A municipal electric utility (MEU) is an electric utility owned by the city and governed by a board. It is operated like a business, but surpluses do not get distributed to investors or members. Rather, surpluses are reinvested in the utility and the community. There are 136 municipal electric utilities in Iowa, 125 in Minnesota, and over 2,000 MEUs around the country.
There are many benefits, but some of the most important ones are…
The feasibility study conducted on behalf of the Decorah community by Decorah Power and the independent consulting firm NewGen Strategies and Solutions shows that our community could save $5 million each year by owning the electrical distribution system in Decorah.
This is an opportune time, because the City’s 25-year franchise agreement with Alliant Energy is expiring in June, 2018 and Iowa code allows all municipalities the right to apply for the creation of their own municipal electric utility.
By establishing a municipal electric utility, Decorah could not only save money, but we would be energy independent as we look to a future that holds much opportunity for clean energy, microgrids, and small-scale generation. It’s a new energy world out there!
Decorah has already completed several steps of the process: forming a citizens group to pursue the opportunity on behalf of the community, hiring a qualified firm to conduct a feasibility study, doing the legal analysis of the state statutes related to creating a municipal electric utility, educating the community, and calling for a referendum to authorize the City Council to apply to the Iowa Utilities Board (IUB).
Assuming we have a vote in favor of municipalization, the remaining steps for the City are:
An investor-owned utility is a utility that is owned by its shareholders with a primary focus on earning a profit to return to the shareholders. In Iowa, we have two investor-owned, rate-regulated electric utilities, Alliant and MidAmerican, which return profits to their shareholders. For example, in 2016, Alliant Energy earned “$371.5 million, or $1.64 a share, on $3.32 billion in revenue.” (Source: Wisconsin State Journal)
The IUB consists of three members appointed by the Governor of Iowa. The mission of the Iowa Utilities Board is to regulate “utilities to ensure that reasonably priced, reliable, environmentally responsible, and safe utility services are available to all Iowans.” In other words, the IUB is charged with ensuring that all electric, natural gas, water, and telecommunication providers in Iowa adhere to reliability, safety, and environmental standards—and charge reasonable rates.
Iowa has 136 municipal electric utilities, so a lot of cities already have public power and have had it for a long time. Another reason is that cities who have investor-owned utilities are often locked into franchise agreements that limit the ability to apply for for municipalization.
Beyond these two primary reasons, the municipalization process takes a lot of dedicated people, political will, and funding. Some cities are not prepared to go through this process—and in some cases feasibility studies may show that it doesn’t make sense. Decorah is a forward-thinking community with the people and resources successfully to complete a municipalization project!
It’s important to note that municipal electric utilities are created around the country. Between 1973 and 2017, 88 new public power utilities began operating. Forty-five of these new systems formed in service areas of investor-owned utilities. Boulder, Colorado is currently in the process of forming a locally owned utility.
In 2008, five small communities (Everly, Kalona, Rolfe, Terril, and Wellman) collaborated on a feasibility study and applied simultaneously. The IUB ruled against the five communities, but in doing so clarified aspects such as infrastructure valuation methodology, emphasized the importance of clean energy and other community motivations, and in general provided a roadmap for communities to be better prepared for such applications in the future. The NewGen team studied this ruling and followed the IUB guidelines as closely as possible in conducting the feasibility study and economic analysis.
Further, one of our attorneys, Sheila Tipton of BrownWinick, a law firm in Des Moines, was involved with the 2008 case (on the winning side). Tipton also served as a Member of the Iowa Utilities Board from August, 2013 to April, 2015 and has been involved in the process from the start to ensure we are positioned to succeed.
The working plan is that our municipal electric utility will be financed through revenue bonds—not by increasing taxes.
The feasibility used the assumption to hire contractors because it is the most expensive option. NewGen wanted to ensure that even with the most expensive option the plan is feasible (and it is!). It will be up to the local electric utility board to decide how the utility is staffed when it begins operations, but it is likely the utility will need to rely on contractors in the short term while it builds internal capacity. Regardless, the utility will be staffed to provide the highest level of reliability.
Yes. All municipal electric utilities belong to Federal Emergency Management Agency (FEMA) approved mutual aid pacts through state, regional, and national organizations. These agreements have been tested and proven in the aftermath of tornadoes, ice storms, floods, fires and other emergencies. The way it works is that the affected utility makes a call to one of the designated mutual aid coordinators in their region with an initial assessment of the damage. The coordinator then takes responsibility for mobilizing crews, equipment, and materials from other municipal utilities. Responding utilities are eventually reimbursed for time and materials. In the case of a designated federal disaster, much of the cost of restoration for a municipal utility or rural electric cooperative is covered by FEMA.
