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, services are provided at cost, and all revenue is invested in the in the utility and the community. All of Nebraska runs on public power, and there are 136 municipal electric utilities in Iowa, 125 in Minnesota, and more than 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 could move toward energy independence 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, conducting 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, Alliant Energy just reported a 50% increase in profits for the fourth quarter of 2017 and a 130% return to shareholders over the past five years.
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.
For the same reason there haven’t been very many new electric utilities of any kind around the country in the past half century: most electric utilities and territories were created and defined in the late 1800s and first half of the 1900s (except, of course, for consolidation, which has allowed investor-owned utilities to become larger and larger monopolies, with no competitive pressure).
Iowa has 136 municipal electric utilities, so a lot of cities already have public power and have had it for a long time. But those cities that have investor-owned utilities are often locked into franchise agreements that limit the ability to apply 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 to successfully 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. One example is City of Winter Park, Florida. After ten years, the utility reports lower-than-average rates, improved reliability, and superior storm response. The community has also decided to spend $3.5–$4 million per year to bury overhead lines, which is contributing to improved reliability.
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 what communities would need to address to be better prepared for such applications in the future. These aspects included: infrastructure valuation methodology; emphasis on the importance of clean energy; and clarity of community motivations and benefit. The NewGen team studied this ruling and followed the IUB guidelines as closely as possible in conducting Decorah’s 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 Decorah’s process from the start to ensure we are positioned to succeed. We recommend that if a referendum vote is positive, the City of Decorah engage Ms. Tipton as lead counsel on the IUB application process (and continue to work with NewGen on technical consulting).
Decorah’s feasibility study used the assumption that contractors would conduct operations because that model 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 the utility will certainly operate in the manner providing the highest level of reliability. If a neighboring utility is contracted to manage grid services for a period of time, they would need to add staff, and it is likely they would add local staff. Conversely, it is also true that while Alliant has a local operations center, the majority of their employees do not actually live in Decorah, but commute. Either way, qualified local personnel will manage the local grid.
Yes. Reliability rates for municipal electric utilities (MEUs) in Iowa—and nationwide—are robust, and on average exceed those of investor-owned utilities. We have tremendous confidence in the capacity of the Decorah community and City to run a professional utility that is on par with our peer Iowa communities.
Further, it’s important to note that reliability is a product of day-to-day operations, grid resistance to major events, and recovery from major events. According to experts from the national and Iowa associations of municipal utilities and directors of other Iowa MEUs, one of the main reasons MEUs are so reliable is because their only motivation is serving the local community. They have no competing demands for resources from investors needing returns, or executives needing high company share prices. So they are free to invest in grid resilience such as undergrounding, which many Iowa MEUs have achieved at levels much higher than investor-owned utilities.
When it comes to response to major events, 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, and 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.
Much of this explanation of mutual aid was provided by Bob Haug, retired executive director of the Iowa Association of Municipal Utilities. Mr. Haug has more than 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 (IUB) sets a significantly higher purchase price than NewGen feasibility study assumes, the City could reevaluate if it wants to continue with municipalization. Or, if the decision of the IUB is in Decorah’s favor, but Alliant appeals to the courts, the City could withdraw from the process (or conversely, if the IUB decision favors Alliant, the City could decide whether or not to appeal to the courts).
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.
There is no application fee or set costs for applying to the IUB, so no one knows the exact cost. Estimates from similar projects suggest that the City’s costs might be up to $500,000 or more. The new municipal utility would reimburse the City of Decorah for these expenses from the projected $5 million per year in savings. There is a risk that the IUB could turn down the application, but experts suggest that this would likely be known well before most of the funds were spent.
Local citizens will control the municipal electric utility, most likely through an appointed 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 more than 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 very likely continue to work for Alliant if they choose. Another option could be to work with the municipal electric utility, which will hire an experienced crew.
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 revenue bonds would be issued by the municipal utility board and not the City, and the revenues from the municipal electric utility would pay the interest and principal on the bonds. This is standard practice for municipal utilities, which get very good rates on the bonds, because the revenue is essentially guaranteed thanks to the exclusive service territory and monopoly status of electric utilities.
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 (it would not), which adds a $11 million reintegration cost to continue to provide service to those customers outside the city limits. Decorah’s feasibility study assumes the buy-out of Alliant’s entire contiguous service area surrounding Decorah, ensuring continuous streamlined service.
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
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 includes a PILOT line item of 5% of revenues, a figure comparable to many other municipal electric utilities, which in Decorah’s case would be roughly $650,000/year. This would clearly be a much more robust level of support for local governmental partners and institutions than the current situation.
The Dubuque Solar Garden is a roughly 5MW utility-owned generation project, i.e. Alliant owns the solar panels and gets the profit from the generation. Alliant has been touting this solar field in much PR, but it is actually tiny compared to solar investments of many investor-owned utilities and communities. Winneshiek County businesses, residents, and institutions already own about that much solar themselves, which represents about ten times as much locally-owned solar per capita in Winneshiek County as Alliant owns for its customers. Many other municipal utilities have also invested in solar at per capita levels many times the Alliant investment.
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 formal written response or counter-proposal 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.
The NewGen 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. The NewGen engineers came to this conclusion because the Decorah substation currently serves the greater Decorah area, and it would be costly and inefficient to separate the infrastructure according to city limits.
It is absolutely untrue that the Iowa Utilities Board (IUB) has indicated an enlarged service territory would not be allowed. In the 2008 case, the IUB explicitly stated that efficiency of service is an important factor they would consider in any such case and left the door open for future communities. We believe we have the best chance of getting municipalization approved by keeping the system intact. In the end, the IUB 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 that no current Alliant customer inside 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. All customers of a future MEU, if established, would have much more access to—and voice in—the priorities and management of the local utility (because those board members will be your friends, neighbors, and co-workers!) than any of us have now with the investor-owned utility.
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 entirely of people who live and/or work in Decorah, 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.