State lawmakers adjourned the regular session Monday with few policy achievements to speak of, but they did approve a bill to increase goals for utility energy savings that supporters say will lead to fewer carbon emissions, new jobs and lower bills for customers.

The legislation updates Minnesota’s Conservation Improvement Program (CIP), which requires utilities to cut energy consumption every year in the name of efficiency, cash savings and addressing climate change.

The plan has been a priority of Gov. Tim Walz, and, unlike his push for a carbon-free energy grid by mid-century, it has drawn support from many Republicans and a broad range of interest groups for more than a year. But a final deal escaped lawmakers during the 2020 session in part because of opposition from the propane industry and the Minnesota Chamber of Commerce.

Those groups still opposed the CIP bill, but, after a few changes to controversial parts of the legislation, the Republican-controlled Senate and DFL-majority House approved the measure anyway.

“This is that middle ground around something in energy that both sides can say these are things we can come to an agreement on,” said Sen. Jason Rarick, a Republican from Pine City who sponsored the bill in the Senate.

What the new CIP does 

Currently CIP law says that, under most circumstances, electric and natural gas utilities must reduce energy use by an amount equivalent to 1.5 percent of the power they sell every year.

To hit that goal, utilities typically give rebates or other incentives to customers so they can install more efficient appliances, lighting, heating and cooling systems or employ other energy saving measures. 

Grace Arnold, commissioner of the Department of Commerce, said CIP has a huge return on investment for customers — $3.75 for every dollar spent — because utilities don’t have to buy as much power or even build new energy infrastructure like plants and transmission wires. The program also creates jobs. Between 2013 and 2018 it created more than $11 billion in economic activity, Arnold said.

A 2021 report to the Legislature says that, during 2017 and 2018, CIP saved enough energy to heat, cool and power more than 160,000 Minnesota homes for a year and slashed carbon emissions by 1.79 million tons, which is equivalent to removing 350,000 vehicles from the road for one year.

The new legislation, which Walz is expected to sign, bumps up that 1.5 percent savings goal to 1.75 percent for investor-owned electric utilities like Xcel Energy and Minnesota Power, but keeps the lower rate for consumer-owned municipal and cooperative utilities that are big enough to fall under CIP requirements. The goal for private natural gas utilities like CenterPoint would be lowered to 1 percent, but unlike other utilities, the Commerce commissioner can’t opt to reduce that based on other circumstances. 

Investor-owned electric utilities like Xcel often exceed their 1.5 percent savings goal, but those energy savings have been harder to come by for natural gas utilities. Commerce officials say natural gas utilities usually have their goal lowered to 1 percent by the commissioner anyway because of these difficulties.

The bill also increases a statewide energy savings goal from 1.5 to 2.5 percent of annual retail sales of electricity and natural gas. That statewide goal includes CIP but also other savings efforts like state appliance standards.

The CIP legislation also allows utilities more ways to hit their energy savings goals. The first is through what’s known as “load management,” where a utility tries to balance energy use throughout the day. For instance, a utility could control residential water heaters so the water is heated during the night, when energy demand is lowest, instead of during the day.

The second, more controversial, expansion of CIP is for fuel switching. That’s when a utility offers incentives for a customer to change from one power source to another, such as using an electric heat pump instead of natural gas. Many clean energy supporters view fuel switching as key to fighting climate change, as the power grid is increasingly made up of carbon-free energy rather than fossil fuel sources.

The legislation also eases some requirements on utility companies. They wouldn’t have to meet mandated spending requirements in current law, for instance, if they’re hitting savings goals.

Debate about fuel switching

The bill has drawn widespread support, including from environmental nonprofits, consumer-advocate groups and labor unions representing trades like electricians. Electric and natural gas utilities like Xcel Energy, Minnesota Power and CenterPoint Energy also support it. “This is without question the most significant energy legislation we’ve done since 2013,” said Rep. Zack Stephenson, a Coon Rapids DFLer who sponsored the bill in the House.

