Minnesota’s electric utilities will be required to meet increasing energy efficiency targets under a bill signed by Gov. Tim Walz in May. But a recent report by the state Department of Commerce shows some utilities are not meeting all of the old, lower targets.

The Energy Conservation and Optimization (ECO) Act (HF164) raises the annual energy savings goals for the state’s electric investor-owned utilities from 1.5% to 1.75% and quadruples their low-income spending requirement to 0.4% of gross operating revenues. It also requires utilities to file Conservation Improvement Programs (CIP) with the Minnesota Public Utilities Commission for programs funded by ratepayers but administered by the utilities.

The Department of Commerce’s Energy Policy and Conservation Quadrennial Report 2020, released March 1, says that electric utilities exceeded the original 1.5% goal in both 2017 and 2018, the most recent data available, and that natural gas utilities exceeded the statutory minimum of 1%. The programs saved 15.2 trillion BTU of energy — equal to the annual energy demand of 160,000 Minnesota homes — and reduced CO₂ emissions by 1.79 million tons, equivalent to the annual emissions of 350,000 vehicles.

Falling Short on Targets

But the department said a separate dataset for 2019 found that some electric and gas utilities failed to meet their low-income targets.

Xcel Energy (NASDAQ:XEL) met its $2.49 million spending goal on low-income plans, but it saved only 2.39 GWh, a 27% shortfall from the 3.26-GWh goal. Otter Tail Power (NASDAQ:OTTR) and ALLETE’s Minnesota Power (NYSE:ALE), by contrast, spent somewhat less than their goal but exceeded their savings targets.

Of the state’s five natural gas utilities, only one — WEC Energy Group’s Minnesota Energy Resources (NYSE:WEC) — met its low-income savings goals, although three of the five met or exceeded the spending goals.

Low-income programs typically fund energy audits that identify and pay for improvements such as air sealing, weatherization, and replacements of furnaces and other equipment. There also are customer rebates for purchasing and installing energy-efficiency measures in multifamily buildings or nonprofit affordable housing.

“Administering low-income programs can be challenging for utilities and their vendors,” the report acknowledges. “Challenges include finding eligible and interested customers, perceived challenges in meeting U.S. [Department of Energy] WAP [Weatherization Assistance Program] requirements, accommodating the needs of both WAP and CIP, and working with many different Community Action Partnership agencies throughout the utility’s service territory. Commerce continues identifying areas of improvement and working with stakeholders to effectively deliver these programs.”

One challenge, Commerce told NetZero Insider, is that the client needs to be a customer of the utility delivering the program; if the client is a renter, landlord involvement may be necessary. Homes also need to be in a safe condition to weatherize and not in need of major structural repairs.

“CIP contracts are with individual utilities and each service provider, and each utility is unique,” a spokesperson said. “Some combinations are a great match and others are not. All can be affected by changes in funding sources, workforce trends and organizational capacity.”

The ECO Act will boost spending on low-income programs. IOUs’ (defined as “public utilities”) minimum spending increases from 0.1% to 0.4% of its gross operating revenues. “Consumer-owned utilities” (municipal utilities and cooperatives) must spend at least 0.2% of gross operating revenues on such programs, up from 0.1%. Natural gas utilities’ minimum increases from 0.4% to 0.8%.

Consensus Took 6 Years

Government and private clean energy groups across the state hailed ECO as the biggest clean energy win since 2013, when the state enacted several laws boosting solar power. The new bill did not come easily. Bipartisan and diverse special interest consensus required six years of hard work and deep collaboration, according to Mike Bull, director of policy and external relations for the Center for Energy and Environment (CEE), a Minnesota-based clean energy research and implementation nonprofit.

In 2015, the House of Representatives passed a bill that would have repealed the CIP program.

“There was grumbling from some stakeholders that … CIP was not delivering value to Minnesota ratepayers, despite all of the checks and balances in the regulatory system to ensure that value,” Bull said. “Although we were able to stop that 2015 proposal from becoming law, it served as a tremendous wake-up call. We knew we needed to reconnect key stakeholders to the benefits of energy efficiency.

“In developing the bill,” he added, “we painstakingly layered each stakeholder’s ‘gotta-haves’ in alignment with everyone else’s.”

The bill:

• • • allows public utilities to recover through energy rates investments in “innovative clean technologies” that are not widely deployed among utilities and that provide net economic benefits to ratepayers if approved by the PUC. Cost recovery is limited to $6 million over three consecutive years for Xcel and CenterPoint Energy and $3 million for other public utilities.
    • increases the state’s annual energy savings goal from 1.5% to 2.5%: electric IOU targets increase from 1.5% to 1.75% of annual retail sales; consumer-owned utilities (municipal utilities and cooperatives) remain at 1.5%; and that for gas utilities is reduced from 1.5% to 1%. The changes were based on the Energy Efficiency Potential Study prepared for the Department of Commerce by CEE and others, which targeted an 11% reduction in gas use between 2020 and 2029.
    • requires public utilities to incorporate programs to improve energy efficiency in public schools.
    • encourages utilities to implement load management programs to shift energy demand from peak times by allowing the companies to obtain financial incentives for programs approved by the PUC. The previous law only allowed for cost recovery. ECO allows utilities to make load management investments utility assets on which a rate of return can be earned.
    • allows utilities to count fuel switching — substituting electricity or natural gas for a customer’s current fuel — in their energy savings and directs the commissioner of Commerce to develop a method for calculating them. Fuel switching is permitted if it reduces the overall amount of energy used, reduces greenhouse gas emissions, is cost-effective and improves the utility’s load factor, an efficiency metric calculated as the ratio of average demand to peak demand. The fuel-switch language prompted the Minnesota Propane Association to oppose the bill, fearing a switch to electric heat pumps. Natural gas heats most Minnesota homes and buildings, but many rural communities rely on propane. The Minnesota Chamber of Commerce also opposed the fuel-switching provision, citing fears of higher energy costs.

Tight Timeline

With the climate crisis looming even larger than when negotiations on the energy-efficiency program began six years ago, all participants realize there can be no pause in implementing ECO, said Anthony Fryer, Commerce’s CIP supervisor, in a June 17 presentation on the law to the Midwest chapter of the Association of Energy Services Professionals.

Commerce has begun stakeholder processes to assist in developing technical guidance on implementing changes under ECO. The timeline:

• • • guidelines for multifamily buildings with low-income consumers: Aug. 1.
    • methodology for determining sales for electric vehicle charging: Dec. 31.
    • technical guidelines for fuel-switching programs and calculating energy savings: March 15, 2022.
    • preweatherization measures for low-income consumer programs: March 15, 2022.

The state’s energy-efficiency standards have saved consumers $6 billion in the last 20 years, Fryer said, and that improved efficiency keeps bills low and supports 47,000 jobs in Minnesota.

The ECO Act updates the CIP framework to provide a more holistic approach to efficiency programming and will increase those economic benefits, Fryer said. Because the technical guidelines will be developed by public and private participants, he said there is no overall estimate yet of what the overall savings will be.

“ECO will provide opportunities to leverage energy demand as a more active and significant part of our state’s clean energy transition, opening doors to a greater range of fuel choices and more opportunities to benefit from energy use timed to align with periods of lower demand on our energy grid,” Bull said.