Municipal Power, SEU or DTE? Which Option Can Get Ann Arbor to Carbon Neutrality Fastest?

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A majority of Ann Arbor voters made it clear at the ballot box in 2022 that they want the city to be sustainably powered by the end of this decade. Seventy-one percent of Ann Arbor’s voters voted in favor of the measure, according to the Washtenaw County Clerk.

The city’s power utility, Detroit Thomas Edison (DTE Energy), has also pledged to going green by the middle of this century, two decades past Ann Arbor’s target. So, what is the solution to this one score gap in scheduling? Ann Arbor for Public Power, a local group of citizens, said that after concluding that DTE Energy wasn’t decarbonizing fast enough, they came up with a new solution: municipalization.

“We mostly formed out of looking at the results of the A2ZERO plan, looking at its goals and being very excited by the 2030 carbon neutrality date. However, as we dug into it more and more we came away with the conclusion that there wasn’t a realistic path to reach 100 percent renewable [energy] in Ann Arbor so long as DTE was our power provider,” Ann Arbor for Public Power President Greg Woodring said.

Municipalization essentially means that the city government would take over the power lines, transformers and any power production facilities within city limits and establish its own, government-run power company with the voters of Ann Arbor effectively owning it. But doing that requires a lengthy court process to establish the value of all of those assets and the city would have to reimburse DTE Energy for the value of those assets and some future profits that they would have expected if the municipalization hadn’t happened.

“Municipalization means that a community purchases the distribution system of the electric company at today’s market value. These costs could be very significant,” Pete Ternes, of DTE Energy Communications External Affairs, said in an email. “This does not include the added cost of buying or generating electricity for customers or the ongoing costs of running and staffing the system once purchased. The community also must factor in costs for ongoing grid modernization investments, grid security and reliability.”

DTE Energy has already made some substantial progress in ending fossil fuel generation of power. About 32 percent of the power DTE Energy produces is already from sustainable sources, according to the utility. They will stop using coal by 2032 and they are aggressively pursuing the introduction of wind, solar and battery storage arrangements. Natural gas is a big part of DTE Energy’s plan to lower its overall carbon emissions as it transitions to wind and solar and phases out its coal plants.

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“Between DTE’s wind and solar projects and local participation in MIGreenPower, we’re already 30 percent of the way toward Ann Arbor’s carbon reduction goals. In other words, 30 percent of the energy Ann Arbor receives can be attributed to renewable resources,” Ternes said. “More than 10,000 residential customers in Washtenaw County are enrolled in our MIGreenPower program as are the University of Michigan, Washtenaw Community College and the Ann Arbor Public School system and numerous local businesses.”

Some residents and elected officials have had a frosty relationship with DTE Energy at times, due largely to multi-day power outages.

One of the most memorable outages in recent memory was an ice storm last February, which cut power for days across much of the region. DTE Energy did say that it deferred some tree trimming, maintenance and overtime in 2021 during a year-end earnings presentation last February, but DTE Energy has denied accusations from some municipalization advocates that the company has underinvested in infrastructure.

Ternes wrote, “DTE held back spending on things like lawn mowing. parking lot paving and underground pedestal checks usually done by student interns, a program that was also temporarily curtailed. That said, over the past five years, DTE has invested more than $5 billion in its electric grid and the company will invest an additional $9 billion over the next five years as part of its plan to improve reliability. With this investment, the Company will accelerate its four-point plan already being executed, focusing on work that delivers the most reliability improvements for customers: trimming trees, updating existing infrastructure, rebuilding significant portions of the grid, and accelerating the transition to a smart grid.”

Justin Schott, a lecturer in climate, energy and environmental justice subjects at the University of Michigan, and Project Manager of the U of M’s Energy Equity Project said that deferring a bit of maintenance on trees has demonstrated the culture of the utility in the face of having little to no competition in its area.

“I think DTE is going to take many, many, many decades longer than the City would like. I think its carbon commitment is baseless given its investments in natural gas” and a lot of its projections are based on carbon capture, which Schott called “pie in the sky technologies, which most community advocates would call false solutions. I don’t think there is any credibility in its climate pledge. We certainly haven’t seen that in its development. It is way behind on solar, has opposed community solar in a range of contexts, so I think if Ann Arbor is looking at the actual emissions that are likely, DTE is focused on natural gas expansion, and it absolutely makes sense that if Ann Arbor wants to be a leader in this, it has multiple reasons to do this” including expanding access to clean power to low income people.

The Energy Information Agency, the statistical arm of the federal Department of Energy, most Americans get their power from regional semi-monopolies owned by Wall Street investors. Most of the nearly 2,000 public power utilities around the country were established around the turn of the last century to service specific cities and downs, with only a fraction residents, either for geographic reasons or just because that community took it upon themselves to introduce electricity back when it was a new technology.

