1.1 	A bill for an act
1.2 	relating to state government; establishing an energy
1.3 	savings program; authorizing the Department of
1.4 	Administration to use energy forward pricing
1.5 	mechanisms for budget risk reduction; amending
1.6 	Minnesota Statutes 2004, section 16C.144; proposing
1.7 	coding for new law in Minnesota Statutes, chapter 16C.
1.8 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.9 	Section 1. [16C.143] ENERGY FORWARD PRICING MECHANISMS.
1.10 		Subdivision 1.Definitions. The following definitions
1.11 	apply in this section:
1.12 	(1) "energy" means natural gas, heating oil, propane, and
1.13 	any other energy source except electricity used in state
1.14 	facilities; and 
1.15 	(2) "forward pricing mechanism" means a contract or
1.16 	financial instrument that obligates a state agency to buy or
1.17 	sell a specified quantity of energy at a future date at a set
1.18 	price.
1.19 		Subd. 2.Authority. Notwithstanding any other law to the
1.20 	contrary, the commissioner may use forward pricing mechanisms
1.21 	for budget risk reduction.
1.22 		Subd. 3.Conditions. Forward pricing mechanism
1.23 	transactions must be made only under the following conditions:
1.24 	(1) the quantity of energy affected by the forward pricing
1.25 	mechanism must not exceed the estimated energy use for the state
1.26 	agency for the same period; and 
2.1 	(2) a separate account must be established for each state
2.2 	agency using a forward pricing mechanism.
2.3 		Subd. 4.Written policies and procedures. Before
2.4 	exercising the authority under this section, the commissioner
2.5 	must develop written policies and procedures governing the use
2.6 	of forward pricing mechanisms.

2.7 	Sec. 2. Minnesota Statutes 2004, section 16C.144, is
2.8 	amended to read:
2.9 	16C.144 GUARANTEED ENERGY SAVINGS CONTRACTS PROGRAM.
2.10 		Subdivision 1.Definitions. The following definitions
2.11 	apply to this section.
2.12 	(a) "Utility" means electricity, natural gas, or other
2.13 	energy resource, water, and wastewater.
2.14 	(b) "Utility cost savings" means the difference between the
2.15 	utility costs under the precontract conditions and the utility
2.16 	costs after the changes have been made under the contract.  Such
2.17 	savings shall be calculated in comparison to an established
2.18 	baseline of utility costs installation of the utility
2.19 	cost-savings measures pursuant to the guaranteed energy savings
2.20 	agreement and the baseline utility costs after baseline
2.21 	adjustments have been made.
2.22 	(c) "Established baseline" means the precontract utilities,
2.23 	operations, and maintenance costs."Baseline" means the
2.24 	preagreement utilities, operations, and maintenance costs.
2.25 	(d) "Utility cost-savings measure" means a measure that
2.26 	produces utility cost savings and/or operation and maintenance
2.27 	cost savings.
2.28 	(e) "Operation and maintenance cost savings" means a
2.29 	measurable decrease in difference between operation and
2.30 	maintenance costs after the installation of the utility
2.31 	cost-savings measures pursuant to the guaranteed energy savings
2.32 	agreement and the baseline operation and maintenance costs that
2.33 	is a direct result of the implementation of one or more utility
2.34 	cost-savings measures but does after inflation adjustments have
2.35 	been made.  Operation and maintenance costs savings shall not
2.36 	include savings from in-house staff labor. Such savings shall
3.1 	be calculated in comparison to an established baseline of
3.2 	operation and maintenance costs.
3.3 	(f) "Guaranteed energy savings contract agreement " means a
3.4 	contract an agreement for the evaluation, recommendation, and 
3.5 	installation of one or more utility cost-savings measures that
3.6 	includes the qualified provider's guarantee as required under
3.7 	subdivision 2. The contract must provide that all payments are
3.8 	to be made over time but not to exceed ten years from the date
3.9 	of final installation, and the savings are guaranteed to the
3.10 	extent necessary to make payments for the utility cost-savings
3.11 	measures.
3.12 	(g) "Baseline adjustments" means adjusting the established 
3.13 	utility cost-savings baselines in paragraphs (b) and
3.14 	(d) annually for changes in the following variables:
3.15 	(1) utility rates;
3.16 	(2) number of days in the utility billing cycle;
3.17 	(3) square footage of the facility;
3.18 	(4) operational schedule of the facility;
3.19 	(5) facility temperature set points;
3.20 	(6) weather; and
3.21 	(7) amount of equipment or lighting utilized in the
3.22 	facility.
3.23 	(h) "Inflation adjustment" means adjusting the operation
3.24 	and maintenance cost-savings baseline annually for inflation.
3.25 	(h) (i) "Lease purchase contract agreement " means a
3.26 	contract an agreement obligating the state to make regular lease
3.27 	payments to satisfy the lease costs of the utility cost-savings
3.28 	measures until the final payment, after which time the utility
3.29 	cost-savings measures become the sole property of the state of
3.30 	Minnesota.
3.31 	(i) (j) "Qualified provider" means a person or business
3.32 	experienced in the design, implementation, and installation of
3.33 	utility cost-savings measures.
