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BY NINA IGNACZAK

A report released Thursday outlines a path toward reducing Ann Arbor’s residents’ and businesses’ reliance on DTE Energy that its authors say is legally, technically, and financially feasible and could start immediately.

Frequent power outages over the summer and frustration over DTE’s slow service restoration spurred talk among Ann Arbor officials about the potential for creating a city-owned, nonprofit energy utility that would give the city more control over its energy destiny — including rates and access to renewable energy..

But creating a traditional municipal utility, while allowed under Michigan law, would require the city to purchase infrastructure from its current investor-owned utility (DTE Energy), and would likely be fraught with lengthy litigation and expense.

Ann Arbor’s A2Zero plan, adopted in June 2020, aims to achieve carbon neutrality by 2030, in part through a Community Choice Aggregation program. A CCA would enable the city to negotiate power purchase agreements from clean energy providers on behalf of its residents. Michigan law does not currently allow for such a CCA district; city officials are lobbying state lawmakers to get such legislation adopted.

But the authors of this week’s report say they’ve identified an alternative that is legally feasible under state law: a “Sustainable Energy Utility” (SEU). Written by Ann Arbor Office of Sustainability and Innovations staff and technical advisors, the proposal explores creating a municipal-owned utility that operates as an additional utility provider — not replacing DTE Energy but instead layering on top of it.

The report was inspired by models in Delaware and Washington, D.C. No such models exist in Michigan, but the report suggests Ann Arbor would only need to pass a city ordinance to establish an SEU.

“We released this report to be part of the conversation about what's possible as we think about meeting our goals around local decarbonization, equity, reliable power, and 100% renewable power,” Missy Stults, sustainability manager for the City of Ann Arbor, told Michigan Climate News. “The basic narrative is that historically it has been kind of an all-or-nothing proposition when thinking about owning a utility. But there are so many tools that we have now that we didn't have five or 10 years ago that can make [an SEU] competitive.”

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According to the report, the City of Ann Arbor could form and administer the SEU to offer participating residents an opportunity to supplement their DTE Energy service with clean energy and energy efficiency projects built by the SEU. Projects could range from rooftop and community solar to heat pumps and neighborhood microgrids that collectively share and store electricity across property lines.

The SEU would own the infrastructure and front the capital for projects. Over time, it could recover those costs by offering customers on-bill financing.

On-bill financing allows a utility to front costs for a property owner’s renewable energy improvements, such as solar panels, which the customer then repays on their utility bill. The loan for infrastructure remains with the building; if it is sold, the new owner assumes payments.

Because they lack a profit motive, community-owned utilities can charge lower rates than a traditional bank and offer longer repayment terms.

Henry Love, one of the study’s authors and director of Midwest market development and strategy at the sustainable energy nonprofit Elevate, told Michigan Climate News that the plan represents a path towards achieving the city’s 2030 carbon neutrality goal. Still, the Ann Arbor resident cautioned, an SEU would not remove DTE Energy from the equation.

“It’s not meant to replace DTE right now fully,” he said. “You don't want to make existing infrastructure obsolete necessarily. This plan enables the city to provide electricity to homeowners and businesses and build a parallel infrastructure and redundancy for the grid. It’s making sure people have some backup power resiliency.”

Love said that the SEU could help reduce load and stress on DTE’s grid as Ann Arbor pursues electrification of vehicles, home heating, and appliances across the city — all of which will increase electricity demands.

The next step will determine the extent of demand for an SEU within the city. Stults said her office would begin by holding public meetings and presenting the report to the Ann Arbor City Council to secure a council resolution in support of continued exploration of the concept.

The city will then conduct a rate analysis to determine costs while opening a waitlist to gauge customer interest. Those on the waitlist would be asked to share their cost tolerances for participating in the SEU. If all goes well, Stults hopes an SEU could be launched sometime in 2022.

“It's a matter of making sure that this all fits within the ability of the city to launch and fund this and have a clear business model because it isn't a program that can lose money,” Love said. “As a municipal-owned utility, it doesn't have the investor profit motive, but it still has to be solvent at the end of the day.”

Stults said the city does not yet know exactly what the SEU might cost participants. “We want to know who would be interested at cost parity, who would be interested if this is cheaper than current rates, and who would be interested [if it costs more],” she said. Then the city would need to determine a governance structure and pass an ordinance creating the SEU.

The plan does not preclude the potential for the city to form a traditional municipal utility or pursue a CCA, but it could dovetail with those strategies, Love said. And both the CCA and the SEU concept could pave the way for other communities in Michigan to adopt similar strategies.

“This might be an innovative approach for a lot of communities in that they can start building in the resiliency and redundancy that's hard for a massive utility with existing grid investments to develop,” Love said. “If we want to achieve a future with 100% clean energy, then the amount of electricity that's needed on the existing grid will increase immensely. And it's not built for that right now. So how do we hedge against that with more localized infrastructure and help the utility defray some of the infrastructure costs that are so daunting right now.”

An SEU could also force DTE to compete for renewable energy customers, Love added. “Right now, DTE charges a premium for renewable energy,” he said. “If the city can come up with something better that's more attractive, people might forgo [DTE’s renewable energy programs] and have their solar through the city and be all behind the meter.”

DTE Energy did not respond to Michigan Climate News’ request for comment. But a DTE representative told MLive in August that it would prefer the city continue working with it instead of forming its own utility.

Stults said she does not expect investor-owned utilities like DTE Energy to feel “warm and fuzzy” about the municipal-owned SEU concept. But she pointed out that Ann Arbor is committed to 100% clean and renewable energy by 2030, while DTE’s net-zero plan targets 2050.

“It’s not going to be something that investor-owned utilities love, but I say [to them]: Give us these services — give us energy waste reduction, give us local solar that's reflective of the true price, give us on-bill financing,” she said. “Our community is asking for it, and we’re not getting it. So we need to figure out how to meet our goals.”

Update 10/15/21: The activist group Ann Arbor released a statement Friday noting that the SEU cannot achieve the A2Zero plan's goal to “Power our electrical grid with 100% renewable energy.” The statement noted that a quarter to half of buildings in the city are suited to microgrids, and community solar opportunities are limited by available open space. the group supports full municipalization. “We are in a climate crisis, this is not the time for baby steps and half measures, we need full municipalization of our grid because it achieves lower rates, more reliability, a sustainable future, and perhaps most importantly we the people will own it,” State Representative Yousef Rabhi said in the statement.

The City of Ann Arbor will hold a public hearing to discuss the SEU on Oct. 28 at 6 p.m. More information can be found here.

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