Environmentalists are mobilizing. Energy executives and their lobbyists are pleading their case in private talks with Minneapolis leaders. And Xcel Energy is threatening to pull its 2,000 workers from downtown if things don’t go its way.

The debate about whether Minneapolis should spend potentially billions of dollars to take over electric and natural gas service from Xcel Energy and CenterPoint Energy will go before the public Thursday morning, in hearings that could lead to a ballot question this fall.

City leaders and an environmental coalition, Minneapolis Energy Options, are considering taking over the utilities so they can more aggressively pursue environmentally friendly initiatives now that city agreements with the utilities are set to expire — or at least using the threat of it as a bargaining chip to have the companies do it themselves.

But critics say the process to even consider the switch is a daunting and costly distraction that would require an uphill fight to change state law.

“I think people who are supportive of this idea of municipalization have rose-colored glasses about the challenges that exist and are not being realistic about the path to actually do it,” said Council President Barb Johnson.

But Council Member Gary Schiff said the city’s never driven a hard bargain with the utility companies.

“It’s just been a rubber-stamped, closed-door deal in the past, and so this is the first time that a campaign is rising from the grass roots to say, ‘Well, hold on before you just renew that deal for another 20 years, why don’t you actually negotiate for some improvements in the deal?’” he said.

Schiff is among the council members who want to use the expiration of 20-year franchise agreements with Xcel and CenterPoint at the end of 2014 as a chance to explore other alternatives that would reduce greenhouse gas and improve energy efficiency. The current agreements are bound by state law that restricts them from including little more than basic financial and geographical details about the public rights of way the city is granting to the utilities in exchange for millions in fees.

The city maintains that municipal utilities are more reliable, offer lower rates, and can do more to fight climate change. Minneapolis says it intends only to form a municipal utility if it can provide energy at least as reliably as Xcel, without raising electricity rates above the trend for Xcel.

Ballot issue?

The hearings are the next step toward putting the question on the November ballot seeking citizen approval to authorize the city to create a utility, though the city would still not be required to form one if it passed. Thursday’s discussion will also likely focus on Xcel and electric service; CenterPoint recently reached an agreement with Minneapolis Energy Options to collaborate on energy goals. One wrinkle is that the 13-member City Council could have many new faces next year, as four are not running for re-election and three more are locked in competitive campaigns in which their opponents have won the endorsement of the DFL. Minneapolis will also have a new mayor, and none of the candidates competing to replace Mayor R.T. Rybak have outright voiced support for taking over the utility. Most have expressed concerns, and this week candidate Mark Andrew described putting the question on the ballot as “reckless.”

Unless it can convince the Legislature to make changes, Minneapolis is hamstrung by Minnesota laws that limit what a city can put in its franchise agreements to only the basics — not broader renewable energy goals. And current regulations make it expensive for municipal takeovers: a 1970s statute requires the Public Utilities Commission to factor the utility’s lost revenues into the compensation a city would have to provide. The PUC steps in if the city and utility cannot agree on the price.

While towns around the state have municipal utilities, none were created after that statute was adopted, “so there’s really no precedent,” said Janet Gonzalez, regulatory analysis division manager for the commission.

Several bills Minneapolis has advocated to loosen the rules around utility franchise agreements have languished in the Minnesota Legislature this year.

One measure would remove the provision in a statute requiring that the state’s Public Utilities Commission factor in lost revenue to a utility when determining how much a city should pay a utility for its assets in a municipal takeover. Without the change, the cost of municipalization would be more expensive.

A second bill would expand what cities can demand of utilities in their franchise agreements. Among other things, it would include a written commitment by utilities to carry out energy-efficiency measures, with energy reductions reflected in lowered electric bills, and mandate the utility to submit regular reports on the reliability of its system and how energy use within the city relates to state energy requirements. It would also require the agreement to include the utility’s procedures on connecting to alternative energy sources.

Xcel lobbyist Rick Evans said the company would fight the proposals if they gained momentum in the Legislature.

The first would allow Minneapolis to purchase assets it didn’t pay for, said Evans, the company’s director of regional government affairs. He said the second would allow cities to negotiate different renewable energy standards even though the utility serves hundreds of cities across the state and doesn’t have a separate system that would allow for the complexities and expense that would come with something more appropriate for state regulators. Several longtime employees and executives of Xcel have registered as lobbyists for the utility in recent months, as they reach out to neighborhood organizations and City Council members to make their case. The company has also retained Rich Forschler of Faegre Baker Daniels as a lobbyist on the issue.

Johnson said those bills will never go anywhere, adding, “Xcel is a powerful force at the Legislature.”