wilmar. NOTE 1 (See addendum on why Muni is better in theory for more)

   

They determined Municipalization as an investment for Minneapolis would at minimum cost not very much short of billion dollars in bonding.

Yes it is a substantial investment, but we figured the investment would be spread out over the course 20 years and could pay off since city residents and businesses were already paying $450 billion and rising annually to Xcel and Centerpoint.

 Nevertheless, municipalization was still really exciting and worth researching and exploring because it presents a threat to Xcel and Centerpoint and a point of leverage to have them take negotiating clean energy goals seriously. If we put the option on the table then Xcel and Centerpoint would have an incentive to take us seriously.

NOTE 1 (http://mmua.org/about/why.htm )

THE PUBLIC PROCESS FOR FORMING A MUNICIPAL UTILITY SETS UP A CATCH 22

About June of 2012, the early steering committee was looking into the public process that has to happen under Minnesota state law MN to form a municipal-owned utility.

Minnesota state law says a city or town has to stay with their incumbent energy utility unless its residents vote yes on a council-approved ballot initiative to authorize formation of their own municipal utility. Even if Minneapolis refused to sign a contract with Xcel to operate in the city, Xcel could easily argue in court how state law requires them to serve their current customer base so therefore Minneapolis has to allow them to operate. On the other hand Minneapolis (among other Minnesota cites) has full legal authority under State Statute 216 B to offer their voters a municipal ballot initiative to authorize formation of a municipal utility and to pursue forming a municipal utility if the voters approve.

It is quite a lengthy process. First, the City Council has to give a notice to hold a public hearing on the issue at least 30 days in advance of the hearing. At this public hearing anyone can give comment to say if city residents should be given the option to vote on a ballot initiative to authorize formation of a municipal utility. Following the public hearing, city council has to vote in favor of putting such an initiative on the ballot and even offering their constituents the choice in the first place. This vote has to happen at least 60 days in advance of Election Day. Then on Election Day, voters could say yes or no to a ballot initiative that gives the city the authority to form a municipal utility but DOES NOT require it. Only after this ballot initiative passes could a city have standing to do a feasibility study in front of the PUC to find out the numbers of how much it would cost the city to purchase the electrical infrastructure currently owned by Xcel.

A key strategy which incumbent investor-owned utilities typically use to beat such ballot initiatives is to make claims as if the municipalization ballot initiative REQUIRES the city to form a municipal utility. There is in fact a whole handbook utilities use on how to prevent cities from forming municipal utilities which Minneapolis Energy Options and other communities had access to.

Here is why this process for forming a municipal utility is laid in in a way that gives the incumbent utilities free range to employ their usual tactics and strategies for getting people to vote no on such a ballot initiative.

A city be only allowed to attend PUC meetings and figure out the actual numbers how much forming a municipal utility would cost only after its public votes yes on the ballot initiative. Passing the ballot initiative would give the City standing in Until that point then the incumbent utility has room to misleadingly claim “not only does a YES vote mean you are required to municipalize but it will be billions and billions of dollars based on our numbers.”

Jumping ahead a bit in the story, one of the main critiques of the Minneapolis Energy Options resolution was that it was backwards to vote to authorize municipalization before the numbers were crunched and before voters could have some numerical figures from which to make an educated vote. Although it does sound instinctually backwards to vote on authorization of municipal utility before a formal feasibility study is done, that is the process we have to follow according to Minnesota state statutes in 216 B. Overall, it was not an idea from Minneapolis Energy Options or the City of Minneapolis to put the proverbial cart before the horse.

Whether or not it was intentional, state law is set up to make the process of municipalization and similar big changes VERY complex and difficult to accomplish. It sets up a catch 22 where a city has to pass the ballot initiative in order to have standing at the PUC to get the numbers. Opponents of the would-be ballot initiative among the public could claim that the city is uninformed because it hasn’t done the research yet, however the city couldn’t do the needed research until the ballot initiative gets a city-wide yes vote! Doing such a campaign is like threading a needle: you have to get it perfect or it won’t work.

In addition, a city that wants to municipalize would then have to go through a long and complex legal process with the PUC just to get the numbers on what it would cost.

Otherwise the only information you can get about the cost of municipalization is from the utilities who wildly inflate the costs out for their self-interest over market share. As for Xcel’s operation in Minneapolis, there is nothing to compare it to so it is hard to come up with data. This whole set up gives the incumbent utilities the opening they need in order to do a scaremongering hit job as to how much going muni will cost.

