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Shifting Power in the Energy Debate

May 08, 2013 By Alice Madden, Macalester College

This is the final installment of Minnesota 2020's series of environmental policy op-eds from Macalester College students. We hope you enjoyed this collaboration with Macalester College's Environmental Studies Department.

At the end of 2014, the City of Minneapolis has a big decision to make about its franchise agreements with the city’s two main power providers, Xcel and CenterPoint. These two 20-year contracts will expire, giving the city three major paths: 1) renew contracts with Xcel and CenterPoint; 2) renegotiate the contracts to include substantive commitments to affordable, clean, and local energy; or 3) drop Xcel and CenterPoint and form a Municipal Utility District (MUD) controlled by the city instead of large corporations.

Franchise agreements give these companies the right to use public space—streets, alleys, etc—to run distribution lines for energy services in exchange for roughly 3-5% of gross revenues depending on the customer class (i.e. commercial residential, industrial).

Renegotiation does have the possibility of achieving formalized commitments to affordability, renewable energy, and emissions reduction. But without significant leverage the city’s energy needs are merely requests—not requirements. Currently under state law, the city has exceedingly limited authority to impose targets for renewable sources or conservation on energy suppliers—so in essence there can be strong recommendations or goals, but they’re not binding.

 

 

The city is pursuing state legislation to expand flexibility and clout in franchise negotiations to ensure the next generation of local energy policy reflects citizens’ priorities.

The option to municipalize may seem attractive. And there are a number of similarly situated models on which to build a municipally owned utility, including Rochester, Minnesota. In fact municipal utility districts (MUD) supply one in seven Americans today, which unlike Investor Owned Utilities (IOUs) have no shareholders, limited tax burdens, and increased local flexibility to determine where and how their energy is produced.

Municipalization should be initiated with caution, of course, as it can have serious upfront costs. Acquiring and financing the takeover of existing energy distribution system (poles, wires, etc); as well as developing a management group to govern the MUD and monitor energy market volatility are two critical and challenging parts of this transition process.

Boulder, Colorado—client of Xcel and prospective MUD owner—will be a city to watch. Two years ago voters backed a measure to break away from Xcel and move toward municipalization. After Xcel remained relatively unresponsive to their requests for clean energy commitments, the city initiated an extensive process to research the feasibility and competitiveness of forming a MUD in Boulder. Xcel spent an impressive $1 million to campaign against the Boulder’s ballot measure for a municipal utility, and has spent another several hundred thousand dollars in to defeat a series of MUD ballot measures in that city as well.

Boulder’s final report on municipalization seems optimistic. According to the Boulder Daily Camera, the final report found that an MUD could offer lower rates, maintain or exceed current levels of reliability, reduce GHG emissions by more than 50%, and get 54% or more of its power from renewable resources.

There are a number of challenges and background studies to be completed before we consider the municipalization option. In the meantime, Minneapolis and other municipalities should continue working with state policymakers to allow cities more authority when negotiating with utilities to “progress towards… goals for sustainable energy, improved air quality, equity, and green jobs.”

Between now and the time these franchise agreements expire, you can do your part by learning more about the efforts in Minneapolis for greener more sustainable energy. Once you know the facts, get involved by connecting with city and state policymakers to ensure municipalities have the most leverage necessary in negotiating with utilities.

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