S. S. Trudeau

Prop E Is Not the Way to Public Power

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Sometimes I find it helpful to write things down to figure out what I really think. I've been wrestling with my thoughts on Prop E and this was the result. Posted here in case anyone else finds it helpful.

When I first learned of the Ann Arbor Public Power (A2P2) effort to municipalize the electric utility serving Ann Arbor, I was eagerly interested. Its supporters claim we can achieve "100% Renewable Energy by 2030" while also delivering cheaper, more reliable electrical service. DTE's reliability in Ann Arbor has been abysmal, their transition to renewables lackluster, and their ever-increasing rates onerous. Investor-owned utilities are a poor model, pitting investor profits against community values. Utilities are essential services and natural monopolies. They should be publicly owned and managed, removing the need to generate profits for shareholders and bringing accountability to all of us who rely on these services.

Ann Arbor Proposal E would create a board with the purpose of acquiring DTE’s assets and operating a municipally owned utility. I am voting no.

“Wait, what?” you ask. “That makes no sense, you said…”

Yeah.

My eager interest became skepticism as I learned about A2P2’s approach. “All-renewable, cheaper and more reliable” sounds too good to be true, and it is. The first claim is the most disingenuous. There is no plausible timeline, even if we had started several years ago, for a municipal utility to be up and running solely on renewable energy by 2030. Simply getting through the acquisition process, with research, financing, and litigation, will take years. Printing a promise they could never keep on their lawn signs undermined my trust in A2P2’s narrative. (Though they did quietly remove this claim from their website).

100% Renewable by 2030

The promise to aggressively transition to renewables and to invest to make the grid more reliable are both unavoidably expensive. Combined with the cost of acquiring the assets, there is no path to achieve either goal on a timeline that matters without dramatic cost increases for Ann Arbor ratepayers for at least 30 years. Claiming otherwise and not acknowledging these tradeoffs is, generously speaking, misleading.

I’ve had discussions with people who I respect on both sides of this issue. The things we all generally agree on are:

The big question is whether you believe Prop E is likely to be an effective approach to improve this situation and achieve these goals. I don't. This approach is too slow, too expensive, and with too limited an impact to be worth the long timeline and high costs.

What Prop E Does #

Prop E amends the Ann Arbor City Charter with the language starting on page three of this petition. This clause outlines the Board’s purpose and powers:

The Board shall have all the powers and duties possessed by the City to construct, acquire, expand, operate, study and maintain the utility system and to do any and all acts or things that are necessary, convenient, or desirable in order to preserve or promote an orderly, economic, and businesslike administration of the utility, including but not limited to making all contracts pertaining to utility business and acquiring property and interests in property in the name of the city for utility purposes.

What Prop E Costs #

When pressed on committing to the costs of establishing such a board, A2P2 downplayed them, claiming it would cost only a small amount of staff time. This is another disingenuous claim. Five of the board members would be elected, and running elections costs money. The board is empowered to employ an Executive Director, which is not an insignificant salary. The Board’s entire purpose is to acquire and operate a utility. If the Board does the job we are hiring them to do, the cost of the studies necessary to proceed is in the millions of dollars. The cost of the inevitable litigation will also be in the millions of dollars. Pretending otherwise is again misleading, at best.

The next phase study Council narrowly voted against was estimated to cost $1.7 million. Litigating when DTE sues the City, and if we vote to forcibly purchase DTE’s assets, would cost millions more. No separate funding source exists for these studies or the pending litigation. This money will come from the City’s general fund, which would require the City to cut other costs and services to compensate. Is this gamble worth it?

There Shall Be Funding Fights #

If this passes, in November 2027, we’d elect one Board member from each of Ann Arbor’s five wards, and City Council would appoint four members. Then the Board would determine its course of action. The most obvious next steps would be to either initiate the phase 2 study and/or seek to appoint or hire an Executive Director. Both set up the first potential funding battle with City Council.

City Council is ultimately responsible for fiscal stewardship of the City’s budget, so must allocate any funds that the Utility Board hopes to spend. How this decision gets made highlights a troubling ambiguity in the proposed Charter language, which is indicative of other concerning language likely to lead to conflict. One issue boils down to a single word: shall.

