Minneapolis Energy Pathways: A Framework for Local Energy Action
In 2013, the City of Minneapolis was finalizing a Climate Action Plan that established aggressive energy efficiency and renewable energy goals for the City. Around that time, it became widely known that the City's franchise agreements with Xcel Energy and CenterPoint were set to expire at the end of 2014. These two elements came together to spark a City-wide conversation about the future of energy services in the City and the City’s relationship with its utilities. To assist the City in that discussion, Minneapolis contracted with CEE for the Minneapolis Energy Systems Pathways Study, to develop a vision for the Minneapolis' future energy system and potential legal, regulatory, and program options to achieve its aggressive clean energy goals.
The recommendation we developed for the City, to create a formal City-Utility Clean Energy Partnership, is both innovative and pragmatic. Establishing this "first in the nation" Partnership would:
- Increase the amount of renewable energy and energy efficiency in the City, allowing the City to meet its energy goals without increasing energy costs to Minneapolis residents or businesses
- Not increase costs to other ratepayers of the utilities, since the partnership would operate within the current regulatory framework and assist utilities meet their current state clean energy requirements; and
- Vault Minneapolis, Xcel, and CenterPoint to the forefront of a utility business model transformation going on around the country, and stand as an example for other cities that want to take aggressive local action on clean energy and climate issues.
Revising city-utility relationships
Soon after CEE began the Energy Systems Pathways Study, it became clear the status quo would not allow the City to meet its aggressive clean energy goals. In the past, "business as usual" meant that the City and utilities worked essentially independent of one another on energy issues, except on an ad hoc basis. The one instrument where they came together to discuss energy issues has historically been the franchise agreement, limited by state to negotiations about the use of public rights of way for utility infrastructure, traditionally every 20 years.1
Further, the City couldn’t rely on the utilities alone to meet its energy goals. The utilities are primarily focused on meeting state and federal requirements within a strict regulatory framework, and generally see the City's energy expectations as something to be managed, not necessarily met. That approach was perhaps appropriate in the previous period, characterized primarily by large central station generation and bulk power transmission lines. The overarching policy of that previous period was "electrification everywhere," as quickly, reliably, and cheaply as possible.
However, the regulatory/utility business model framework is evolving, to be more responsive to customers and to communities like Minneapolis. This change is driven by the increasing cost-effectiveness and reliability of distributed energy technologies and by policies that facilitate local action to reduce the environmental impact of the energy system. In order to meet the City's energy goals, it needed to move beyond the status quo and exert more influence or control over energy services in the City.
Defining pathways towards Minneapolis’ energy goals
Our Pathways evaluation took a look at four separate approaches to how the City could structure its relationship with the energy utilities that serve in the City, to increase its ability to affect the way energy services are provided in the City. In order of increasing City responsibility and control over energy services:
In sum, the first two Pathways we evaluated would afford the City some additional influence over energy services and could be implemented in a relatively shorter time frame, committing fewer resources and in cooperation with the utilities. The other two Pathways would give the City significantly more control, but take substantially more time, resources, and risk to implement; resulting in the loss of utility expertise in delivering energy services in the City, potentially increasing the cost of those services.
Piloting a new utility business model
Our primary recommendations to the City are a blend of Pathways 1 and 2. First, negotiate a Franchise agreement focused on use of the public rights of way, broadened to include targeted related issues such as reliability reporting, utility infrastructure investment, and distribution planning. Then, negotiate a second "Clean Energy Agreement" in which the City agrees not to municipalize during the term of the agreement, in exchange for commitments from the utilities toward helping meet City energy goals. This agreement would also create a formal City-Utility Clean Energy Partnership of City and Utility leaders that would meet regularly to plan and coordinate clean energy activities in the City, all of which would be within the current regulatory framework and consistent with current clean energy requirements.2
This approach requires the City to be more engaged and have more sustained responsibility with regard to energy services while requiring utilities to work and coordinate with the City on an on-going basis, to meet City energy goals. It allows the City to continue to benefit from utility expertise and helps the utilities meet their state energy efficiency and renewable energy goals by bringing both City and utility assets to bear on accelerating the implementation and uptake of utility programs within the City. In order to ensure the City’s aggressive clean energy goals are met, the City will need to bring its regulatory and relationship assets to the table with utility expertise and funding for clean energy programs and projects.
This Clean Energy Partnership is, potentially, the beginning stages of a new utility business model, combining assets and functions of a municipality with those of an investor-owned utility, combined and dedicated to meeting public goals and purposes.
In addition to being a potentially powerful combination of City and utility assets, another significant benefit is that the barriers to creating this Partnership are very low – it does not require legislative authorization or Public Utility Commission approval. The City and the utilities merely need to agree to form the Partnership and set about the business of planning how best to maximize City and utility assets toward meeting both City and utility goals.
If we can demonstrate this approach in Minneapolis, it could easily be implemented elsewhere in the state, and elsewhere in the country. A network of Cities have developed local energy plans like Minneapolis’ Climate Action Plan, and then formed partnerships with their utilities to help implement those plans – that could be a tremendous force for clean energy and climate action.
Download the report to learn more.
1 Minnesota Statutes, section 216B.36, limits the scope of the franchise agreement to issues involving compensation for use of public rights of way for utility infrastructure. The term of the franchise agreement is not set by statute.
2 For the longer term, we recommended the City continue to explore CCA and Municipalization, so that these alternatives are more available to the City, if the near term recommendations we’ve made don’t prove out.
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