Public Power FAQs
A municipal utility is a utility service which is owned by a city or town. In Ann Arbor, and most towns, the water and sewer services are municipal utilities. There are over 2000 municipal electric utilities in the country; in fact, 42 municipal electric utilities already exist in Michigan, in cities like Lansing, Traverse City and Chelsea.
We believe a municipal utility (also known as a “muni”) is the only way Ann Arbor can reach its renewable energy goals. Municipal utilities across the country are almost always cheaper than investor-owned utilities (IOUs) and often more reliable. Additionally, a muni would create strong local union jobs and keep utility money within the community. Rather than relying on DTE and its shareholders to make decisions for us, the Ann Arbor community would have control over our power and create a pathway for other communities to break free from DTE as well.
Before a municipality creates an electric utility, it is best practice to run a feasibility study, which assesses the costs and benefits to the city of municipalization. This is done by one or more firms contracted by the city, usually over the course of several months. The prospect of forming a municipal electric utility can be put on a local ballot for the citizens of the city to vote on, or city council can approve of this formation by ordinance. If this ballot is approved, the city is obligated to form a municipal utility; but this doesn’t end the process yet, as the city then needs to acquire the assets necessary to distribute electricity to its citizens. The city and the investor-owned utility must agree to an evaluation of the utility’s assets (usually determined in court or arbitration) and then the city must purchase the assets for the agreed upon price. At this point, the city owns the assets and it can begin running local generation and distribution of electricity to its citizens.
Ann Arbor likely will end up in court with DTE around the value of DTE’s electrical assets. The Michigan Constitution does allow the city to compel the sale of DTE’s electrical infrastructure, however DTE can and likely will contest any price the city offers for this infrastructure. We cannot say for sure how long this court challenge will last because this will be the first time in 100 years that a muni has been created in Michigan, but we can look at the numerous cases of municipalization across the country. Often this process takes a community about 2 years, recent examples being Jefferson County, Washington or Winter Park, Florida. There are exceptions to this however, with some of the longest examples taking up to 10 years. We at Ann Arbor for Public Power believe we will be closer to 2 years than 10, due to the fact that we have a prescribed right to municipalize existing within our state constitution. One thing is for certain however: the sooner we start the process the sooner it will finish.
While existing municipal utilities in Michigan were all formed over a century ago, there are plenty of examples of American towns and cities which have municipalized more recently. For example, Winter Park, Florida successfully transitioned to a public electric utility in 2005. Municipalizing now rather than 100 years ago gives us the opportunity to build sustainable and renewable power into our utility from the beginning, which would not have been possible in the previous century. This is an enormous opportunity for Ann Arbor to create a new pathway for other Michigan cities to break free of DTE.
For a detailed proposal of how a muni in Ann Arbor could be managed, read our proposed Municipal Utility Governance Structure. A2P2 is not directly responsible for how the utility will be managed, but we have suggestions based on how other cities successfully run their municipal utilities. We suggest that the organization be managed by an independent board with experts hired to administer and run the utility. The experts could be a combination of public sector energy employees and contracted labor following responsible contracting policy. We suggest giving preferential hiring to displaced and knowledgeable DTE employees. We envision a 9 member board composed of 5 elected and 4 appointed board members. The elected members might include a representative from each of the 5 city wards and 4 appointments representing experts in technology, labor, environment and equality. This would be separate from the Ann Arbor City Council.
Jonathan Koehn, Boulder’s Chief Sustainability & Resilience Officer, presented to the Ann Arbor Energy Commission on this in October 2021. Watch here.
Municipal electric utilities still retain a connection to the MISO grid, which is the regional part of the national grid. So Ann Arbor would still be able to buy power from the wider grid. And a municipal electric utility in Ann Arbor would almost certainly need to rely on power purchase agreements from outside of the city to supply its power demand. The benefit of a muni is we get the option to choose where we buy that power, prioritizing cleaner and cheaper electricity rather than being forced to consume DTE’s dirty, expensive electricity.
The Sustainable Energy Utility (SEU) was originally envisioned as a result of advocacy on behalf of Ann Arbor for Public Power within the city’s Energy Commission. The Office of Sustainability and Innovation (OSI) documented this plan in their report. The basic idea is that an SEU would be a municipal electric utility that does not purchase DTE’s electrical infrastructure. The city would create a supplementary utility that residents could subscribe to in addition to DTE. This has the advantage of not requiring a legal battle over the cost of the electrical infrastructure, and could potentially allow us to start expanding local renewable energy generation. For this reason we believe the SEU is a possible path forward, but ultimately we believe Ann Arbor should create a full municipal electric utility which we nickname “Tree Town Power”.
While we support moving forward with the SEU in the short term, without DTE’s electrical infrastructure we will never be able to achieve A2Zero’s goal of 100% renewable electricity. Unfortunately, even if we maximize all the power generation possible within the city limits, we will never be able to supply all of Ann Arbor’s power demand. By purchasing the electrical infrastructure we will have access to power generation outside of the city through Power Purchase Agreements (PPA). In addition, by purchasing the power distribution infrastructure the municipal electric utility will immediately become the primary power provider for the entire city, allowing us to supply every home with 100% renewable power while providing a significant revenue stream to the city which can be invested into our electrical infrastructure and fed back to the city for other projects.
