Ann Arbor, Michigan's 'Sustainable Energy Utility' Approved by Voters, What's Next?

When electrical engineer Johanna Mathieu first heard about Ann Arbor, Michigan's plan to create a Sustainable Energy Utility (SEU), she thought the idea was "crazy." Although investor-owned utility DTE Energy already provides power to the city, Ann Arbor wanted to establish a supplemental utility, initially focusing on installing rooftop solar and battery storage systems on homes, businesses, and other institutions throughout the city. Ultimately, the plan also envisions building microgrids that would allow these buildings to share renewable energy across property lines, supplementing the existing power lines in the city.

Mathieu, an associate professor of electrical engineering and computer science at the University of Michigan, said the idea of duplicating grid infrastructure goes against the most fundamental principles she teaches her students. "The first rule in an introductory grid course is don't build redundant infrastructure because it doesn't scale," Mathieu said. "This type of infrastructure should be owned and operated by a single company heavily regulated by the state or federal government."

However, Ann Arbor voters found the SEU reasonable: in the November 5 election, 79% of voters supported a ballot measure authorizing the city to establish, build, operate, and own this new utility. Officials hope to launch the SEU within two years, with the goal of increasing local clean energy generation and enhancing the community's resilience of electricity supply.

How will the SEU operate in its initial phase? Missy Stults, director of Ann Arbor's Office of Sustainability and Innovations, said the SEU will fully pay upfront for the installation of rooftop solar and battery storage systems for participating customers (homes, businesses, and institutions), and will permanently own and operate these systems, gradually recovering investment by charging customers for rooftop solar generation. When enough neighboring customers sign up for the SEU, the city hopes to build microgrids that allow them to share renewable energy. This infrastructure could also keep SEU customers powered during outages on DTE's main grid.

The SEU will also offer programs to help customers pay for energy efficiency improvements, home insulation, and electrification retrofits. Additionally, it may operate community solar projects that utilize solar generation on shared city spaces, and build networked geothermal systems to heat and cool communities without burning fossil fuels on site.

What distinguishes the SEU from a standard municipal utility—besides investing solely in local clean energy generation and decarbonization—is that it does not seek to completely replace the existing utility, but rather aims to supplement it, providing Ann Arbor residents with more energy choices. SEU customers will receive separate bills from the SEU and DTE, paying separately for the energy each supplies.

As the SEU adds more local clean energy, the community's demand for DTE electricity may decrease. However, a 2023 report prepared for the city noted that the SEU is unlikely to completely replace DTE in the foreseeable future. Stults said in an email that models show the SEU could potentially provide more than 75% of the community's total energy needs in the future, but this outcome is "unlikely to happen for a very, very long time because we would need nearly the entire city to sign up to reach that threshold."

Mathieu no longer thinks the SEU is a crazy idea, and she is now working with the city as a researcher. She said that while the SEU may not be the most technically elegant model of energy infrastructure, it is the city's best option for rapidly increasing clean energy generation. Other paths, such as getting the existing utility to accelerate its clean energy transition or municipalizing its infrastructure, are not realistic. "I've explained to people: 'This is the fifth-best solution, but the first through fourth options are not feasible for various reasons,'" Mathieu said. "The fifth one works, so let's do it."

Seeking more control

The passage of the SEU ballot measure is a pivotal moment in Ann Arbor's years-long effort to gain more control over its electricity sources. The city's climate goals include using 100% renewable energy citywide by 2030.

Some community members had pushed for the city to acquire and take over the existing utility infrastructure through municipalization, but that could take years and potentially cost Ann Arbor over $1 billion. Municipalization efforts often face strong opposition from existing utilities, although they can give communities leverage to negotiate concessions from utilities, such as lower rates or clean energy commitments.

Others in Ann Arbor advocated for Michigan to allow local governments to participate in community choice aggregation, which would allow cities to purchase renewable energy on behalf of residents while the existing utility continues to manage billing and distribution operations. State legislators have not yet passed such laws, which could face "strong opposition" from existing utilities, according to a FAQ document produced by the city.

In 2021, "the idea came up: 'Can we create a supplemental utility that isn't focused on taking over?'" Stults said. "Because honestly... the goal isn't to own the system, it's to produce clean, reliable, affordable power."

Stults assembled a small expert advisory working group, which determined that the SEU is technically and economically feasible and complies with Michigan law.

