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Minneapolis mayoral candidates deeply divided over potential utilities takeover

MinnPost file photo by Mike Mosedale
Xcel Energy's Riverside power plant in northeast Minneapolis.

In Minneapolis, when you turn the faucet, water comes out. What you don’t need goes down the drain. That’s called water and sewer services.

For the last 146 years, starting in 1867, Minneapolis has been pumping water out of the Mississippi River, cleaning it and sending it on to customers. It started with one pump to supply water to the Fire Department. Today it has become the largest water utility in the upper Midwest.

From Day One, the water and sewer utility has been owned and operated by the City of Minneapolis, which now pumps 57 million gallons of clean water through a thousand miles of pipe every day.

Minneapolis now is about to begin a process that could end with the city taking over the electrical and gas utilities. And every candidate for mayor has an opinion about what should happen.

“Some of our basic kinds of needs should not be for profit,” said Jim Thomas, a schoolteacher who is a political newcomer. “I think we need to control those to make sure we have stable, affordable energy for our citizens.”

“Corporations are not looking out for our interests,” said Thomas. “They’re looking primarily for profit.”

Put Thomas down as a yes vote.  Dan Cohen, a former City Council member, is a no vote.

Clueless on how to run a utility?

“The members of the Minneapolis City Council and candidates for mayor, and I include myself in this, are clueless about how to run an electrical utility,” said Cohen. “If we can’t run a pulltab operation, how can we run a municipal utility? Answer: We can’t.”

“There’s no way we could possibly pay for this,” said Cohen, who estimates the cost of buying Xcel at $14 billion — a number that he thinks would be equal to about 200 years’ worth of municipal improvements.  “That’s a long time to go without fixing a pothole.”

Minneapolis’ 20-year franchise agreements with Xcel Energy and CenterPoint Energy expire at the end of 2014 with negotiations set to begin early next year. The City Council has scheduled a public hearing on the topic of publicly owned gas and electrical utilities for 10 a.m. Thursday in Room 317 of Minneapolis City Hall.

“Xcel pays us roughly $17 million a year in a franchise fee based on gross revenues,” said mayoral candidate Stephanie Woodruff, who serves as vice chair of the Minneapolis Audit Committee and is an accountant by trade. The Audit Committee studied the Xcel franchise agreement and discovered there was no formal monitoring process to make sure Minneapolis was being paid the accurate amount. That has since changed.

“I just don’t see spending billions of dollars to get into the energy business when we’ve got these other critical issues as a priority,” said Woodruff. “I’m totally against it. I think, bottom line, we’re in the people business, not in the energy business. It’s a very expensive proposition, and I think it’s a dangerous slope to go down.”

A recent precedent

The city of Boulder, Colo., recently voted to take over the electrical utility, which has been operated by Xcel Energy. One of the issues in the takeover campaign was the reliance on coal by Xcel for most of the electricity production, instead of renewable energy like wind or solar power.

“Greener power costs more money,” said Cam Winton, a candidate who is also an attorney for a wind power company he helped build. “It’s more expensive for a producer of electricity to generate that electricity from a green source, solar or wind. It’s just more expensive, and one way or another they’re going to pass that cost on to us.”

Minneapolis Mayor's RaceDespite that view, Winton favors the idea of Minneapolis keeping its options open on the question of public utilities but sees the takeover effort as too little too late.

“We absolutely need to re-up with Xcel and CenterPoint at the end of the existing contracts,” he said. “There’s simply not enough time to municipalize between now and when the current contracts expire. We absolutely have to re-up.”

One option following the public hearing would be a council vote to place the question of publicly owned utilities on the November ballot. Some see the ballot questions as a way to strengthen the city’s negotiating position with the utility companies. 

“I support putting it on the ballot. I do support allowing the city to ask the question, and I support the timing,” said Betsy Hodges. “I want the City of Minneapolis to be in the best negotiating position possible. I don’t know if I support a municipal utility or not. There’s a lot of information we will need before we even fully ask that question.”

