Title
An Ordinance to Amend Sections 2:402, 2:408, and 2:410 and to Add Section 2:413 (Rate Schedules) to Chapter 35 (Sustainable Energy Utility) of Title II (Utilities and Services) of the Code of the City of Ann Arbor
Memorandum
The Ann Arbor Sustainable Energy Utility (“A2SEU”) Director recommends adoption of the attached ordinance for two key purposes:
First, as the A2SEU has progressed toward implementation, staff has identified some language in Chapter 35 that requires minor updating to remove inconsistencies with the recently adopted A2SEU Regulations and/or to better align with language recommended by the City Attorney’s Office for use in operations. This includes updates to definitions, clarification regarding the ability of the City, or departments thereof, to provide funding to the A2SEU, and cleanup of language regarding conditions of service.
Second, the A2SEU is on track to launch pilot operations in FY27, which means it intends to begin charging rates to customers as early as July 1, 2026. The A2SEU Director is authorized to recommend rates and charges to City Council, and City Council has the authority to fix rates. This ordinance would fix rates for the first two pilot classes of A2SEU customers.
The two initial pilots for which rates are recommended today, include:
(1) Bryant Solar and Battery Storage Pilot: Solar + battery storage service to be offered to residential customers in the Bryant Neighborhood, with assets funded by grants from the Michigan Public Service Commission and Michigan Department of Labor and Economic Opportunity.
(2) Municipal Solar and Battery Storage Pilot: Solar or solar + battery storage service provided to City departments through grant-funded assets transferred to the A2SEU by the City, or departments thereof.
In late 2025, through a competitive RFP process, the A2SEU selected an expert consulting team to help develop rates. Over the past five months, City staff and these consultants have engaged in a comprehensive process to develop rates for the A2SEU’s first pilot services.
The team began by following standard principles, practices, and formulas for cost-of-service based ratemaking. Not unexpectedly, we found that fully recovering all costs of service on the small number of initial pilot systems would not be viable. The modeling confirms standard cost of service rates will be viable as the A2SEU scales. In the interim, we propose setting rates based on value (a common approach used for pilots).
The team also made the decision to set the rates based on the capacity of installed systems, rather than variable (per kWh) metered rates. This method adheres to state law and ratemaking principles, is accurately aligned with actual costs of service, lowers costs by avoiding unnecessary metering infrastructure, supports predictable budgeting for both customers and the A2SEU, and allows the A2SEU to accept any willing customer regardless of the level of expected solar production on their property.
Bryant Solar and Battery Service Pilot Rate:
For the Bryant Neighborhood Pilot Program, we identified three core guiding principles:
(1) Offer value to participants (energy bill savings and a positive experience);
(2) Be inclusive (enable as many participants as possible); and
(3) Get it done (make implementation as simple and frictionless as possible)
The team used household energy consumption data and solar production models to iteratively explore combinations of system configurations (solar capacity) and rates that would help achieve those principles. Given grant funding sufficient to fund 100 to 150 systems, we needed to ensure that the offering would be both appealing to, and feasible for, at least that many households. We landed on offering a standardized configuration sized to fit ~200 households’ physical roof space and under DTE’s production limits; and rates that would offer value (energy bill savings) to most participants, while also collecting funds to support the A2SEU’s long-term viability.
The recommended rate equates to $600 per year or an average of $50/month. To help manage monthly energy bill cash flows, the rate will be charged seasonally: $75/month between April-September (months of high solar production) and $25/month from October-March (months of lower production).
Bryant pilot customer rates will be held fixed through June 30, 2030, after which they may be adjusted (with Council approval). Bryant pilot customers may exit the program with no penalty after June 30, 2030, if desired.
Municipal Solar and Battery Service Pilot Rates:
The City has indicated its intent to grant the A2SEU ownership of, and responsibility for operating and maintaining, the existing (and forthcoming) grant-funded solar and solar plus storage systems within City limits. As with the Bryant pilot, full recovery of A2SEU startup costs on a small number of systems is not immediately economically viable for pilot municipal solar assets, so a value-based ratemaking approach was used.
Without solar (or solar plus storage), municipal facilities would be paying DTE rates to purchase all the energy currently generated by the solar energy system. We propose municipal solar pilot rates comparable to the effective rate that facilities would otherwise be paying to purchase energy from DTE. With approximately 1,100 MWh of annual energy production, this equates to about $177,000. That energy value is enabled by the installed 993 kW of solar capacity and 70 kW of battery (storage) capacity. We recommend rates of $14/kW of installed solar capacity or installed solar plus battery capacity per month.
These pilot rates are intended to be temporary. We anticipate gaining significant additional insight into our system operations, production, and value delivery, as well as costs to operate and maintain them, over the coming year, and to return with proposed rate adjustments that reflect those learnings.
Budget/Fiscal Impact: These proposed rates are the A2SEU’s first. Depending on the number of customers that enroll and timing of their enrollment, these rates may generate approximately $200,000 in revenue for the A2SEU in FY2027.
Staff
Prepared by: Shoshannah Lenski, Sustainable Energy Utility Executive Director
Reviewed by: Valerie Jackson, Assistant City Attorney
Approved by: Milton Dohoney Jr., City Administrator
Body
(See Attached Ordinance)