Energy Efficiency Policies and Practices in Minnesota

Utility Sector

Utility sector policies are those policies that directly affect the way that the state's electricity and natural gas utilities do business and serve the energy needs of their customers.  These policies include utility forecasting and planning requirements for energy efficiency, requirements for energy efficiency delivery to customers, regulatory mechanisms to determine utility revenues for energy efficiency services, processes for working collaboratively with other utilities and energy stakeholders to advance energy efficiency, requirements for evaluating energy efficiency programs and portfolios, and policies to promote the development of the next generation of energy grids.

Resource Planning

Minnesota Statutes 216B.2422 requires utilities to file resource plans with the Public Utilities Commission that consider all resources to meet future energy needs including "refurbishing, and constructing utility plant and equipment, buying power generated by other entities, controlling customer loads, and implementing customer energy conservation." Rules for electric utility Integrated Resource Planning in Minnesota are found in Minnesota Administrative Rules 7843. Plans are filed biennialy (7843.0300) and must include a 15-year forecast (Minn. Stat 216C.17; Minnesota Administrative Rules 7610.0310) of future energy needs.

In addition to regular resouce planning, if a utility seeks to expand their generation or transmission capacity, they must include in their application for a Certificate of Need their most recent resource plan and information about their energy efficiency activities, whether constructing a new power plant or transmission line project (Minnesota Administrative Rules 7849.0290) or a large power facility (Minnesota Administrative Rules 7855.0120).

► Overview of Resource Planning policies in the Midwest

Energy Efficiency Standards

Electricity & Natural Gas

The Next Generation Energy Act of 2007 (2007 SF145) amended an earlier energy conservation law to create an energy efficiency portfolio standard in Minnesota.  The statutory requirements for energy efficiency savings (referred to as "conservation improvements") are found in Minn. Stat. 216B.241.

Subd. 1c establishes a nominal annual savings goal of 1.5% of average annual retail sales for all utilities and associations, both electric and gas.  The Commissioner may modify this goal based on a potential study or other factor but may not approve a goal less than 1.0% for investor-owned utilities.  Subd. 1a and subd. 1b require minimum spending levels in addition to the annual energy savings goals equal to 1.5% of annual gross operating revenues (GOR) for electric utilities and 0.5% of annual GOR for gas utilities.  (As an owner of a nuclear generating facility in Minnesota, Xcel Energy is required to invest at least 2.0% of GOR annually in its electric DSM programs.)  Utilities are also required to invest a minimum of 0.2% of residential GOR on low-income programs (subd. 7).

Minnesota Department of Commerce rules regarding Conservation Improvement Program (CIP) Plans are found at Minnesota Administrative Rules Chapter 7690. Currently, investor-owned utilities file triennial CIP plans and annual status reports on their CIP performance and compliance from the past year.  Cooperatives and municipal utilities submit annual plan updates and status reports through ESP® (www.energyplatforms.com).

► Overview of Efficiency Standards policies in the Midwest

Rate Structures & Incentives

Cost Recovery

Under Minnesota Statutes 216B.16 Subd. 6(b), utilities can file rate schedules to recover the cost of conservation improvement programs. The Commission is required to consider investment and expenses incurred in conservation improvement program implementation in its determination of just and reasonable rates.

Lost Revenue Recovery

Minnesota Statutes 216B.2412 requires the Minnesota PUC to develop rules for revenue decoupling and authorizes the approval of pilot decoupling programs for both electric and natural gas utilities.

The PUC reviewed criteria and standards for decoupling in Docket Number 08-132, and filed an Order Establishing Criteria and Standards to be used in Pilot Proposals for Revenue Decoupling (Document ID: 20096-38723-01). (Note Minnesota PUC docket system does not allow permanent hotlinks, please search by docket number or document ID at their edockets search page).

Utility Incentives

Utilties can file proposed methods for incentivising conservation improvement performance under Minnesota Statutes 216B.16 Subd. 6(c). Incentives can include an increased rate of return, a shared savings model, or other methodology approved by the Commission that is consistent with implementing energy efficiency as a preferred, cost-effective energy resource.

Minn. Stat. 216B.241 Subd. 2c authorizes the Commission to adjust utility incentives to reward progress toward meeting conservation improvement targets.

Currently, all investor-owned utilities in Minnesota are operating under a shared savings model that awards utilities with an increasing percentage of net benefits as higher savings are achieved.  The current form of the incentive was approved in early 2010, with an update in 2012 to slightly reduce incentives for electric utilities and increase the incentives for natural gas utilities (Docket 08-133).

Noncompliance Penalties

There are no direct monetary penalties for noncompliance with Conservation Improvement Plans, though presumably a loss of performance incentives associated with achieving CIP targets would provide some economic pressure toward compliance.  Though there is no direct penalty in Minnesota, a utility could be denied a Certificate of Need for the construction of a new facility if they do not demonstrate that they are meeting their CIP requirements. Application for a Certificate of Need for a new power plant or transmission line project (Minnesota Administrative Rules 7849.0290) or a large power facility (Minnesota Administrative Rules 7855.0120) is required to include information about CIP programs .

► Overview of rate structures & incentives in the Midwest

Stakeholder Collaboration

The 1.5% Energy Efficiency Solutions Project was a stakeholder initiative organized by the Minnesota Department of Commerce, Office of Energy Security, and coordinated by the Minnesota Environmental Initiative. It brought together public, nonprofit, and environmemental groups along with contractors, trade groups, and utilities to develop a list of policy barriers to achieving the goal of 1.5% annual energy efficiency savings, and to recommend solutions for overcoming those barriers. The group met over a short-term process and issued a final report in 2011.

► Overview of stakeholder collaboratives in the Midwest

Program Evaluation

Cost-effectiveness Testing

Minnesota Administrative Rules 7690.1200, Subp. 1(C) requires that utility conservation improvement plans must be cost-effective at the program level "from the utility, ratepayer, participant, and societal perspectives" - in other words, the Program Administrator Cost Test (PACT), the Ratepayer Impact Measure (RIM),  the Participant Cost Test (PCT), and the Societal Cost Test (SCT).

Net vs. Gross

Minnesota requires only Gross energy savings to be reported. Under Minnesota Administrative Rules 7690.0550, annual reports must include actual energy savings but there is no requirement for adjusting for free-ridership or spillover.

Technical Resource Manual

The Department of Commerce, Division of Energy Resources maintains the Technical Resource Manual for the Minnesota Conservation Improvement Programs. The Technical Resource Manual includes the deemed savings database of approved specifications for energy efficiency measures that utilities would include in their CIP plans.  The deemed savings are reviewed and updated periodically to include new technologies or revised savings levels.

► Overview of efficiency program evaluation in the Midwest

Smart Grid

The Smart Grid Information Clearninghouse identifies the following smart grid projects in Minnesota:

Recovery Act-funded smart grid projects that benefit Minnesota, as identified on SmartGrid.gov include:

► Overview of smart grids in the Midwest



Read the report that accompanies these pages:
Energy Efficiency Policies, Programs, and Practices in the Midwest:
A Resource Guide for Policymakers (2014 Edition)

►more information about the Resource Guide