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.
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.