Under the constraint of a pandemic, Minnesota lawmakers are poised to pass significant energy legislation this year after reaching compromises that had escaped Republicans and DFLers in 2019.
Ahead of the May 18 deadline for adjournment, legislators are close to approving a bill that would overhaul Minnesota’s Conservation Improvement Program (CIP), which requires utilities to reduce energy consumption each year, in part to encourage a transition to power with less carbon emissions.
Lawmakers have also reached a deal to spend more than $60 million on clean energy projects, bankrolled by fees Xcel Energy pays to store nuclear waste in Minnesota. Last year, the Legislature left tens of millions of dollars unspent when failed negotiations led to a bitter fallout between the parties. One of those negotiators, Sen. David Osmek, R-Mound, called the results of the 2019 session an “abomination.”
Expanding ‘CIP’ to allow fuel switching
Currently, under CIP law, electric and natural gas utilities are required under most circumstances to reduce energy use by an amount equivalent to 1.5 percent of the power they sell each year.
To meet the requirement, utilities commonly offer rebates or other incentives to customers so they can install more efficient appliances, lighting, heating and cooling systems or other energy-saving projects. Utilities also have to spend some of their gross operating revenue — for most electric utilities it’s 1.5 percent — on energy conservation efforts. Many utilities, particularly the large, private “investor-owned” ones like Xcel and Minnesota Power, also frequently save more energy than law requires.
The House passed a bill Monday that would expand CIP and increase the program’s statewide energy savings goal from 1.5 to 2.5 percent, while also hiking the goal for investor-owned electric utilities to 1.75 percent.
The bill, viewed by supporters as a way to fight climate change and create jobs, gives utilities new ways to help them meet requirements under the conservation law. One is fuel switching, which is when a customer flips from one power source to another, such as using electricity for home heating instead of natural gas.
Clean energy advocates want to promote fuel switching to help mitigate global warming since it often entails a shift to electricity from a fossil fuel energy source. Electric utilities still burn coal and natural gas, but they are becoming less reliant on fossil fuels. There is even a financial incentive in the bill for investor-owned natural gas utilities like CenterPoint Energy to help transition customers to use more electric services, such as electric heat pumps.
“The general strategy is: clean the (electric) grid, then plug in everything,” said Rep. Zack Stephenson, a Coon Rapids DFLer who sponsored the bill in the House.
Stephenson’s measure also requires utilities to spend more money to help low-income people conserve energy in their homes, and even allows utilities to pay for “pre-weatherization” upgrades, such as fixing a broken window.
The bill would relax some requirements on utilities. For instance, they would not have spending requirements as long as they’re meeting savings goals.
Sen. Jason Rarick, a Brook Park Republican who sponsored the CIP bill in the Senate, said easing those regulations make his measure “actually a conservation bill rather than a spending bill.”
Lawmakers have been negotiating an update to CIP for years, and it has been a priority of Gov. Tim Walz’s energy plans. But there are two other measures the governor wants but are unlikely to pass the Legislature in 2020. One is a bill that would make it tougher for utility companies to add new fossil fuel energy, though Republicans and DFLers have not been able to reconcile competing versions of the measure. Another policy to require a carbon-free electric grid by 2050 has attracted little GOP support.
The CIP bill is less well known, but has the widest support of the three bills. Every electric utility in the state and the natural gas utility CenterPoint has endorsed the current version of the CIP measure after lengthy negotiations. A spate of labor unions have backed it too, as have many energy and environmental nonprofits.
“If we can’t get that done, I don’t know what we can get done,” said Rep. Jamie Long, a Minneapolis DFLer and vice chairman of the House’s Energy and Climate Finance and Policy Division.
Rarick and Stephenson’s bill does not have universal support, however. In a letter to the House’s energy and climate committee, the Minnesota Chamber of Commerce took issue with the fuel-switching provision, saying the bill will use “the weight of government to tip the scale in favor of certain technologies at the expense of others.” The Chamber also raised concerns it will make power more expensive for utility customers since the companies can pass CIP costs down through energy bills.
Dave Wager, executive director of the Minnesota Propane Association, told the committee that he worries the bill would cause people to switch from propane to other fuels, even though he believes propane is cleaner than power from gas-reliant electric utilities. (The bill allows fuel switching only when it would be cost-effective, save energy and reduce greenhouse gas emissions.)
Several House Republicans said they could not overlook those worries when the bill came up for a vote in the chamber. It passed the majority-Democrat House on a 79-55 vote, with most of the GOP in opposition.
In the Republican-led Senate, Rarick said he’s been working on some small changes to the bill to ease fears from the propane industry, and said he’s “very very close” to ensuring wider GOP support. He also disputed the idea that his CIP bill will lead to higher energy bills.
“If we give (utilities) some leniency and some new programs that will qualify I believe they’re going to be able to make the energy savings goals and spend less money so thus it’s not going to raise rates,” Rarick said.
Agreement reached to spend Xcel nuclear fees
The House and Senate also reached a deal to spend some of the Xcel money set aside for clean energy projects, which is known as the Renewable Development Account (RDA). If approved, the Legislature would spend about $25.8 million over 2020 and 2021, but lawmakers also earmarked another $40.2 million in the following two-year budget cycle.
Under the deal, the Legislature would continue an Xcel program that offers discounts for Minnesotans installing rooftop solar panels. Lawmakers expect to create a $2 million grant program to help communities deal with the economic fallout of losing large coal, nuclear or natural gas plants as utilities build more renewable power. Another $2.75 million would be spent for a new turbine at a hydropower plant in Granite Falls.
Finally, $46.2 million, spread over three years, would pay for the Prairie Island Indian Community to implement a project that would help the tribe reach net-zero carbon emissions. The Prairie Island reservation sits right next to an Xcel nuclear plant and a cache of radioactive waste, so the tribe asked to use some of those waste fees to help eliminate the reservation’s carbon footprint.
The idea gained traction with Republicans and Walz, who had wanted to fund the project in full last year. In 2019, House DFLers had wanted to give only $10 million to the tribe over four years while they pushed for larger funding for other renewable development projects.
About $73.3 million would remain in the RDA account by the end of the 2023 fiscal year.
After last year’s icy ending to energy policy negotiations that yielded few results, Long, the Minneapolis DFLer, said the House and Senate focused better on ideas that Democrats and Republicans agreed on. Osmek, the Mound Republican who chairs the Senate’s Energy and Utilities Finance and Policy Committee, declined an interview this week, citing the busy schedule of the last few days of the legislative session. He praised the RDA spending during a Senate hearing Friday, saying it was “tightly negotiated” with the House and the governor’s office to fund “four very important items.”
Long said he would like to have passed more legislation to “help move aggressively toward clean energy and clean transportation.” But he said he was “really pleased where we wound up” on the RDA agreement and said lawmakers could keep negotiating other policy that is close to passing since the Legislature is expected to reconvene later this summer to take up COVID-19 related issues. Osmek said he hopes the Legislature uses any special session to consider rebates paid for by the RDA fund to Xcel customers hurt by the economic fallout of the pandemic.
Rarick, the sponsor of the CIP bill, said passing the measure would be a notable achievement for the state, especially given its broad coalition of supporters. “It’s reform that’s needed,” he said.