Energy Efficiency Resource Standard

Summary

Origin

In 2007, the Minnesota legislature passed the Next Generation Energy Act (NGEA), which requires both electric and natural gas investor-owned utilities to reduce energy sales, and spend a minimum percentage of their annual operating revenues on activities to advance energy efficiency, demand-side management and certain types of renewable energy starting in 2010.

Electric Sales Reduction

Energy Savings Requirements

Minnesota’s electric and gas utilities are required to pursue energy efficiency programs that result in overall reductions of 2.5% of average sales effective in 2021. This replaces a 1.5% goal that began in 2010. Average sales are calculated based on the most recent three-year weather-normalized average.

Spending Requirements for Electric and Gas Utilities

The NGEA requires investor-owned utilities to invest the following amounts of their gross operating revenues in Minnesota on energy conservation improvements (including waste heat recovery but not utility infrastructure projects):

• All electric utilities must include programs that encourage customer use of efficient lighting;
• At least 0.2% of all must go toward programs for low-income customers;
• No more than 10% of the minimum spending requirement may be spent on research and development projects;
• No more than 10% of the minimum spending requirement may be spent on solar energy projects;
• No more than 5% of the minimum spending requirement may be spent on non-solar renewable and distributed generation projects.

Each utility must develop a Conservation Improvement Plan (CIP) every three years and file it with the Energy Division of the Department of Commerce. Actual spending and energy savings must be reported on an annual basis. Waste heat recovery (converted into electricity) and utility infrastructure projects may count toward the energy savings goal.

Program Administrator Type

Minnesota’s utilities administer the programs necessary to meet the annual reduction standard and minimum spending requirements

Cost-Effectiveness and Program Evaluation

Minnesota regulators do not use a specific primary cost-effectiveness test in evaluating and approving utility Conservation Improvement Plans. However, it does require utilities to evaluate the cost-effectiveness of their proposed programs using four of the five cost-effectiveness tests found in the California Standard Practice Manual. Specifically, Rule 7690.0550 requires utilities to file an evaluation from the “utility, participant, ratepayer, and societal perspectives.” This means that each utility is required to submit Utility Cost Test (UCT), Participant Cost Test (PCT), Ratepayer Impact Measure (RIM) and Societal Cost Test (SCT) scores for the utility’s full portfolio, each overall program, and at each individual “project” (or, as is often referred to informally as “measure”) level within each program.

Utility Cost Recovery Provisions

Minnesota authorizes its utilities to receive what are known as “shared savings” financial performance incentives in order to “recognize making progress” towards the energy savings required by law. The incentive for Minnesota Power is capped at 30 percent of the net benefits associated with its programs, while the incentive for all other utilities is capped at 20 percent of net benefits. According to the Minnesota Public Utilities Commission, the reason for Minnesota Power’s variance is that Minnesota Power was more able to cost-effectively reach their minimum energy reduction standard at that net benefit level of shared saving incentive than the other utilities.

Special Provisions (Various)

Energy savings achieved in excess of 1.5% may be carried forward for up to 3 years, except in the case of savings from infrastructure projects, which may carry over for 5 years. The Next Generation Energy Act also allows for electric utilities and natural gas utilities to apply to the Commissioner of Commerce for a lower spending requirement. In addition, certain large facilities may petition to have their revenues excluded from calculations determining investment and expenditure requirements, and may "self-direct" their own funds into energy conservation projects of their own.

Current law also allows for natural gas utilities' purchases of biomethane to count toward the energy savings goal.

The Energy Conservation and Optimization Act of 2021 allows utilities to exempt electric sales associated with Electric Vehicle charging tariffs or programs that were developed before December 31, 2021 from the utility's Gross Annual Retail Energy Sales until December 31, 2032. After December 31, 2032, incremental sales for electric vehicle rates, tariffs, or programs must be included in the utility's gross annual retail sales.