MINNEAPOLIS -- Xcel Energy Inc., the investor-owned utility that has been championed for its commitment to wind power by clean energy advocates far and wide, is at risk of being dropped as the electricity provider to this city, which is its national headquarters. Among other reasons, it is accused of not being sufficiently pro-clean energy.
The $14 billion Fortune 500 company, which operates in eight states and has provided electricity to Minneapolis for more than a century, faces the possible cancellation of a franchise agreement that allows it to provide power to an estimated half-million residents and businesses in Minnesota's largest city and the economic hub of the 3.3-million-resident Minneapolis-St. Paul metropolitan area.
The city's natural gas provider, CenterPoint Energy Inc., is also at risk of losing its franchise agreement with the city, which expires at the same time as Xcel Energy's contract in December 2014. If renewed, the utility contracts would lock in Minneapolis' electricity and gas providers for 20 years, until 2034, according to city officials.
Should Minneapolis decide to divorce the utilities, it would become one of the largest municipal utility owners in the United States, alongside Los Angeles; San Antonio; Seattle; and Sacramento, Calif.
A coalition of environmental and citizen advocacy groups known as Minneapolis Energy Options (MEO) has pressed elected leaders to reconsider the city's relationships with the two utility giants on grounds that Xcel and CenterPoint are fundamentally profit-driven companies that have not done enough to hold down electricity rates and improve their environmental performance.
A public hearing on those very questions will be held in the Minneapolis City Council chamber Thursday, and proponents of dropping Xcel and CenterPoint as energy providers will rally outside City Hall with hopes of winning approval for a ballot measure that would place the issue on a November citywide ballot. A positive vote on the ballot measure would allow Minneapolis to begin exploring its options for establishing municipal electric and gas utilities.
Potential change will be 'enormous'
CenterPoint Energy, which provides gas to roughly 125,000 Minneapolis customers, last week agreed to work with MEO to find ways "to advance Minneapolis' standing as a leading city on sustainability and energy conservation," according to the Houston-based company. If the parties can reach common ground on issues of carbon reduction, energy efficiency and sustainability, MEO has agreed to pull back from its call to municipalize the city's natural gas system.
A similar agreement could be reached with Xcel, but to date the utility has remained steadfast in its view that it is better equipped to manage Minneapolis' electricity network than a city-run agency.
Even if the city chooses to renew its franchise agreements with Xcel and CenterPoint, MEO maintains that the city's large customer base should give elected officials substantial leverage to force the utilities to be better corporate citizens. The group estimates Minneapolis homeowners and businesses spend $450 million annually on electricity and gas bills.
"The bottom line is that we can do better than the status quo," Dylan Kesti, campaign coordinator for MEO, said in a recent blog post on the organization's website.
Xcel Energy, which employs 2,500 people in Minneapolis at its downtown headquarters and other locations, is not taking the threat lightly. In a letter sent to all its city customers last week, the utility warned that "the potential change would be enormous" if the city proceeds with a municipal takeover of the electric power system.
Will nation's top wind power producer move?
Among other things, the city would assume sole ownership and operation responsibility for the electricity system, including setting prices and policies and providing all customer service, maintenance, and storm and emergency response activities, according to Xcel. The city would also have to spend billions of dollars to buy out Xcel's extensive infrastructure in the city, a cost that could be passed on to residents and business owners.
And perhaps most notably, "Much of the current state regulation of utilities, including rate review and renewable energy and conservation standards, would no longer apply to energy delivered in the city of Minneapolis. This is because municipal utilities are exempt from many of the state laws that currently apply to Xcel Energy," the utility said.
Xcel also defended its record as an environmentally responsible utility, noting its perennial status as the nation's No. 1 utility provider of wind energy and its ongoing commitments to improving energy efficiency and reducing fossil fuel use across the Twin Cities metro area. The utility, which operates as Northern States Power in Minnesota, also says it supports Minneapolis' goal to reduce greenhouse gas emissions by 30 percent below 2006 levels by 2025.
Utility officials say that about half the electricity provided to Minneapolis residents comes from carbon-free sources, and that since 2005 the company has reduced carbon emissions by 22 percent from all its Upper Midwest generation assets. It expects to achieve a 30 percent reduction regionwide by 2020.
As part of that effort, the utility earlier this month submitted a proposal to the Minnesota Public Utilities Commission that it add 600 megawatts of emissions-free wind power to its Upper Midwest generation portfolio by 2014, noting that the new wind power would "lower our customers' bills, offer protection from rising fuel costs, and provide significant environmental benefits."
No 'dialogue' with city
In an interview last week with the Minneapolis Star Tribune, Xcel Energy Chief Executive Officer Ben Fowke said he was surprised the City Council scheduled a public hearing on municipalization of the city's power and gas utilities without first engaging Xcel in substantive conversations about its performance, role and responsibilities.
"It is kind of astonishing to me that we don't have a dialogue," he told the newspaper.
While no City Council members have publicly advocated dropping Xcel, the council did earlier this year authorize $250,000 to conduct an "Energy System Pathways Study." The study, due for completion early next year, will look at alternatives to the city's current franchise agreement structure with Xcel and CenterPoint Energy, and explore ways the city can "make progress towards its goals for sustainable energy, improved air quality, equity, and green jobs."
If the city proceeds with a municipalization effort, Fowke said Xcel would likely move its Minneapolis headquarters, eliminating one of downtown's most stalwart tenants. In addition to its existing eight-story office building, the company is expected to become the sole tenant in a new 212,000-square-foot tower being built on an adjacent block.
It remains unknown where a new headquarters would be established. Xcel's Minnesota service territory extends across much of the southern part of the state, and it could opt to relocate to neighboring St. Paul, the state capital. Or the parent company could pack up and move out of state. The Denver area would be a likely candidate, as Xcel serves 1.4 million electricity customers in Colorado.
But Xcel has faced similar municipalization fights in Colorado, where the city of Boulder has initiated the process for forming its own utility that would take over Xcel's electricity distribution network serving roughly 100,000 people in the city and roughly 5,700 in adjacent communities of Boulder County. Xcel has fought the process, which would require Boulder to condemn and then acquire Xcel's assets in the city.
As in Minneapolis, Xcel has argued that Boulder lacks the resources and know-how to run a complex electricity distribution system, and it has pledged to do more to help the city meet renewable energy and energy efficiency goals.