A NEW STRATEGY TO ACHIEVE CLEAN ENERGY WINS

The early steering committee came to terms with the daunting nature of this process for putting the municipal utility option on the table. But decided we needed to do it and take the opportunity.

Upon the knowledge of the process, Minneapolis Energy Options started laying the groundwork for a campaign for such a ballot measure that would simply authorize the city to begin exploring a municipal utility as an option. Simply stated, it would have given the City the option but not requirement of forming a Municipal utility.

There was a brief moment where Minneapolis Energy Options considered putting the initiative on the ballot in 2012 but quickly determined that was a very bad idea because: 1) The issue was too unfamiliar with City Council. 2) We had no coalition among the public who had heard of the issue. 3) There were already two very big VOTE NO campaigns against Constitutional Amendments and they would have had a hard time undoing confusion among voters if we injected a “Vote Yes” ballot initiative 4) All of the support networks of organizers we needed like MPIRG were busy with the 2012 election and could not have given a lot of muscle to this campaign 5) 2013 was a City Council election year and it was strategic to could couple the municipal energy issue with the municipal elections… 6) Waiting until late 2012 to announce the campaign would give the utilities minimum time to prepare a backlash campaign 7) Waiting until after the 2012 election gave us more time to build $70,000 in financial resources for 2013. The funders behind the campaign were not interested in Minneapolis forming its own municipal utility but funded the upcoming campaign to use the threat of municipalization as leverage.   

As a result, we used 2012 to quietly build up a network of coalition partners sharing about our new strategy (as described in a previous chapter).

Minneapolis Energy Options brought about a strategy that was quite new to organizers and funders: to use threat of municipalization and franchise agreements negotiations to achieve clean energy wins.

The dominant strategy for creating change in our energy system has been “get legislation at the state level that tells the utilities they have to do it”. But we know from experience there are limits on how much the familiar strategy can accomplish because of likely gridlock and the requirements upon utilities not being specific enough.

Almost all the way across the board the result of this typical strategy is that the clean energy requirements are achieved but incumbent utility management is left with a great deal of control to determine the specifics about how to accomplish them. This usually results in giant wind farms whose cost the utilities they get to build into their rate base. Giant wind farms are part of the solution. The main issue of contention is that incumbent utility management has been oppositional to provisions on decentralization, and locally-based, small-scale generation that are also part of the solution and have inspired Minneapolis Energy Options thought leaders like John Farrell.

Some energy policy organizations have spent the last 2-4 decades of using state regulations to push energy utilities were less than thrilled about this new strategy of considering municipalization. A City of Minneapolis Municipal utility would be out of the control of state regulation and hence throw a wrench into the familiar strategy. This is why many funders were skeptical and why Minneapolis Energy Options could not secure some environmental/ energy groups as coalition partners. It was a disruptive strategy indeed. But the point of Minneapolis Energy Options was disruption because the current system was not working. We needed to change the power dynamic to achieve the long-held goals.

BOULDER COLORADO SETS AN INSPIRING PRECEDENT FOR THE CAMPAIGN

In 2013, Minneapolis Energy Options campaigned for getting this ballot initiative in order to provide a signal that a significant constituency within the city was not content with a status quo that combined yearly utility rate hikes with continued dependence upon dirty energy.

The spirit of Minneapolis Energy Options was not about exploring a municipal utility just for the sake of municipal ownership. It was about to be pursuing the option to municipalize for purposes of CLEAR, the acronym Minneapolis Energy Options invented for how we want our energy to be “Clean, Localized, Equitable Affordable, and Reliable.”

For that reason, the 2011 success of two similar pro-municipal utility ballot measures in Boulder Colorado has provided a main source of inspiration and precedent to Minneapolis Energy Options.

Boulder, Colorado is the first city to authorize a municipal utility for the specific purpose of increasing clean energy to meet climate emissions reduction goals. Boulder is home to the National Renewable Energy Laboratory. It is also a city with an abundance of climate and environmental scientists and energy experts who were practically volunteering to carry out feasibility studies and to educate the community about Boulder’s energy pathways.

Like Minneapolis, Boulder Colorado also had a franchise agreement with Xcel: one which expired in 2010. According to the Colorado Constitution, the renewal of the franchise agreement had to go to the voters.