“Shall” has a specific meaning in most legal documents. In almost all cases, it means “must.” Not “may.” This ambiguity is notorious for generating expensive legal battles. This document uses “shall” in several places, most concerningly in how Board spending is approved. The Prop E draft language:

6. The Board's annual budget shall be adopted in accordance with the provisions of Chapter 8 of the Charter.

7. The Board shall recommend and the Council shall authorize the borrowing of money for the Board in accordance with the provisions of Chapter 8 of the Charter.

A layman's reading suggests that Council has the discretion to approve or reject budget allocation and borrowing requests from the Board. However, the use of shall implies an obligation for Council to approve these requests. Notably, the Traverse City city charter language, which has been cited as a model for this Prop E language, uses unambiguous language in these two contexts:

The City Commission shall approve or reject this budget, but shall not have authority to change any of its provisions; and

[T]he Board may recommend to the City Commission and the Commission may authorize the issuance and sale of revenue bonds

The Prop E drafters used this charter language as a model, yet drafted their own ordinance with these ambiguities, risking costly and divisive fights between the future board and Council if a future Council rejects the Board’s funding requests.

This isn’t the only concerning ambiguity in the draft charter amendment. Lawyers I’ve spoken with who know more than me have a much longer list of concerns and questions. These landmines in the charter text are unfortunate and avoidable. They reduce the risk of success and could unnecessarily add significant time and cost to the overall effort.

The Happy Path #

Let’s say we’re ok with squeezing other City budget priorities in the near term (or otherwise find a funding source in the millions/year), and the future Board and Council have a functional relationship that avoids the unfortunate landmines the drafters left in the charter language. What, then, is the best-case scenario?

First, we would have to beat the odds of other municipalities that have tried and failed similar efforts. Municipal takeovers fail far more often than they succeed. Boulder’s failed municipalization effort is probably the closest comparable effort to what Prop E endeavors to do. Boulder is similar to Ann Arbor in size, wealth, and values. Ultimately, Boulder balked at the $900 million ($1.3 billion in 2026 dollars) price tag, even in an era of 2-3% municipal bond interest rates.

The total cost of acquiring DTE’s assets is not clear. Estimates have ranged from $450 million (including substations) to over $1 billion. Given Boulder’s comp and other similar efforts, both successful and failed, the number is likely to be approximately $1 billion. Interest on 30-year municipal revenue bonds (the kind of bond debt we’d have to take on to pay to buy DTE’s assets) is currently around 6%. This translates into an average debt service payment of over $100/month on top of the base utility bill. Some of that will be made up in the lack of profits taken by DTE, which averages around $20-25/mo on electric bills. Even in the unlikely scenario of a $500 million price tag, rate payers will still be paying $25-30/mo higher rates (accounting for savings from profit margins) for equivalent service over the course of the bond, before we start paying for things like a higher renewable mix and reliability investments.

After spending millions on studies, we’ll have a better sense of the actual cost, but we won’t know for certain until we have a vote to purchase the assets, which is required under the Michigan Constitution. Voters will need to see this potential cost and approve it by a 60% majority. Let’s say we buck the trend and approve it. Once we do, a judge will ultimately decide the real price, and ratepayers will be on the hook to pay for it.

Boulder’s effort took 10 years. The rare successful efforts (e.g., Winter Park, FL) took around 5 years. The best-case scenario is the City spends about $10 million from our general fund on studies and lawyers (averaging $2 million/year), and we take over DTE's assets in 2031/2032, when the utility can begin operating and pass the cost of debt through to ratepayers on their electric bill (an extra $50-100/mo for 30 years).

Is this worth it?

Should You Buy Your Landlord’s House? #

A good metaphor for judging whether this is worth it: if given the opportunity, would you forcibly buy your landlord’s house? Your landlord built the house over 100 years ago, keeps making improvements, and owns it outright. Your landlord doesn’t want to sell (he makes a nice profit!), but you’ve been granted eminent domain, but will have to fight him in court. The transaction costs are high and unrefundable (a court fight in addition to traditional transaction costs). If you commit to the purchase while you have some sense of the market price, ultimately you will have to pay whatever price a judge decides is fair. The answer to this question is, of course, “it depends”!