In some ways, Ann Arbor is following in the footsteps of Delaware and Washington, D.C., which have had versions of SEUs for years, but Stults said these differ from Ann Arbor's plan. For example, Delaware's SEU is a nonprofit that offers numerous programs to help homes, businesses, nonprofits, and farmers access renewable energy and make energy efficiency upgrades, but it does not operate microgrids, according to John Byrne, president of the Renewable Energy and Environment Foundation, who created the model for Delaware's SEU.

How to launch the SEU

Creating a new utility requires startup costs, such as hiring a director and establishing a billing system, Stults said. To avoid passing these costs on to a few initial customers, the city will wait until the waiting list of potential subscribers reaches a demand of 20 megawatts per year before launching the SEU.

Reaching the 20-megawatt threshold could be equivalent to one or two large institutional partners or a thousand individual residents, Stults said. The city has been in talks with the public school system and other institutions about joining the SEU, and she expects a significant number of institutions to join.

However, the situation would change if Ann Arbor receives grant funding rather than fully funding the SEU through debt. Stults said that with grants, the SEU would need less demand to guarantee low rates for initial subscribers. She is also in discussions with venture capitalists about investing in the SEU, and the city is budgeting $250,000 to $300,000 from existing funds to hire a director for the new utility.

The city began promoting the SEU waiting list in October, and as of December 4 it had more than 650 names, Stults said, but she doesn't yet know the exact demand this represents or whether these are individual homes, businesses, or institutions. Information collection may begin in 2025.

According to the city, the SEU's final electricity rates will be "largely influenced" by the number of sign-ups and the financing method. Stults said the SEU may always be able to offer customers lower rates than DTE, partly because the SEU does not need to generate profits for shareholders and, given the city's AAA municipal credit rating, can access capital at low interest rates.

Customers can join or leave the SEU at any time, but if they leave, the city will remove the infrastructure it owns from that building, Stults said. The cost of removing such infrastructure, as well as equipment depreciation and replacement costs, will be factored into rates.

The SEU's reliance on public support is why the city put it on the November 5 ballot, even though it could have moved forward with the plan without voter approval. "Starting your own utility, even a supplemental, opt-in utility, is a big deal," Stults said. "It's the best way we could think of to confirm that the public is genuinely interested in this, even those who would never subscribe. Do they want more choices in the system?"

Stults said the SEU has not faced any organized opposition, although she has encountered misconceptions about what it is and is not. Residents who support completely replacing DTE with a municipal electric utility see the SEU as a step in the right direction but insufficient to address the urgency of climate change. "The SEU is not enough to achieve the city's 2030 renewable energy goals, nor to address our chronically unreliable grid," Greg Woodring, chair of Ann Arbor for Public Power, said in a statement.

The key to the SEU's long-term success is that community members feel they have a stake in its development, said Byrne, who worked on Delaware's SEU. "The question is, if you're inside the government, is it really the community governing, or is it the bureaucracy governing?" he asked. He suggested Ann Arbor "keep this entity close to the community."

DTE Energy, the investor-owned utility serving Ann Arbor, said in a statement to Smart Cities Dive that it is "committed to supporting the City of Ann Arbor's clean energy goals." DTE compared the SEU to its MIGreenPower program, through which customers can pay to support clean energy. "When combined with the clean energy investments in DTE's plan, these voluntary, tariff-based programs help accelerate economy-wide decarbonization while maintaining reliability and affordability," DTE said.

A model for other cities?

Could Ann Arbor's version of the SEU work in other U.S. cities? "From an engineering standpoint? From a social, economic standpoint? Absolutely," Mathieu said. "From a legal and regulatory standpoint, I think it depends on the laws of that state or jurisdiction." But she added, "We can do it in one city, learn a lot, and then see if it makes sense elsewhere. I don't think there's much to lose by trying."

One challenge is convincing those reviewing federal funding applications that this is an idea worth betting on, Mathieu said. "When our applications are reviewed by other engineers, they don't think this way, and they say 'No, that's crazy,'" she said. "If we can overcome the barrier of people thinking 'things have always been this way, so they should always be this way,' we can move faster."

Byrne explained that these existing "rules" for maintaining grid stability are rooted in its traditional orientation around large central power plants, but communities can reconsider these standards and instead adopt a new paradigm. "If you want renewables to grow faster, don't build on the same model that got you into the current predicament, which is centralized fossil fuel and nuclear plants and very expensive, large-scale grids," he said. "Try to develop alternative infrastructure."