Study won’t be done before election

Minneapolis has commissioned a $250,000 study of the energy systems to aid in franchise negotiations with Xcel and CenterPoint. That study will be completed after the first of the year and after the election that may have the utility takeover question on the ballot.

“The vote in November asks the question of whether we should explore the options,” said Hodges. “If it’s on the ballot in November, we’re not asking people to support a municipal option. We’re asking people to support asking the question and giving ourselves the capacity to act, should we choose to.”

“The strategy is problematic,” said Mark Andrew, a former Hennepin County commissioner. “Putting an initiative on the ballot 120 days before an election, when you don’t have a budget and no proven grass-roots support, it’s a prescription for failure.”

“Getting the results of that study in January argue against putting it on the ballot in November,” he said, adding that he supports the environmental principles and the desire for more renewable-energy sources.

“I’m not sure this City Council is going to vote for this,” said Andrew.  “These are smart people, and they understand that this is, in effect, picking a fight with the company they have to negotiate a deal with, an unnecessary fight.”

(Andrew has acknowledged that his green-marketing firm, GreenMark, had Xcel among its clients in 2008.)

Andrew is not alone in questioning the timing of the energy study results. It is possible that some information could  be available before the election, but the complete study will not be available until two months after the election.

‘A little heartburn’

“I have some real concerns and more than a little heartburn around the notion of the city taking over the utilities,” said Jackie Cherryhomes. “I think putting something on the ballot before that study comes back and provides its wisdom — which is why we did it in the first place — is precipitous, and I don’t support putting it on the ballot.”

“I understand wanting to negotiate with the utilities, being in a strong negotiating position,” said Cherryhomes. “I absolutely think that is our responsibility as stewards of the public’s money, to be in a strong negotiating position. But I don’t think being strong negotiators means that we’re taking over the utilities.”

Before Minneapolis could take over the utilities, it would need changes in state law during the next legislative session, which will be shorter than this year’s budget session. The need for the law to be changed could make the takeover problematic.

“I don’t see anything wrong with public utilities,” said another candidate, City Council Member Don Samuels. “I’m for whatever works. I’m not for tampering with things just for the sake of being cool or current or modern. I’m for what works for most people and doesn’t have victims.”

“If people have a desire to explore or feel a commitment to explore the options, and someone raises that in our democratic community, I think we need to listen,” said Samuels. “But we can’t act without being sure that it is not going to cost more than it’s worth because we are stewards of resources.”

Samuels voted in favor of the public hearing but has yet to be convinced that placing the public-ownership question on the ballot is a good idea. He said there needs to be a “strong” possibility that the takeover is a good idea before he votes yes on the ballot question.

“We can go down that slippery slope of being caught up in the romance of a movement, rather than what’s good for the people of Minneapolis,” said Samuels. “It has to be clearly a great investment.”

If the City Council votes to place the referendum on the November ballot, it would have until Aug. 16 to approve the ballot language.

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Comments (27)

  1. Submitted by Neal Rovick on 07/30/2013 - 09:34 am.

    Minneapolis takes over the utilities–then what??

    Minneapolis has no power generation capacity, so it will have to pay for generation by others–most likely Xcel, or at the very least, the same sources Xcel buys from. All it will be is another layer of administration and cost with no tangible benefit.

    Dumbest idea ever.

  2. Submitted by Steve Titterud on 07/30/2013 - 09:54 am.

    Such Great Negotiators !!

    Aren’t many of you from the same outfit that bent over for the Minnesota Vikings and the NFL?

    You certainly didn’t give a d*mn about negotiating position at that time, when you held all the cards, and when it could have done some good. But THEN the issue was a paltry $1 Billion, hardly worth mentioning compared to the $X Billions THIS boondoggle would cost!

    Finally, insult compounds injury when the very topic of a city-wide referendum comes up, as we know all too well just how important that is to you folks in city government! (See Mpls’ city charter regarding stadium projects)

    Reading Don Samuels’ declared position is like having a seizure.