Within Michigan, the Citizens Utility Board of Michigan, a non-profit that advocates for the environment and alternatives to investor-owned regional utility companies. Great Lakes Energy Coop is the largest with over 100,000 customers and the Lansing Board of Waer and Light serves nearly 100,000 people, but most are much smaller.

This includes nearby Chelsea, where City Manager Martin Colburn said that while taking on the role of a power utility “is a huge responsibility” for a city to take on, in practice “the people who do think about it think very highly about the Chelsea Electric Company. The fact of the matter is we have less time down when things do occur, our crews are on it on the spot, and things are returned to being operational as soon as possible.”

Mayor Chris Taylor has made the A2ZERO push to create a city powered entirely from sustainable sources a major corner stone of his administration and emphasized that the city is unsatisfied by reliability issues, communication between the community and the utility, and the pace of decarbonization.

Taylor said that the city is in the process of exploring the possibility of establishing its own utility but emphasized that it is very much early days.

“There’s no question that our current electric utility does not meet the community’s aspirations. There’s no question that we’d be far better off if people’s electric bills went to the purchase of clean power and the provision of high quality distribution infrastructure, instead of lobbyists or dividends or deferred maintenance,” Taylor said.

But when it comes to actually establishing a municipal power company, Taylor said “it is conceptually simple, but operationally incredibly complex with many unknowns. The unknowns broadly include what it would take to bring existing DTE infrastructure to conditions that meet current and future community needs. The cost of that process is unknown and likely considerable.”

Michigan is the eleventh most expensive state, on average, for household energy prices, according to the CUB. Michiganders pay an average of $2,055 per year across the state in 2020, according to the Michigan CUB, although that does include other utilities than just DTE Energy. The average Michigan resident was paying $12.93 per kilowatt hour last year according to the EIA. That’s nearly $1 per kilowatt hour more than the $12.36 national average.

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According to MPSC data DTE Energy’s residential customers ranged from 21.63 cents to kWh to 19.75 cents to 18.82 per kWh. Its small commercial customers averaged 16.71 cents to 15.47 cents per kWh; large commercial businesses ranged 14.13 cents to 14.777 cents per kWh and industrial businesses ranged from 8.36 cents to 10.01 cents per kWh. According to Schott, this is because the price on a typical bill drops as usage increases because monthly fixed fees are distributed across more kWh.

If you compare that to Southeast Michigan’s other major investor owned utility, Consumers Energy, the MPSC found that their residential customers are averaging 21.06 cents per kWh for 250 kWh per month to 18.40 cents per kWh for 1,000 kWh; its small commercial businesses hovering around 1,000 kWh per month average 17.37 cents per kWh to 15.95 per kWh for over 5,000 kWh; its large commercial customers are averaging 16.95 cents per kWh for 21,600 kWh per month to 13.65 cents for over 36,000 kWh; and its industrial customers are paying 11.78 cents for under 1,000 kWh per month to 9.90 cents for over 50,000 kWh.

“Households that use more energy during peak hours – typically people with more sedentary schedules – will pay more than households that use more energy off peak. Without knowing the distribution of seasonal and hourly usage, MPSC’s presentation, I believe, is an estimate based on all energy consumed,” Schott explained. “Seniors are eligible for a $4.25 (50%) credit and low-income customers are eligible to have the $8.50 monthly charge waived (Residential Income Assistance Credit), but most are not signed up for that. Lastly, residents of Detroit only pay an additional 5% ‘utility users tax’ that no other Michiganders do.”

It is currently impossible to know exactly how much more the average Ann Arborite would have to pay if municipalization happens because of the unknowns.

DTE Energy has ranked 69 percent on the American Consumer Satisfaction Index in 2022 and 72 percent in 2023. Although DTE Energy ranked in the top three satisfaction rankings amongst J.D. Power & Associate’s 2022 Midwest utility survey, bellow only Ameren Missouri and MidAmerican Energy.

How could Ann Arbor establish Municipal Power if it chose to?

This process is rarely used and is expected to take years, if indeed, it is successful at all. It has been over 100 years since this was last done in Michigan according to Ann Arbor’s Sustainability and Innovations Director Missy Stults. The problem is that even if the city does establish its own municipal power company, it won’t be online fast enough to meet the 2030 A2ZERO goal, Stults said.

“We simply don’t have time to achieve the 2030 goal, so I don’t view it as a 2030 Zero action. One, you have to still do the asset action, which takes a year to 18 months, and then you have to do court proceedings, and those are going to take years – perhaps a decade…before you even reach a settlement and then you have to go to a vote of the people to even take action. So you’re 10 years down the road at best, that’s a fast place,” Stults said. “And then you have just taken over an asset, you still haven’t changed a single electron on that grid, nor have you made an investment in upgrading that asset yet.”