For example, Winneshiek County residents may remember a line of storms that passed through northeast Iowa last July. A tornado hit McGregor at 6:15 p.m. on July 19, destroying buildings and causing the loss of power to a thousand residents and businesses. The city’s electric crew was on the job within 20 minutes and initiated mutual aid. The initial estimate for the time needed to restore power was 3 to 5 days, but thanks to rapid response of neighboring municipal utilities and rural electric cooperatives, service was restored to nearly all customers within 48 hours (some badly damaged properties were not ready to be reconnected). Crews from Cedar Falls, Waverly, Maquoketa, Bellevue as well as neighboring rural cooperatives took part in the restoration of service in McGregor. Cedar Falls Utilities also sent a manager to assist in organizing the response.
When needed, mutual aid can take place under the same terms through regional and national agreements. A Decorah municipal utility could expect support from municipal utilities in Minnesota and Wisconsin. Sometimes, damage can be so widespread, such as in ice storms that crews might need to come from some distance. A few years ago, customers throughout western Iowa lost power because of an ice storm. Many municipal utilities have most of their distribution systems underground, but even they could not provide all the help needed in the area. In that case, utility crews from as far away as Muscatine were working in northwest Iowa. More recently, when hurricane Irma hit Florida last September, line workers from Alta, Ames, Denison, Lake Park, Muscatine, Sioux Center, and Spencer were mobilized to assist with the restoration.
This explanation of mutual aid was provided by Bob Haug, retired executive director of the Iowa Association of Municipal Utilities. Mr. Haug has over 30 years of experience in the operation of municipal utilities.
Yes. The city can withdraw from the process at any time if it determines a municipal electric utility is no longer feasible. For example, if the Iowa Utilities Board sets a significantly higher purchase price than NewGen feasibility study assumes, the city could reevaluate if it wants to continue with municipalization.
Iowa has 136 municipal electric utilities. Minnesota has 125. The Midwest in general is a hub of municipalization. We are not charting an unknown path. There are lots of knowledgeable people around, and we are confident we will be able to hire an experienced executive director and other talented staff to run our locally owned electric utility. These will be great jobs in a great community!
The Decorah Power group is not doing this alone. We hired NewGen to do the feasibility study, an experienced management and consulting firm that serves the utility industry across the country. We have extremely knowledgeable legal counsel, and an additional consultant—a retired executive director of a municipal electric utility—is also serving us. We have also been in conversation with other municipal electric utilities in Iowa, and they are excited for us and have been very willing to share information and advice.
Local citizens will control the municipal electric utility, most likely through an elected board, separate from the City Council. Day-to-day management will be carried out by utility employees, including an executive director. In managing the utility, Decorah could seek all available efficiencies; for example, exploring combining a fiber utility with the electric utility, as they have done in Waverly. There could also be efficiencies gained in billing, whereby the city sends out one bill for all city services (water/sewer, telecommunications, and electricity).
Decorah serves as an operations hub for Alliant and over a dozen employees are based here. However, it does not take that many people to maintain the Decorah infrastructure alone. These employees also work in Cresco, Calmar, Elkader, Lansing and other surrounding communities served by Alliant Energy.
If Decorah forms a municipal electric utility, the same infrastructure will exist and will need to be maintained. Members of our community who work for Alliant could continue to work in Alliant’s remaining territory or, ideally, we hope they will apply to work with the municipal electric utility.
The feasibility study assumes the municipal electric utility would issue revenue bonds to finance the purchase of the electrical infrastructure and supply initial working capital. While general obligation bonds can be paid for by any source, including tax revenue, revenue bonds are paid for by the specific project being financed by the bond issue. In other words, the revenues from the municipal electric utility would pay the interest and principal on the bonds.
Often, the intention behind incumbent utility-funded studies is to deter cities from pursuing municipalization. The American Public Power Association (APPA) writes, “the community should be very skeptical if the incumbent private utility offers to provide or conduct a study at little or no cost to the city. Studies sponsored by the private utility will not produce objective results; in fact, their primary purpose is to dissuade a city from forming a new public utility.” (APPA: Public Power for Your Community, 2016)
In addition, the Alliant-funded study made some different assumptions that added cost to their total number. For example, they assumed that the municipal electric utility would only serve customers inside city limits, which adds a $11 million reintegration cost.
Further, according to NewGen consultant Dave Berg, “a $20 million estimate for infrastructure valuation and nearly $10 million for ‘startup costs are also well out of line.” (Read the full response.)
Our current electric provider charges a small fee to its customers (approximately 0.62 cents per kWh), which goes into a fund that pays for energy efficiency rebates and free energy assessments. The fund also pays for the administration and marketing of these programs. A locally-controlled municipal electric utility could set its own energy efficiency surcharge, making better use of ratepayer dollars and making a larger impact with the dollars it collects. While we don’t know what suite of programs our municipal electric utility will offer, keep in mind we have a great resource in the Winneshiek Energy District. They have provided energy planning services for all ratepayer classes and have demonstrated how those services have led to intelligent investments in energy efficiency that are saving money and energy over time.