    The only voice that seems to make sense here belongs to Dan Cohen.

  3. Submitted by Jon Kingstad on 07/30/2013 - 10:00 am.

    Defining the scope

    It would be helpful for any discussion of a “utility takeover” to define more precisely what the scope of the utility operation is being discussed. Since most of our power has come to be supplied by central station plants, a “municipal system” cannot really be thought to include the generation or even transmission lines connecting the power supply to the distribution. So I’m assuming what is being debated here is really the distribution system for the City of Minneapolis and some share of the substations where the power is stepped down.

    Owning and operating a distribution system is not the same as owning, operating and managing a power generating plant and transmission system. Generation and transmission operate theoretically in a more competitive environment so it should be also feasible to “decouple” the distribution costs from generation and transmission to realize benefits of competition in buying power from other suppliers than the monopoly owner of the integrated system.

    I see two benefits from public ownership of the local distribution lines: 1) reducing the cost of capital and overhead which is built into the rate structure for the present utility for distribution; 2) enabling the customers to pool their purchasing power and negotiate contracts for power that better match their needs and demands. This could include negotiating better green power contracts. But a municipal utility could also do a better job in encouraging conservation and off-peak usage than Excel has done. Minneapolis might be advised to look at what some of the state’s rural electric cooperatives have done and are doing to help their members make more efficient use of energy.

    • Submitted by Cathy McMahon on 07/30/2013 - 01:24 pm.

      yes, this

      I agree that the issue at hand is not described clearly in the article. As a Minneapolis resident, I agree that we need to try and establish a sustainable policy position on energy. This includes stregnthening our resolve in dealing with Xcel Energy. One example of the existing relationship is how the community was recently railroaded by Xcel Energy into accepting expanded electrical capacity along 28th Street. There were no initiatives for local business users to conserve energy, just a call for expansion. Adding the lines is disruptive and ugly. And there is little end in sight for promoting demand for energy instead of improving efficiency. What’s the incentive when it’s all about corporate shareholder profit?

  4. Submitted by Cora Ellenson-Myers on 07/30/2013 - 11:21 am.

    What this is really about

    This movement is for more energy options- NOT a jump into a municipal utility. A Yes vote authorizes the city to actually do a comprehensive feasibility study into if a community energy utility is viable in Minneapolis. The city would only move forward if a feasibility study proves a community energy utility would be cheaper, reliable, and have more renewable energy (which the current study lacks the teeth to actually determine).

    We would re-negotiate a short term contract with Xcel if this passes, while the study is happening.

    MN state law requires a ballot measure for the city to even look at this as an option. Having more options on the table in negotiations is the only way we can put pressure on Xcel’s legal monopoly on our city. Their rates are going up and up, and it’s dirty fossil fuels that are getting more and more expensive as renewables get cheaper and cheaper.

    I don’t know about you, but I want to be on the curve of our energy future getting LESS expensive- not investing in things like the Sherco Coal Plant and Monticello Nuclear (both of which are going to cost US, the ratepayers).

  5. Submitted by Mike Downing on 07/30/2013 - 11:27 am.

    Private sector vs public sector

    Can someone provide an example of where the public sector is more efficient, more effective and more cost effective than the private sector?

    I cannot come up with one realistic example since there is no incentive to reduce costs in the public sector. The only incentives in the public sector are to increase costs to increase your budget, to increase your staff and to look more important.

    Increasing the per cent of energy from alternative sources on increases the cost of energy for the poor & middle class. Taking over energy in Minneapolis will only increase energy costs for Minneapolis residents.

    BTW, if anyone uses Medicare as an example of public sector success, they simply show their ignorance of the geographic disparities in Medicare. For example, the average cost per Medicare recipient in Minneapolis is $6700/year while it is over $14000 in Miami. It is an example of the lack of oversight and lack of cost management in the public sector.