Stults said that she is not against municipalization, but the process should not be seen as a green silver bullet; but rather, one of many options. While some cities do successfully complete this years-long process, it can also end in a deferred agreement or failure, as happened to an attempt to municipalize in Boulder in 2020. That process was complicated partially by the economic shocks of Covid-19, and related economic shocks. Recent efforts to municipalize in Minneapolis ultimately resulted in a new deal between the city and its two utility providers to accelerate decarbonization.

“The claims that there’s no way we can do this cost effectively tend to be overblown,” Schott said. If Ann Arbor’s voters supported the city at the ballot box to pursue municipalization “the way this would work is that the judge would condemn the assets…and then come up with a value for those. Even in cases where those have been overvalued, the places where we’ve seen municipalization have worked in recent years, have all incurred satisfaction from those communities.”

Overall, Schott said that communities with their own, city-owned power company have rates 10 to 15 percent lower than communities served by regional utilities owned by Wall Street investors like DTE Energy. But because the costs of paying DTE Energy for its assets, going through years of court cases and then having to invest in solar panels, battery storage and modernized transmission lines itself makes Ann Arbor’s case more complicated.

Taylor called DTE Energy’s assessment “too simplistic” and Woodring maintains that a municipally owned utility would have less to go wrong. And once something does go wrong, Woodring argues, the city employees repairing the grid would innately know their smaller system better than the DTE’s regional scale, making repairs faster. Ternes maintains that the company he represents will always be more effective in overall reliability as well as costs.

“There is no doubt in my mind that Ann Arbor would have been better off if, generations ago, we had started a municipal utility. We would have control of our infrastructure, power purchase; we would have the ability to leverage distribution power generation and storage, helping residents with resiliency and reliability,” Taylor said. “The question of ‘is it practical to make that change now?’ is, in my mind, still open. Without a price, I don’t know how feasible it is. Would residents be comfortable with 50 percent increases in electricity costs or only with 5 percent increases in costs? 100 percent increases in costs? I don’t know the range because I don’t know how much a court would require us to pay to purchase existing infrastructure, improve that infrastructure to a condition that meets our aspirations, nor do I know how we as a municipal utility would be able to maintain that improved infrastructure in good and bad times.”

Sustainable Energy Utility

But this is not to say that the city does not have options. Ann Arbor is also actively pursuing the idea of establishing a Sustainable Energy Utility an alternative mechanism that could be an alternative or a complement to the process of eventual municipalization. What it would do is allow the city to purchase green solar generating products – like solar panels – and build them across the city with participants giving the city permission to put them on their roofs or other pieces of their property.

“A sustainable energy utility is something we can do quickly. It is an incremental solution, but it is both practical and affordable, and something we can do as we continue to work out considering the practicalities of starting up a municipal utility,” Taylor said.

Going the route of an SEU could also potentially lay the groundwork for an eventual transition to a municipally owned utility without committing the city to it. Taylor said that if the city does eventually do that “then the assets purchased from the SEU could be rolled into the MEU” effectively meaning the city would then eventually own the green energy infrastructure built into people’s property.

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To be clear: DTE Energy would still be Ann Arbor’s utility in this model. But it would allow the city to help residents who want to contribute to generating clean power to purchase things like rooftop solar panels, grid battery storage on their properties and even geothermal power systems, to generate electricity locally rather than transmit it over dozens or hundreds of miles from solar farms or coal or nuclear power plants.

A 2021 report from the City of Ann Arbor on the viability of the SEU found that this version of microgrid (an alternative to the traditional grid where power is harnessed and used locally – sometimes in networks as small as a few buildings and sometimes in networks as big as a city) is not only possible, but its local and dispersed energy production and sharing that over time “could grow to support additional initiatives such as district geothermal systems or other programs and initiatives desired by the community.”

The executive summary went on to say that since this alternative would run in parallel with the existing power production and distribution model “at least at first, residents would receive services through the SEU but could still choose to be connected to the traditional grid. By providing a parallel energy service rather than trying to force the investor owned utility (IOU) to sell us their outmoded, aging infrastructure, the SEU avoids years of significant expenses associated with litigation” and potentially meet the 2030 carbon neutrality goal that seven in ten Ann Arbor voters went for last year. They added “Every dollar we don’t spend in litigation or to by the IOU’s old, failing infrastructure is money we can spend on new infrastructure…dollars we can use to immediately provide reliable, clean and affordable power to everyone.”

DTE Energy did not respond to a question about its stance on the adaptation of an SEU.

Stults said that it is possible for the city to be better over time at getting outages fixed, but it would require a years long learning curve to get the new utility up to the standard DTE Energy currently provides, before they even got to the point where they could exceed their reliability and repair response times.

“The SEU has the advantage of immediacy and cost and the disadvantage of incrementalism,” Taylor said.

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Drew Saunders is a freelance business and environmental journalist who grew up just outside of Ann Arbor. He covers local business developments, embraces his foodie side with reviews restaurants, obsesses over Michigan's environmental state, loves movies, and feels spoiled by the music he gets to review for Ann Arbor!