Energy Efficiency Standards

The Next Generation Energy Act of 2007 amended existing energy conservation law to create an energy efficiency resource standard in Minnesota. The statutory requirements for energy efficiency savings (referred to as "conservation improvements") are found in Minn. Stat. 216B.241. The Energy Conservation and Optimization (ECO) Act, passed and signed into law in 202`1, expanded and modernized the state's EE framework.

Under ECO, Minnesota has an annual savings goal of 1.5% of annual retail sales for municipal and cooperative utilities (called consumer-owned utilities in the statute). Natural gas investor-owned utilities must reach a minimum of 1% savings, and electric IOUs must reach 1.75% savings, up from 1.5%. The ECO Act expanded what can be included as energy savings. In addition to traditional energy efficiency programs, utilities can also count energy savings from load management and efficient fuel-switching measures. The statute allows utilities to fuel-switch when the measure results in a net-reduction of source energy on a fuel-neutral basis, results in a net-reduction of greenhouse gas emissions, is cost-effective and improves the utility's system load factor.

The ECO Act also raised the minimum spending levels that utilities must spend on low-income programming. Consumer-owned utilities must spend at least .2% annually of residential gross operating revenues (GOR). Gas IOUs must spend 1% GOR (up from .4%) and electric IOUs must spend .6% GOR starting in 2024 (up from .2%). 15% of a utility's low-income spending requirement can be met through pre-weatherization measures.

Currently, investor-owned utilities file triennial Conservation Improvement Program(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, though ECO now allows consumer-owned utilities to submit plans on a three-year basis if they choose to. 

Resource Planning

Minnesota requires utilities to file integrated resource plans (IRPs) 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." Plans are filed biennially and must include a 15-year forecast of future energy needs.

Utilities filing a Certificate of Need application seeking to expand generation or transmission capacity must also include the most recent IRP and information about their energy efficiency activities.

Rate Structures & Incentives

Cost Recovery

Utilities can file rate schedules to recover the cost of conservation improvement programs. In its determination of just and reasonable rates, the commission is required to consider investment and expenses incurred in conservation improvement program implementation.

Lost Revenue Recovery

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

The Commission is authorized 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. The Department of Commerce has been studying how to update this shared savings model in a long running PUC docket (08-133) and has proposed that utilities would receive 10% of net benefits for each .1% of achieved savings above their statutory requirements.

Utilities can file proposed methods for incentivizing conservation improvement performance. 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.

Noncompliance Penalties

There are no direct monetary penalties for noncompliance with Conservation Improvement Plans, though a loss of performance incentives associated with achieving CIP targets would apply some economic pressure toward compliance. Additionally, 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.

Stakeholder Collaboration

The Department of Commerce initiates stakeholder collaboratives on such topics as calculating avoided costs of energy and improving the technical reference manual on both an as-needed and on-going basis. 

Program Evaluation

Cost-effectiveness Testing

Utility conservation improvement plans must be cost-effective at the program level "from the utility, ratepayer, participant and societal perspectives." Accordingly, the following cost-effectiveness tests are required: the Program Administrator Cost Test (PACT), the Ratepayer Impact Measure (RIM), the Participant Cost Test (PCT) and the Societal Cost Test (SCT).

The ECO Act of 2021 now allows the Department of Commerce to consider lifetime savings when calculating cost effectiveness of utility programs.

Net vs. Gross

Minnesota requires only gross energy savings to be reported. Annual reports must include actual energy savings, but there is no requirement for adjusting for free-ridership or spillover.

Technical Reference Manual

The Department of Commerce, Division of Energy Resources maintains the Technical Resource Manual for the Minnesota Conservation Improvement Programs. The Technical Reference 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.

State Energy Plan or Vision

The ECO Act of 2021 increased the state's annual energy savings goal from 1.5% to 2.5%. This statewide goal includes energy savings from utility energy efficiency programs, but also includes savings from rate design, efficient improvements to utility infrastructure, advancements in the state's energy codes and more.

Minnesota has a long history of supporting energy efficiency. Through legislation, regulations and executive orders and various other strong energy policies, Minnesota has remained near the top of national energy efficiency rankings for a number of years. 

State Agency Energy Reduction Requirement

Minnesota set a goal of reducing energy use in state facilities by 20%. The order does not set a deadline for reaching this goal, but sets deadlines for establishing benchmarks, goals and implementation plans. Each agency must maintain its consumption data in the B3 Energy Benchmarking tool.

Each agency is required to report on these goals in an annual Sustainability Plan. Each state agency must use the Guaranteed Energy Savings Contracts and State Energy Improvement Financing Program to implement cost-effective energy improvements.

EE in New State Buildings

In 2001, Minnesota adopted Sustainable Building Guidelines, requiring the Departments of Administration and Commerce to develop the Minnesota Sustainable Building Guidelines for new state buildings. As amended in 2008, new buildings and major renovations must achieve initial energy savings 30% above the state's building energy code.

Additional clean energy measures require that building managers must supply 2% of a building's total energy use with on-site wind and solar power.

In 2009, the Public Buildings Enhanced Energy Efficiency Program was launched in order to provide assistance to state and local government buildings for recommissioning and retrofit projects.

Key Policymaker Contacts