    The takeover of energy in Minneapolis is a very sick joke that residents of Minneapolis can I’ll afford.

    • Submitted by Adam Miller on 07/30/2013 - 02:59 pm.

      Medicare

      And how does Medicare in Minneapolis compare to private insurance in Minneapolis? How about Medicare in Miami to private insurance in Miami? Why would you expect geographically disparate markets to have comparable prices?

      The reason Medicare is the example is that overall, it’s cheaper and better than private insurance. It pays lower prices for what it buys and has lower administrative costs.

      But that doesn’t make it the norm. In general, I agree that that there is reason to be skeptical of government’s ability to be efficient outside its core competences.

    • Submitted by Jay Willemssen on 07/30/2013 - 11:47 pm.

      An example? How about, say… electricity?

      In 2011, residential customers of public-owned utilities paid 12% less than customers of investor-owned utilities. The source data for the calculation comes straight from the EIA.

      http://www.publicpower.org/files/PDFs/PublicPowerCostsLess1.pdf
      http://www.eia.gov/electricity/data/eia861/

      The notion that somehow the private sector, particularly monopolies like electric utilities, do a good job of controlling end-user pricing isn’t actually supported by the data. Controlling costs ≠ controlling end-user prices. They often just bank what they can, depending on the nature of their market.

      As for health care, the US is an extreme high-cost outlier among OECD countries in health care’s share of GDP, whereas most developed countries other than the US have some form of nationalized health care. In 2011, the US spent 17.9% of its GDP on health care, a nearly 50% higher share than the next highest country, the Netherlands. And it had the lowest share of health care covered by government (45.9%) among the 34 countries. The next lowest was Chile, at 47.0%. Considering how poor our health outcomes are relative to most other OECD countries, this very high expenditure level indicates a very inefficient system.

      http://wdi.worldbank.org/table/2.15#

      One could also look to any number of things, from roads, trash removal, national defense, policing, parks, natural resource management, etc, and find that government can and does have advantages over the private sector in providing services.

      It’s a mixed economy. Each case is different.

      And in case you think public power is a left-right thing, the only state in the US without any investor-owned utilities providing service? Nebraska. Next closest is Tennessee, which has only one town with an investor-owned utility (Appalachian Power in Kingsport). 61.5% of US electric utilities are publicly-owned and 20 existing public electric utilities are larger than the customer base of Minneapolis. Check out the map at the end of the following links to see how much of the land-mass of the US is not covered by investor-owned utilities. Most of it is the proverbial “red” America.

      Obama has even proposed selling the Tennessee Valley Authority, and it’s Republicans from that region who are crying foul.

      http://www.nepower.org
      http://www.publicpower.org/files/PDFs/USElectricUtilityIndustryStatistics.pdf
      http://www.publicpower.org/files/PDFs/100LargestPublicPowerUtilitiesbyElectricCustomersServed.pdf
      http://www.foxnews.com/politics/2013/04/16/republicans-blast-obama-proposal-to-sell-tennessee-valley-authority/
      http://www.eei.org/about/members/uselectriccompanies/Documents/EEIMemCoTerrMap.pdf

      • Submitted by Steve Titterud on 08/01/2013 - 02:36 pm.

        Another example of myopia of private utilities

        Does anyone here remember the Rural Electrification Administration (REA) ?? Roosevelt created this agency so that millions of rural Americans could benefit.

        The privately-owned utilities of the day refused to extend electrical service to many rural areas on the theory that there wasn’t enough demand, and they wouldn’t make money. They would not listen to the argument that providing the service would CREATE demand, and in the case of rural populations, that they would use more electricity than your typical city user – far more.

        There is a fine history of this issue in Robert Caro’s biography of Lyndon Johnson, which covers not only LBJ’s role as the champion of rural electrificaion of the Texas hill country, but the career of Leland Olds, who brilliantly made the argument for, then ultimately led, the REA.

