On February 8, 2023, the State of Minnesota enacted House File 7 (“H.F. 7”) to modify electric utility standards and revises the state’s goals for generating carbon-free electricity by 2040. As discussed below, H.F. 7 significantly modifies the legal frameworks that direct and incentivize future Minnesota electric sector developments and has implications for regional energy policy.
Modifying Target and Mandated Percentages
H.F. 7 modifies the percentage of electricity from eligible energy technologies, including technologies that generate electricity from renewable energy sources and do not rely on carbon-emitting sources, that electric utilities must generate or procure. Prior to H.F. 7, the mandated percentage for total electricity generated from an eligible energy technology for each period of time increased from 12% in 2012 to 20% in 2020. The new target percentages for total electricity generated from eligible energy technologies are 25% by 2025 and 55% by 2035.
The new percentage requirements demonstrate Minnesota’s commitment to requiring electric utilities to shift to more environmentally friendly technologies, as well as the increased urgency to eliminate carbon-emitting technologies (as the required percentage only increased 8% from 2012 to 2020, but will now increase to 30% from 2025 to 2035). The impact on electric utilities likely will require large changes to daily operations and investment in more renewable sources.
Modifying Commission’s Evaluative Criteria
With a change in the standards applied to electric utilities comes a change in how those electric utilities are evaluated. H.F. 7 allows the Minnesota Public Utility Commission (“Commission”) to modify or delay the implementation of a standard obligation on all Minnesota electric utilities if doing so would be in the public interest.
H.F. 7 introduces several factors the Commission may consider when deciding to modify or delay a standard obligation, including: environmental costs incurred as a result of the delay or modification, impacts on environmental justice areas, and the additional electric load from beneficial electrification (which entails the benefits or emissions savings from a substitution of electricity for a fossil fuel). Additionally, the Commission may take local benefits into account when determining how to implement these new obligations, ensuring all Minnesota citizens receive the net benefits of the Commission’s actions, including: the creation of high-quality jobs with fair wages, recognizing unionization rights of workers, ensuring economic assistance and resources are available, reducing emissions and providing affordable electric service to citizens. The Commission must consider local job impacts and give preference to proposals that maximize construction employment opportunities. Furthermore, the Commission must prioritize the hiring of workers from local communities, especially those workers from retiring electric generation facilities.
The emphasis on assisting and prioritizing workers in the new evaluative criteria demonstrate a commitment from the Commission and the legislature to help the transition to cleaner energy production while ensuring local workers and communities are protected during the transition.
Changes to Integrated Resource Plan
In addition to the changes made to the Commission’s evaluative criteria, H.F. 7 makes changes to the utility plans that are filed with the Commission by requiring each utility to report its progress towards meeting the Commission’s standard obligations. The utility’s integrated resource plan must provide a description of current status and efforts taken to satisfy the standard obligations, along with any obstacles in meeting the obligations and potential solutions to those obstacles.
H.F. 7 also introduces requirements for the utility’s integrated resource plan, such as the number of Minnesotans employed to construct the new facilities for the utility, efforts taken to retain workers and increase the workforce’s diversity, and impacts of facilities on environmental justice areas. Finally, if an electric utility is using renewable energy credits to satisfy any amount of its obligations, it must provide the names of the facilities that generated the energy associated with the credits, when it was generated, the type of fuel used to generate it, and whether the utility purchased the energy associated with the credits.
These changes fit into the overall purpose of the new law and provide a clear indication of H.F.7’s intent to move electric utility providers towards the goal of creating carbon-free electricity by 2040 while insulating workers and communities from the potential harms of that change.
Addition of Carbon-Free Standard
In setting the goal of carbon-free electricity by 2040, H.F. 7 introduces a new carbon-free standard. In addition to the new target percentages, each electric utility must generate an increasing minimum amount of electricity from a carbon-free technology: (1) by the end of 2030, 80% for public utilities and 60% for other electric utilities; (2) by the end of 2035, 90% for all electric utilities; and (3) by the end of 2040, 100% for all electric utilities.
This ambitious inclusion sets the standard for the entire H.F. 7 legislation. Along with this new section, the Commission may also issue orders to reduce carbon dioxide emissions from certain facilities, especially coal-fired electric generating units. The Commission’s order may require the public utility to implement a plan to operate the coal-fired generating unit only during certain periods of the year and for emergency purposes, or establish an annual limit on the emission from these units.
The new carbon-free standard and the Commission’s authority to order reductions in carbon dioxide emissions demonstrates the legislature’s intent through H.F. 7 to make substantial changes to the legal framework regulating electric utilities in Minnesota.
Inclusion of Environmental Justice Factors
Along with increasing the production of carbon-free electric power, H.F. 7 promotes environmental justice factors designed to address issues affecting communities that are largely non-white and which experience higher rates of poverty or lower levels of English proficiency.
The inclusion of environmental justice factors in the plan for carbon-free electricity indicates the legislature’s intent to remedy specific social harms that contribute to the larger overall issue of environmental harms from generating electricity.
Impacts to Local Communities (Jobs, Unions, and Wages)
H.F. 7 focuses on the energy transition’s impact on local citizens by prioritizing consideration of jobs, unions, and wages. Utility ratepayers may recover expenses incurred to employ local workers to construct generation facilities. The Commission may prioritize actions that include job creation in Minnesota and the rights of workers to unionize to earn fair wages. H.F. 7 further calls for consideration of the “local job impacts” that a new or refurbished facility may have on local construction workers hired to construct and maintain it.
The emphasis on local workers allows the Commission to give preference not only to projects that create local jobs, but also projects that use domestically produced materials to construct these facilities. The Commission may also condition the issuance of a permit to construct new facilities on the project paying no less than the prevailing wage rate and following the previous requirements for workers’ rights.
While the new law creates modifications to utility standards and regulations, the clear purpose of H.F. 7 is to transition Minnesota to a cleaner form of energy for electricity providers, while clarifying that although the energy transition is necessary, the potential harm to local workers in these industries is not – and Minnesota’s future should include them.
H.F. 7 represents a large step towards creating a carbon-free electric utility market for Minnesota residents. It demands electricity generated from carbon-free sources, while also committing to protect workers and vulnerable communities through environmental justice initiatives and labor protections.
Please contact Michael Blackwell if you have any questions about the impact of H.F. 7 on the electric power industry.