3.34 	(j) (k) "Engineering report" means a report prepared by a
3.35 	professional engineer licensed by the state of Minnesota
3.36 	summarizing estimates of all costs of installations,
4.1 	modifications, or remodeling, including costs of design,
4.2 	engineering, installation, maintenance, repairs, and estimates
4.3 	of the amounts by which utility and operation and maintenance
4.4 	costs will be reduced.
4.5 	(k) (l) "Capital cost avoidance" means money expended by a
4.6 	state agency to pay for utility cost-savings measures with a
4.7 	guaranteed savings contract agreement so long as the measures
4.8 	that are being implemented to achieve the utility, operation,
4.9 	and maintenance cost savings are a significant portion of an
4.10 	overall project as determined by the commissioner.
4.11 	(l) (m) "Guaranteed energy savings contracting program 
4.12 	guidelines" means policies, procedures, and requirements of
4.13 	guaranteed savings contracts agreements established by the
4.14 	Department of Administration upon enacting this legislation.
4.15 		Subd. 2.Guaranteed energy savings contract agreement.
 4.16 	The commissioner may enter into a guaranteed energy savings
4.17 	contract agreement with a qualified provider if:
4.18 	(1) the qualified provider is selected through a
4.19 	competitive process in accordance with the guaranteed energy 
4.20 	savings contracting program guidelines within the Department of
4.21 	Administration;
4.22 	(2) the qualified provider agrees to submit an engineering
4.23 	report prior to the execution of the guaranteed energy savings
4.24 	contract agreement.  The cost of the engineering report may be
4.25 	considered as part of the implementation costs if the
4.26 	commissioner enters into a guaranteed energy savings agreement
4.27 	with the provider;
4.28 	(3) the term of the guaranteed energy savings agreement
4.29 	shall not exceed 15 years from the date of final installation;
4.30 	(4) the commissioner finds that the amount it would spend
4.31 	on the utility cost-savings measures recommended in the
4.32 	engineering report will not exceed the amount to be saved in
4.33 	utility operation and maintenance costs over ten 15 years from
4.34 	the date of implementation of utility cost-savings measures;
4.35 	(4) (5) the qualified provider provides a written guarantee
4.36 	that the annual utility, operation, and maintenance cost savings
5.1 	during the term of the guaranteed energy savings agreement will
5.2 	meet or exceed the costs of the guaranteed savings contract 
5.3 	annual payments due under a lease purchase agreement.  The
5.4 	qualified provider shall reimburse the state for any shortfall
5.5 	of guaranteed utility, operation, and maintenance cost savings;
5.6 	and
5.7 	(5) (6) the qualified provider gives a sufficient bond in
5.8 	accordance with section 574.26 to the commissioner for the
5.9 	faithful implementation and installation of the utility
5.10 	cost-savings measures.
5.11 		Subd. 3.Lease purchase contract agreement. The
5.12 	commissioner may enter into a lease purchase agreement with any
5.13 	party for the implementation of utility cost-savings measures in
5.14 	accordance with an engineering report the guaranteed energy
5.15 	savings agreement.  The implementation costs of the utility
5.16 	cost-savings measures recommended in the engineering report
5.17 	shall not exceed the amount to be saved in utility and operation
5.18 	and maintenance costs over the term of the lease purchase
5.19 	agreement.  The term of the lease purchase agreement shall not
5.20 	exceed ten 15 years from the date of final installation.  The
5.21 	lease is assignable in accordance with terms approved by the
5.22 	commissioner of finance.
5.23 		Subd. 4.Use of capital cost avoidance. The affected
5.24 	state agency may contribute funds for capital cost avoidance for
5.25 	guaranteed energy savings contracts agreements.  Use of capital
5.26 	cost avoidance is subject to the guaranteed energy savings
5.27 	contracting program guidelines within the Department of
5.28 	Administration.
5.29 		Subd. 5.Report. By January 15 of 2005 and ,2007, the
5.30 	commissioner of administration shall submit to the commissioner
5.31 	of finance and the chairs of the senate and house of
5.32 	representatives capital investment committees a list of projects
5.33 	in the agency that have been funded using guaranteed energy
5.34 	savings, as outlined in this section, during the preceding
5.35 	biennium.  For each guaranteed energy savings contract agreement 
5.36 	entered into, the commissioner of administration shall contract
6.1 	with an independent third party to evaluate the
6.2 	cost-effectiveness of each utility cost-savings measure
6.3 	implemented to ensure that such measures were the least-cost
6.4 	measures available.  For the purposes of this section,
6.5 	"independent third party" means an entity not affiliated with
6.6 	the qualified provider, that is not involved in creating or
6.7 	providing conservation project services to that provider, and
6.8 	that has expertise (or access to expertise) in energy savings
6.9 	practices.
6.10 		Subd. 6.Contract limits. Contracts may not be entered
6.11 	into after June 30, 2007.

6.12 	Sec. 3. EFFECTIVE DATE.
 6.13 	Sections 1 and 2 are effective the day following final
6.14 	enactment.