In short the SEU can be a great stepping stone towards Tree Town Power, but it will be necessary to buy out DTE’s electrical infrastructure if we want to provide 100% renewable power to all of Ann Arbor while increasing reliability and decreasing our electrical bills in the long term.
A2P2 is an independent grassroots organization that is separate from the city of Ann Arbor. We do support the goals of A2Zero and are a collaborating organization. We feel that a public electric utility is the only way Ann Arbor will reach its A2Zero ambitions. While electrification is an appealing goal, currently electric vehicles in Ann Arbor are running on DTE’s electricity mix which is mostly sourced from coal. Electrification paired with a 100% renewable muni would maximize the impact and longevity of A2Zero.
Why Dump DTE?
DTE’s major flaws are reliability, affordability and sustainability.
DTE is the 3rd dirtiest major utility in the country, currently sourcing about 57% of our energy from coal, 10% from fracked gas and oil, 23% from nuclear plants and just under 10% from renewable sources. Much of the infrastructure desperately needs to be updated, leading to unreliable service and frequent, prolonged outages. DTE’s rates are higher than the national average and they have recently proposed a rate hike of 8.8%. Meanwhile, in 2017, both DTE’s total outage time for customers and its average time to restore power, after a “major event day,” were the highest in the state by far. DTE does not serve the people but its shareholders; in fact, the corporation lobbies the state for anti-climate, anti-voter legislation.
Through strategic advertisement, DTE has maintained the illusion of being much greener than in reality. Currently, just under 10% of our energy comes from renewable sources. Recently, DTE massively decreased the amount that individuals can sell back surplus energy to the grid from market price to just pennies on the dollar. This reduced the financial feasibility for many individuals who would otherwise save money by installing solar panels. Clearly, DTE cares more about its profits than its proclaimed goals of sustainability.
DTE has carbon emission reduction goals: 32% reduction (from 2005 levels) by the early 2020s, 50% by 2030, and 80% by 2040, with net zero carbon emissions by 2050. However, climate scientists are calling for developed countries to achieve true zero emissions by 2035 and the company does not have a plausible plan for achieving even these goals. DTE does intend to retire its 12 existing coal-fired generators (in 5 locations), but its last two coal generators will remain in operation until 2040. Furthermore, DTE is constructing a $1 billion, 1,100 MW natural gas power plant in St. Clair County, and has indicated its intention to build another natural gas-fired power plant.
MI Green Power (MGP) is a program from DTE, which ostensibly gives consumers the possibility of choosing an energy mix that includes more renewables, and, thereby, attracts more customers. It’s being used to reach their state required goal of 15% renewables used to provide energy. However this is not entirely true, subscribers to the MI Green Power program are still receiving and paying for the generation of DTE’s dirty fossil fuel energy.
As per DTE’s description of its own program, MGP “offers eligible electric customers simple and affordable renewable energy programs supporting DTE’s wind and solar projects.”
DTE can claim that when you buy into MGP your electricity will be coming from green sources, but that’s not exactly the case. A subscription would go towards a fund to build the state required amount of renewable generation, but they can’t really divert power from those structures to a particular building.
If many people bought into MGP it might lead to additive investment in renewables; however there is no evidence this is currently being done. Ultimately, all subscribing to MI Green Power does is subsidize the investment DTE is already required to make into renewable electricity, shifting the burden off shareholders and on to consumers.
Affordability
A feasibility study will tell us that, but rates are very likely to be lower. There are 41 municipal utilities in Michigan, and almost all of them charge a lower rate than DTE’s 17.5 cents per kilowatt-hour (kWh). Lansing charges 16.22 cents/kWh, Marquette 16.00, Holland 12.05. Many factors allow these lower rates. DTE earns a profit on its rate base, while munis, as non-profits, do not need to generate shareholder returns. DTE passes on its tax payments to ratepayers, but munis are mostly tax-exempt. Munis can borrow at favorable municipal bond rates, while DTE must issue corporate-backed bonds with higher interest rates. DTE ratepayers indirectly pay the costs of DTE’s old fossil fuel generation plants, even after these plants close, while munis generally are free of these legacy investments.
DTE takes out roughly $22 million in profits annually from Ann Arbor, just from selling electricity. The muni will keep those $22 million within the community.
We need a feasibility study to determine how much of a surplus (if any) the muni will deliver to city government. But most munis do contribute positively to city revenues. For example, Lansing’s municipal utility contributed $23.3 million to the city in 2020. The Holland Board of Public Works transferred $7.6 million to the city’s budget. (That’s 6.25% of average retail electric sales revenue for the previous three years, plus 50% of wholesale electric sales.) Traverse City Light & Power transfers 5% of gross revenue to the city each year, which amounted to $1.6 million in 2020.
Since munis do not need to generate shareholder returns, can borrow at lower rates, aren’t saddled with legacy fossil fuel plant costs, and are mostly tax-exempt, in theory an Ann Arbor muni can charge lower rates while making a greater investment in the electricity distribution network (poles, wires and substations). This in turn should reduce outages.
41 Michigan cities and towns run successful municipal electric utilities, including Lansing, Holland, Wyandotte, Traverse City and Chelsea. There is no reason Ann Arbor, with newly-hired trained managers and personnel, can’t do this.