Xcel first offered a win-win deal of selling Boulder a wind farm in the years up to 2010. But then Xcel reneged on that offer and instead insisted on a status quo franchise agreement ballot initiative.

In protest, the City of Boulder put two initiatives on the ballot.

The first ballot initiative gave the city the authorization to pursue municipalization, so long as the city could prove they have the capability of providing electricity with the same reliability and at a cost not higher than Xcel. The second ballot initiative was intended to raise the consultant and legal fees anticipated for the municipalization process. NOTE 1

On Election Day 2011, the voters of Boulder narrowly passed both ballot initiatives despite the campaign being outspent 10 to 1 by the Xcel-led opposition.

It provided inspiration and confidence to the Minneapolis Energy Options campaign to see how those campaigning for the ballot measures could spend only about $107,000 to win a campaign against Xcel spending nearly $961,000 to defeat the measures.  NOTE 1

However that story provided confidence with a caution. The poll numbers in support of the ballot initiatives were at a lofty 70% before the Xcel-led opposition succeeded in narrowing down the voter support to just barely above 50%.

NOTE 1 Boulder Likely to Adopt Its Own Green Utility—and Risks of Going Solo  http://insideclimatenews.org/news/20130120/clean-energy-renewable-energy-climate-change-global-warming-boulder-municipalization-xcel-energy-coal-germany  By Maria Gallucci, InsideClimate News  Jan 23, 2013)

THE EXPIRATION OF MINNEAPOLIS UTILITY FRANCHISE AGREEMENTS IS THE REASON WHY THE MINNEAPOLIS ENERGY OPTIONS CAMPAIGN LAUNCHED WHEN IT DID

   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

THE MINNEAPOLIS ENERGY OPTIONS COALITION BEGAN WITH A VISION OF USING OUR DOLLARS WE PAY ON UTILITY BILLS TO BUILD A LOCAL RENEWABLE ENERGY FUTURE

In 2012 the early thought leaders behind Minneapolis Energy Options were busy building a loose coalition with pre-existing grassroots organizations who shared a vision of more localized renewable energy and democratic control over our energy system. These coalition partners include Environment Minnesota, Environmental Justice Advocates of Minnesota, the Sierra Club North Star Chapter, the Institute for Local Self Reliance, Grand Aspirations, Minnesota Public Interest Research Group, Neighborhoods Organizing for Change, Minnesota Youth Environmental Network, Mn350, ICP Green, Minnesota Renewable Energy Society, the North American Water Office and the Will Steger Foundation.

These are mainly environmental sustainability organizations that also incorporate aspects of labor, economic justice and neighborhood community building. Active participants and workers for these organizations looked toward Minneapolis Energy Options with excitement because the emerging group laid out a strategic opportunity to spark a long-overdue public conversations about energy among both Minneapolis residents and city officials. 

A primary motivation for the active campaigners in Minneapolis Energy Options was a desire to see a conversation about a clean, affordable, reliable and localized energy future to go on loud and clear with the City officials. On the strength of this appeal and with the help of MPIRG, Minneapolis Energy Options was able to send thousands of Minneapolis Energy Options postcards signed by Minneapolis residents and sent to their respective City Council members.

A VISION OF USING OUR ENERGY DOLLARS TO BUILD LOCAL RENEWABLE CAPACITY LAID THE GROUNDWORK FOR MINNEAPOLIS ENERGY OPTIONS TO FORM

Both Our Power and the Minneapolis Energy Options began with a $450,000,000 dollar question about the economic justice impacts of energy consumption and the great economic opportunities in addressing the issue.

   The $450 million per year (and rising) we as the residents and businesses of Minneapolis spend to pay for energy are precious. It is only fair that we as the city have the option to invest our energy dollars into cleaner, renewable and locally-controlled options rather than send such a large proportion of our hard-earned dollars toward the coffers of distant out-of-state shareholders.

However almost none of these $450 million in annual energy dollars are spent on locally generated renewable energy despite the potential for doing so.

As it turns out, Minneapolis residents and businesses have not had consumer choice over where our electricity and gas is sourced from. Everyone has to buy from electricity from Xcel Energy and natural gas from Centerpoint Energy. Utilities are typically monopolies within their service territories.

Our energy dollars with Xcel were going toward an energy system that was 35% coal, 29% nuclear, and 14% natural gas. These three industries create far fewer jobs per dollar invested than energy efficiency and clean energy, which has turned job creation into a rallying point.