  6. Submitted by Jay Willemssen on 07/30/2013 - 11:45 am.

    M. Winton, wind is 20% cheaper than nuclear & 13% less than coal

    It’s surprising that a former wind entrepreneur and someone trained at the London School of Economics doesn’t realize this and asserts the contrary unequivocally.

    Here is the latest EIA data on levelized costs of new generation.

    http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

    Mr. Cohen could also use a refresher in economics. The proposal isn’t to *buy* Xcel Energy, which has a market cap of $15 billion, it’s to take over their utility function within the city limits of Minneapolis. Minneapolis is less than 200,000 customers for Xcel, which supplies electricity to 3.4 million customers. Even if Xcel were being bought out as a company, controlling interest, at current stock prices, would be about $7.5 billion.

    http://www.google.com/finance?q=xel
    http://www.xcelenergy.com/About_Us/Our_Company/Company_Profile/Operations_at_a_Glance

    But, seeing as Xcel is the top lobbyist in the state of Minnesota, it’s not surprising to see so many politicians reflexively side with them.

    http://www.cfboard.state.mn.us/lobby/LobPrincipalExpend_Current.html

    • Submitted by Adam Miller on 07/30/2013 - 03:02 pm.

      The takeover involves buying assets

      Or at least the mailing I got from Xcel the other day says it does. Xcel seems to think it’s going to be costly for the city.

      I don’t know how we could create a municipal utility without acquiring the assets relevant to it. That’s not all of Xcel, but it’s still a big chunk of change, potentially.

  7. Submitted by Adam Miller on 07/30/2013 - 03:03 pm.

    What’s the point of the ballot question?

    Voters aren’t going to have all of the relevant information available to them, so what is the answer to the referendum even going to tell us? How voters who haven’t been fully informed feel? What’s the value in knowing that?

  8. Submitted by Gary Doan on 07/30/2013 - 12:48 pm.

    Government efficiency is an oxymoron. The bigger government gets, the less efficient it gets. Minneapolis just had a credit rating downgrade today, wouldn’t it make sense to make an effort, to do what they are already doing better, than to take on more expenses and services?

  9. Submitted by jody rooney on 07/30/2013 - 01:57 pm.

    My first reaction was how arrogant and stupid but..

    Mr. Kingstad makes a good point. The article is not specific as to which elements of the utility system the City is interested in. As he so aptly pointed out the power system is a piecemeal system. It was more cost effective for Grand Casino Hinckley to put in it’s own town border station then to continue to rely on the existing provider particularly since they were near a gas transmission line.

    If you think of the utility system like a road system (sorry bikers) one part is the highways, another part are arterial road system and someone owns the vehicles then you get a picture of the energy system. If the City wants to own the “arterial” road system that maybe okay but they shouldn’t get into the Highway (grid) or the Vehicle (Power production) part of the equation.

    But again why?

  10. Submitted by rolf westgard on 07/30/2013 - 05:03 pm.

    Xcel

    is managing a network of power producing plants. When a wind farm doesn’t produce(which is often), the Riverside of High Bridge gas plants step up with power. As to costs, Xcel has a program called Windsource where you pay EXTRA for costly wind power. Xcel is the largest user of wind power per kwh of any US utility. Is Mpls going to put wind turbines in all of our city parks? This whole scheme is madness.

  11. Submitted by Connie Sullivan on 07/30/2013 - 05:22 pm.

    Could someone link us to the state law that ostensibly requires Minneapolis to hold a public referendum before it can even officially consider the issue of municipalizing our gas and/or electric utilities?

    Because if state law does NOT require it, a referendum seems terribly dangerous: first, any Minneapolis negociating strength is reduced if the public says “No” to a ballot question.

    A “No” vote is entirely possible. Consider that every single user of Xcel’s electricity got a letter from the utility last week that alarmed even skeptics about the corporation’s sincerity. That’s powerful lobbying. Also, consider that the average voter, not all of whom will distinguish between a “Yes” vote that simply says “Study this question about municipalization!” and one that says “Municipalize our electric an gas utilities.” It’s not only a question of having that detailed report available, it’s whether what’s at stake is at all clear to the electorate.