Our locally-owned electric utility will be a non-profit entity whose purpose will be to cover its operational costs while helping Decorah residents save energy and save money.
This is one of our goals, but it will be unlikely that we can immediately purchase 100% renewable energy because of rate considerations. However, we are in a unique position. Whereas other municipal electric utilities are locked into long-term contracts with power providers whose electricity is generated in a variety of ways —mostly coal—Decorah can forge new relationships with power providers and seek a cleaner mix.
We also want our locally controlled utility to prioritize purchasing power from renewable energy facilities located within Winneshiek County. Doing so at rates that are reasonable and fair to the consumer will multiply the economic impact of local investments in renewable energy.
Our incumbent utility is placing more and more restrictions on the ability of Decorah residents to install their own renewable energy systems. A new municipal electric utility would make sure that all energy sold back to the grid would be fairly compensated. It’s premature to talk about specific terms at this point because the Board will need to work out the details. We envision them learning about net metering practices from our fellow municipal electric utilities and Rural Electric Cooperatives.
For those who install renewable energy systems, we would be encouraging storage technologies so that we can more fully utilize renewables longer during peak periods. It would also be exciting to be able to offer virtual net metering in conjunction with renewable energy projects like community solar gardens. This would allow Decorah residents unable to install their own renewable energy system at home to invest in a joint project in the community and receive billing credit for their proportional share of the electricity that the system produces.
*Net metering allows residential and commercial customers who generate their own electricity to feed electricity they do not use back into the grid. For example, if a residential customer has a PV system on the home’s rooftop, it may generate more electricity than the home uses during daylight hours. If the home is net-metered, the electricity meter will run backwards to provide a credit against what electricity is consumed at night or other periods where the home’s electricity use exceeds the system’s output. Customers are only billed for their “net” energy use. –Source: Solar Energy Industries Association
The Dubuque Solar Garden is a utility-owned generation project, i.e. Alliant owns the solar panels and gets the profit from the generation.
The Winneshiek Shared Solar project was submitted in response to an IUB request for proposals for pilot projects that would test innovative approaches to incorporating locally-owned generation in the grid. The following institutions, facilitated by Winneshiek Energy District, participated in the planning and proposal:
The project was named “Winneshiek Shared Solar” because of the obvious partnership between Winneshiek County and Decorah institutions, but also because the investments made by these institutions would have benefitted all Winneshiek County residents. Unfortunately, after nearly a year of work and discussions and meetings, Alliant never provided a clear response to the community effort, and when pressed for an answer within the IUB docket, simply stated it was “not something [IPL] wishes to pursue.”
For more details and references, see A Vision Shared, p. 23.
Since Alliant is a for-profit corporation, the company pays property taxes in Decorah to the tune of around $168,000. A municipal electric utility is a not-for-profit business, so instead of property taxes, the public utility makes a “payment in lieu of taxes” (PILOT). The NewGen study assumes that a Decorah municipal electric utility would transfer an average of $650,000 per year to the city. The city would get a nice bump in revenue!
The feasibility study includes the service territory outside city limits because the NewGen Project Team determined that it would be in the public interest for the municipal electric utility (MEU) to serve beyond the municipal boundaries of the City. We believe we have the best chance of getting municipalization approved by keeping the system intact. In the end, the Iowa Utilities Board will define the MEU service territory.
While it is true non-residents are not able to vote in a city election, it is also true no current Alliant customer in or outside of the city was previously asked to vote to choose Alliant. It is important to note that per the advice of legal counsel, Decorah Power believes that if a city utility is created and serves a significant number of out-of-town customers, those customers could and should have representation on the board.
Decorah Power is a 501(c)(4) organization, a civic organization “not organized for profit but operated exclusively for the promotion of social welfare.” (Source: IRS) Decorah Power has a twelve-person volunteer board consisting of people who call Decorah home and a number of volunteers who serve in other capacities. Decorah Power does not have any employees.
We formed Decorah Power to explore the possibility of a municipal electric utility, because we know the many benefits of public power, including local control, higher reliability, lower rates, and a stronger local economy. With the approval of the Decorah City Council, we raised private, local funds and commissioned a feasibility study from NewGen Strategies and Solutions to find out if it was worth pursuing. The NewGen feasibility study showed that it was most certainly worth pursuing. Our community could save up to $5 million per year with a public utility!
Now, our mission is to continue to educate the community on the benefits of public power and to address concerns raised about emergency response, financial impact, and other aspects of municipalization before the special election on May 1.