Finding a systemic way to expedite more economic development for local renewable energy was one of the prime issues that motivated the organizers who started Minneapolis Energy Options.

Because of the monopoly ownership structure of Xcel and Centerpoint, Minneapolis residents and businesses are not given much room to initiate localized renewable energy generation. Yes at the time, there were a handful of often well-to-do individuals who owned their own individual solar arrays. But the utility powers that be were not trying to make the go solar option easier or more cost- effective for a greater number of people to take.

In one instance, Xcel revolted when the City of Minneapolis got Federal Stimulus funds for energy and chose to invest the money into putting 40 kilowatts of solar panels on the Haaf Parking Ramp in downtown Minneapolis.

According to city Council Member Cam Gordon, “Xcel required the City to spend thousands of additional dollars to prevent these solar panels from putting renewable electricity onto the downtown grid. Xcel argued that allowing this clean, renewable power to get onto the grid would put the grid at risk, which indicates that the grid is too fragile to accommodate local renewable energy generation.”

NOTE 1

For another example, Xcel proposed eliminating the popular Solar Rewards Program- a rebate program for rooftop solar arrays that is credited with helping 560 Minnesota homes and businesses install solar arrays between 2010 and mid-2012. NOTE 2

In June of 2012, Xcel proposed scaling back their Solar Rewards program for 2013 and eliminating it altogether after the end of 2013. They were opting to spend the $5 million in annual subsidies they received for it on energy conservation efforts instead.

The PUC eventually ruled in favor of maintaining the Solar Rewards Program upon the public commentary being overwhelmingly in favor of keeping it.

On July 20th 2012, Lee Gabler, Xcel's director of demand side management and renewable operations, wrote an email response to widespread criticism of Xcel’s anti-Solar Rewards decision "In an economy where our customers' demand for energy is not growing, we feel it is not appropriate to add more of this expensive energy resource. Increased costs, including new infrastructure, are placing upward pressure on our customers' bills, so it's appropriate to control customer costs by ending a program that doesn't provide sufficient value."   NOTE 3

Many of the statements and perspectives of the individuals with Xcel have changed since the time Minneapolis Energy Options began. But the above statement from 2012 provides a key example of what disturbed and irritated the early thought leaders behind Minneapolis Energy Options.

It is not only built upon the assumption that solar power will be a more expensive resource despite the cost of it dropping significantly. It revealed a refusal to recognize the benefits that distributed solar generation brings to the grid and how it can help Xcel customers avoid the costs of paying for expensive new transmission lines.

New strategies to make energy efficiency upgrades more cost effective and accessible for a greater number of people presents another way how we will lessen dependency on companies who are importing polluting energy from outside of the state.

Overall, it is only fair that we as communities have accessible opportunities to enhance local economic development while reducing overall energy use at the same time.

Our energy money is being funneled to shareholders of corporate monopoly utilities that have a government guaranteed profit margin above 10%. Think of electrical power as the metaphorical water that flows into the bucket of the local economy. But the system of distant ownership/ control also pokes holes in the bucket which steadily drains dollars out of our local economy bucket at the same time it is being continually refilled.

What would plugging the holes in this metaphorical steady leak look like? It means we will keep our energy dollars home to revitalize the local economy and create local jobs which will strengthen our grid to prevent power outages, and lead the region in a transition to a clean and efficient energy future.

This was the early vision and social idealism that inspired the organizers behind Minneapolis Energy Options even before the campaign was formed. However what was the moment that actually lit the spark for Minneapolis Energy Options?

NOTE 1 COMMUNITY VOICES | Minneapolis' energy future: What will our options be? By Cam Gordon, Community Voices July 26, 2013 http://www.tcdailyplanet.net/news/2013/07/26/community-voices-minneapolis-energy-future-what-will-our-options-be

NOTE 2 http://www.twincities.com/news/ci_20761224/xcel-energy-phase-out-solar-rewards-program-minnesota Xcel Energy plans to phase out solar rebate in Minnesota

By Leslie Brooks Suzukamo
lsuzukamo@pioneerpress.com

POSTED:   06/01/2012

NOTE 3 Xcel's plan to drop Solar Rewards draws heat

·        Article by: DAVID SHAFFER , Star Tribune 

·        Updated: July 20, 2012 - 9:05 PM