    • Submitted by Jon Kingstad on 07/30/2013 - 08:24 pm.

      Minnesota Statutes secs. 216B.46

      is one statute which applies:

      “Any municipality which desires to acquire the property of a public utility as authorized under the provisions of section 216B.45 may determine to do so by resolution of the governing body of the municipality taken after a public hearing of which at least 30 days’ published notice shall be given as determined by the governing body. The determination shall become effective when ratified by a majority of the qualified electors voting on the question at a special election to be held for that purpose, not less than 60 nor more than 120 days after the resolution of the governing body of the municipality.”

      Of course, nothing speaks to people more loudly than a promise of a rate decrease. The distribution system in Minneapolis has to be among Excel’s oldest and therefore most depreciated assets. The depreciated original cost would be the basis for the acquisition.

      • Submitted by Adam Miller on 07/31/2013 - 12:05 pm.

        That doesn’t seem to require a referendum first

        But rather one after the city counsel has already voted to acquire the property.

  12. Submitted by jody rooney on 07/30/2013 - 06:10 pm.

    Mr. Doan I have worked in both sectors and private sector

    efficiency is also an oxymoron. Now granted I worked in a government sector that had to justify it’s expenditure and I worked for a business that could make multimillion dollar mistakes and still be competitive and extremely profitable because it was privately held.

    Poor leadership and poor focus in any organization results in poor performance. How long was the last CEO at 3 M?

    First we aren’t talking about a pure business here. Public utilities are a highly regulated industry because they have in general geographic exclusivity not unlike a municipality. Their rates are often determined by the infrastructure in place so duplicated infrastructure is sometimes the case. They justify their expenditures on pay back period not return on investment or profit. There is no open competition for electric delivery to Minneapolis it is a monopoly.

    Governments generally do well at things where markets can not be made and all beneficiaries are likely – or can make purchases. Minneapolis has tremendous buying power but now the citizens are in the position of price takers. There is no competition.

    If the City owns the delivery system it can compete for best prices and mix from the grid.

  13. Submitted by craig furguson on 07/31/2013 - 06:43 am.

    The City does not have a great track record

    They used to own HCMC, the Jail, the workhouse and the library. All bailed out by Hennepin County. The Minneapolis police and fire pensions were merged with the state system. Then you had the Target Center and Block E. I think that Minneapolis owning an electric utility is a bad idea. They’d be in the hole after the first high wind that came through.

  14. Submitted by Connie Sullivan on 07/31/2013 - 10:42 am.

    The state statute so helpfully provided here seems to indicate that the Minneapolis City Council has to pass a resolution–following public hearings on that question–stating that it is going to municipalize the electric and/or gas utility, before it holds a referendum on that resolution, in a special election.

    Minneapolis seems to be going at the referendum at the wrong time: too soon. You don’t have a referendum that means anything simply to authorize looking into something!

    City Council should just imagine themselves as elected representatives, and go about their business studying the matter at hand. When they make up their minds, is when we should vote on it.

    By then, there should be a whole lot more information available to the voting public.

  15. Submitted by Eric Ferguson on 07/31/2013 - 02:46 pm.

    Go for the referendum

    There are two separate questions. Only one is whether this is a good idea. The other is whether the city council should decide the issue on its merits. The referendum would merely authorize the city council to municipalize, not order it to do so. It seems like voting no is saying we can’t even talk about it. I think I’d be against if I had to decide on the underlying issue right now, but I sure want it properly considered.

  16. Submitted by Tom Clark on 08/01/2013 - 08:04 am.

    City owned utilities have a decent track record

    in over 200 other cities, so it can be done. But I’d want to look at how the current electric grid matches up with existing city boundaries, and where major distribution infrastructure is located in order not to get stuck with extra costs. For now this sounds more like a bargaining tactic than a serious proposal.

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