But the overhaul of CIP isn’t universally beloved. The influential Minnesota Chamber of Commerce opposes it. John Reynolds, the Chamber’s Director of Energy, Telecommunications and Elections Policy, said it could result in higher bills for customers in part because utilities can recover fuel switching costs on energy bills. The long-term costs of the fuel-switching program in particular “are not well understood,” Reynolds said.

The Minnesota Propane Association has also opposed the bill, saying it could incentivize people to move away from propane and diminish an industry that serves more than 230,000 homes, farms and businesses in Minnesota, largely in rural parts of the state.

Lawmakers tried to assuage some of those fears in the bill by limiting fuel switching. Municipal and cooperative utilities will be able to count fuel switching to meet 0.55 percent of their savings goals. They also won’t be able to spend more than 0.55 percent of their gross retail energy sales each year on fuel switching until 2026. Spending by investor-owned utilities can’t be more than 0.35 percent of energy sales each year over that time period. Fuel switching also only qualifies for CIP if it results in a net reduction of greenhouse gas emissions and energy use.

Rarick, who is a master electrician, a union member with the International Brotherhood of Electrical Workers Local 110 and runs his own contracting business, said those changes were crucial to the bill passing. He described them as “safeguards to the petroleum folks.”

“They were concerned that we were incentivizing this switch from their fuel over to electricity,” Rarick said. “We’ve put some caps on that so that there cannot just be this sudden surge of, you know, rebates and such for switching that it will be limited, it will phase in and it gives them time to adjust to things that I believe are happening anyway.”

In exchange for capping the fuel switching, Rarick said that Stephenson asked for a bigger increase in required spending on low-income customers under the program. Now, consumer-owned electric utilities will have to spend the equivalent of 0.2 percent of residential sales on low-income customers instead of 0.1 percent. Investor-owned gas utilities will have to spend 1 percent of revenue from residential customers instead of 0.4 percent and private electric utilities will have to spend 0.4 percent of revenue from residential customers instead of 0.1 percent until 2024, when that rate will be bumped up to 0.6 percent.

“Under existing law right now we have a pretty good low-income energy conservation efficiency program,” Stephenson said. “This will make it like a top three program in the country. It represents like $11 or $12 million in new benefits for low-income people on energy efficiency and conservation so that’s a big deal.”

Republicans split on issue

Reynolds, from the Chamber, said the changes to fuel switching helped, but neither his organization nor the propane industry supported the bill.

Dave Wager, executive director of the Minnesota Propane Association, said Tuesday the state has broad authority to still determine when fuel switching can count toward savings goals, and more fuel switching could hurt the numerous small propane dealers in Minnesota. A cut to the industry also makes it tougher for propane to serve as backup when other energy systems go down because there is less to go around, Wager said.

“This could do some major harm to a lot of small communities that rely on these businesses,” Wager said.

Republicans were split on the issue. On the Senate floor Monday, Sen. Mary Kiffmeyer, R-Big Lake, said she would vote against the bill because of the propane industry’s concerns, while Sen. David Osmek, R-Mound, vigorously defended the bill, saying propane concerns were overblown or incorrect.

Sen. Scott Dibble, DFL-Minneapolis, said he was disappointed in the limits on fuel switching, but he and other Democrats praised the increased spending on low-income households.

The bill passed the Senate 58-9 on Monday. All nine votes against were Republicans. The measure passed the DFL-majority House on a 88-46 vote Saturday, with a mix of Republicans voting for and against the bill. All Democrats in both legislative chambers voted to approve it.

At the Capitol after the Senate vote, Rarick said the Legislature didn’t go as far to protect propane and other fuels as some hoped. “But we addressed some other concerns and I think that made the difference for members that were on the border line, that it gave them the comfort that we’ve addressed the concerns and it was ready,” Rarick said.