Xcel Energy weighs exit from Minneapolis under municipal utility

If the city of Minneapolis forms a municipal electric utility, it stands to lose one of its biggest downtown employers: Xcel Energy.

Xcel CEO Ben Fowke said in an interview Thursday that the utility company would not keep its headquarters in the city if it took over distribution of electric service, a matter that is likely to go to voters in November and will receive a public hearing before the City Council on Aug. 1.

"There is not a utility in the nation that has their headquarters in a city that has municipalized," Fowke said in remarks to the Star Tribune editorial board.

The company, with a market value of $14 billion, operates in eight states. It has served Minneapolis for a century, has long maintained its headquarters on Nicollet Mall and now employs about 2,000 people downtown.

When Fowke talked about leaving, he didn't present it as a threat — as sports teams have done when demanding government subsidies — but rather as an inevitable result of a city utility takeover. But the prospect adds another wrinkle to the complex negotiations that are looming with City Hall as the company's 20-year franchise agreement with Minneapolis is set to expire at the end of 2014.

"Any municipalization is years down the road," said Council Member Cam Gordon, who is vice chairman of the Regulatory, Energy and Environment Committee. "We can't influence where anybody keeps their headquarters, and I think Minneapolis is a great place to keep their headquarters, but it's early to talk about that at this point."

Fowke said he can't understand why city officials are talking about replacing Xcel with a municipal utility without first having serious discussions with the company.

"It is kind of astonishing to me that we don't have a dialogue," he said.

The current franchise agreement gives Xcel space below or along streets, alleys and other public rights of way in exchange for millions of dollars in franchise fees paid to the city.

Minneapolis officials have shied away from a rubber-stamp renewal of the franchise agreement, instead pushing this as an opportunity to make Xcel produce more clean energy and further the city's goal of dropping greenhouse gas emissions 30 percent by 2025.

An environmental coalition, Minneapolis Energy Options, has advocated for the city to consider a municipal takeover of Xcel's assets as one possibility to accomplish that; signing a shorter franchise agreement is also in discussion.

Some Minneapolis City Council members have expressed hesitation about taking over electric service, even as they are taking early steps to put the issue on the November ballot, a process that would have to be finalized next month.

Proponents of the ballot vote say it could give the city leverage going into negotiations with Xcel in 2014 and keep the option on the table while not forcing Minneapolis to form a utility if the city later explores other alternatives.

This summer, the council approved a $250,000 study due in February to explore ways Minneapolis can meet its renewable energy goals when franchise agreements with Xcel and CenterPoint Energy, the city's natural gas provider, expire. Council President Barb Johnson and other critics questioned why the city is moving toward a referendum before the report comes back. They also raised doubts about whether the city could afford the move and handle major power disruptions, like last month's storm that knocked out power to hundreds of thousands.

Bill Breon, fundraising director for Minneapolis Energy Options, said Xcel's talk of moving suggests "their heads are pretty far down the road." He said the push for municipalization, including the ballot measure, is an effort "to put more options on the table" as the franchise agreement comes up for renewal.

Gordon, the council member, said Minneapolis is looking forward to the end of the franchise agreement because it "will offer that opportunity for us to have that dialogue and discussion. The fact that we're having a public hearing has actually gotten more interest from them to sit down and talk" about the city's energy future.

Xcel is already mobilizing against a municipal takeover, warning in a letter Monday to its 183,000 Minneapolis customers that a move could cost the city billions of dollars. Representatives of the company have also been meeting individually with council members and made presentations to neighborhood organizations.

The utility has reason to worry. Boulder, Colo., is pushing ahead with plans to replace Xcel with municipal ownership. On Wednesday, the Boulder City Council approved the first reading of an ordinance authorizing city officials to begin negotiations or condemnation proceedings to acquire Xcel's power poles, substations and other assets at a price estimated at up to $405 million. A public hearing and at least one more council vote in Boulder are scheduled for next month.

That city's voters in 2011 endorsed the idea of municipalization of the utility by a 51.8 percent margin. In a sign of how contentious municipalization efforts can be, Boulder voters could face two more ballot questions on the issue in November, including one that city officials say was carefully worded by opponents to halt the city takeover. Xcel supported that measure.

Municipal utilities are common across the United States, and Minnesota has 125 of them. But most city-owned utilities were formed decades ago. In the past decade, just 17 municipal utilities have been formed in the United States by breaking away from private utilities, all of them in such smaller cities as Winter Park, Fla., with 13,750 customers, according the American Public Power Association, a Washington, D.C.-based trade group.

Fowke said Xcel already has reduced its Minnesota greenhouse gas emissions by 22 percent compared with 2005 levels and will achieve a 30 percent reduction by 2020 as it invests in cleaner energy like wind power. Just last week, Xcel announced it would add three new wind farms in Minnesota and North Dakota. The utility has long been the nation's No. 1 wind power utility.

Xcel is the eighth-largest employer in downtown Minneapolis, according to the Downtown Council. Last year, Xcel announced it would create a Nicollet Mall corporate campus by taking space in a new nine-story Opus Development tower to be built starting next year across from its headquarters. But Laura McCarten, Xcel regional vice president, said the utility might revise its expansion plans if the municipalization pushes forward.

"We are hopeful it doesn't get to that point," she said.

dshaffer@startribune.com 612-673-7090 • @ShafferStrib

maya.rao@startribune.com 612-673-4210 • @Mrao_Strib