Do you think the house will hold its value or appreciate? Is it a house that will be suitable for you to live in long term? Do you have other compelling options? Can you afford to suffer being house poor for the duration of the mortgage in order to capture future savings?

These are the questions where the case for Prop E falls apart. Energy generation and storage technology is changing rapidly, and these changes have significant implications for how we design our distribution systems. Similarly, demand is changing with shifts to work-from-home and new, energy-intensive data centers. Is DTE’s current distribution system really the house we want to live in in 30 years? Is it really where we would start if we were starting from scratch? How much of what we’d be buying is actually the grid we need, as battery technology and renewable generation technologies improve?

Utility assets, unlike homes, do not appreciate in value. They depreciate over time. Is this really something we want to take out a high-interest-rate mortgage on?

Does any of this actually help us achieve cheaper, faster, and renewable on a rapid timeline? No. It will take at least 6 years from now before we even begin providing the utility’s services, and 30 years from then before we begin to see a financial payoff for rate payers.

We do, however, have an alternative approach. The City already operates a municipal electric utility, the Sustainable Energy Utility. Because it isn't saddled with operating the legacy distribution system, it is well-placed to invest in future technologies to meet our future needs. The SEU is also operating intentionally with a just transition approach, focusing early investments on the least resourced communities in the City. The SEU’s efforts immediately make our local energy more renewable and more reliable, without saddling us with the high costs and hassles of maintaining infrastructure that is likely to become largely obsolete. We don’t have to wait! We don't have to specutively spend millions on consultants and lawyers! We’re already doing the thing!

What I Hope Happens If It Passes #

Ann Arbor voters have a history of voting for “too good to be true” charter amendments so I expect this proposal to pass. If it does, my sincere hope is that the newly seated Board works collaboratively with Council and the City administration by setting policies to smooth over the many ambiguities of the Charter language. For example, setting a Board policy that City Council approves all budget requests and borrowing recommendations at its discretion, rather than as a pro forma requirement to do what the Board asks.

The Board has an unfunded mandate. I hope the board's first act is to propose a vote for a millage tax to cover the ongoing costs of studies and litigation until the effort is completed or abandoned, as well as funding their administrative team until ratepayer revenue comes in. The voters should be presented with the true costs of this effort and commit to paying for it without sacrificing other City priorities. This is likely to require around $2 million/year, a ~0.3 mill property tax increase, costing the average Ann Arbor homeowner around $75/year. This tax should be renewed every 2-4 years as a referendum on whether to continue the effort. If voters stop approving funding, the Board should recommend a new Charter amendment to dissolve the Board.

What I Would Do Differently #

I do believe the City can operate an effective utility. They already do with our water utility. If I were to design a full municipal electric utility, I would follow that structure that works very well. It is already difficult to find qualified, interested volunteers to serve on appointed boards and commissions. It is even harder to find people willing to put in the effort to run for office. The elected, hard-to-override Board proposed by Prop E is likely to lead to divisiveness and dysfunction. While the Prop E drafters claim to have used Traverse City as a model, they ignored some important clarity in Traverse City’s charter language around Council authority and rejected Traverse City’s approach of a fully appointed board.

As described above, I think the SEU is a much wiser approach for a City like Ann Arbor to expand municipal control over our energy system. It is already providing transformative value for Ann Arbor residents, and its successes will compound. It is also an effort other municipalities in the state can more easily replicate. Very few municipalities in Michigan could afford to even entertain the risk of a Prop E-style effort (note that the A2P2 executive director does not live in Ann Arbor and is not advocating a similar effort in his own city). Without stronger support from the State and/or Federal government on municipalization, Prop E is a wasted effort. It is costly and will take decades before any real improvements can be realized. It is too little, too late, for too much, when we have a compelling alternative approach.

Resources #

There are three organized groups advocating for and against Prop E:

Other resources:

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