SF 421

1st Engrossment - 92nd Legislature (2021 - 2022) Posted on 08/03/2021 05:57pm

A bill for an act
relating to energy; establishing the Natural Gas Innovation Act; encouraging natural
gas utilities to develop innovative resources; proposing coding for new law in
Minnesota Statutes, chapter 216B.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1. new text begin TITLE.
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new text begin This bill may be referred to as the "Natural Gas Innovation Act."
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new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
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Sec. 2.

new text begin [216B.2427] NATURAL GAS UTILITY INNOVATION PLANS.
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new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin (a) For the purposes of this section and the lifecycle carbon
accounting framework and cost-benefit test for innovative resources issued by the
commission, the terms defined in this subdivision have the meanings given.
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new text begin (b) "Innovative resource" means biogas, renewable natural gas, power-to-hydrogen,
power-to-ammonia, carbon capture and utilization, strategic electrification, district energy,
and energy efficiency.
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new text begin (c) "Biogas" means gas created by the anaerobic digestion of biomass, gasification of
biomass, or other effective conversion processes.
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new text begin (d) "Carbon capture and utilization" means the capture of greenhouse gases that would
otherwise be released into the atmosphere and the use of those gases to create industrial or
commercial products for sale.
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new text begin (e) "Carbon-free resource" means an electricity generation facility that, when operating,
does not contribute to statewide greenhouse gas emissions, as defined in section 216H.01,
subdivision 2.
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new text begin (f) "District energy" means a network of hot- and cold-water pipes used to provide
thermal energy to multiple buildings.
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new text begin (g) "Energy efficiency" has the meaning given in section 216B.241, subdivision 1,
paragraph (f), but does not include energy conservation investments that the commissioner
determines could reasonably be included in the natural gas utility's conservation improvement
program.
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new text begin (h) "Lifecycle greenhouse gas emissions" means the emissions of an energy resource
associated with the production, processing, transmission, and consumption of energy
associated with the resource.
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new text begin (i) "Natural gas utility" means a public utility as defined in section 216B.02, subdivision
4, that provides natural gas sales or transportation services to customers in Minnesota.
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new text begin (j) "Power-to-ammonia" means the creation of ammonia from hydrogen created via
power-to-hydrogen using a process that has lower lifecycle greenhouse gas intensity than
conventional geologic natural gas.
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new text begin (k) "Power-to-hydrogen" means the use of electricity generated by a carbon-free resource
to create hydrogen.
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new text begin (l) "Renewable natural gas" means biogas that has been processed to be interchangeable
with conventional natural gas and has lower lifecycle greenhouse gas intensity than
conventional geologic natural gas.
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new text begin (m) "Strategic electrification" means the installation of electric end-use equipment where
natural gas is a primary or back-up fuel source provided that installation (1) will result in
a net reduction in statewide greenhouse gas emissions as defined in section 216H.01,
subdivision 2, over the life of the equipment as compared to the most efficient commercially
available natural gas alternative, and (2) is installed and operated in a manner that improves
the customer's electric utility's load factor. Electric end-use equipment installed pursuant
to this section is the exclusive property of the building owner. Strategic electrification does
not include investments that the commissioner determines could be reasonably included in
the natural gas utility's conservation improvement program pursuant to section 216B.241.
Strategic electrification approved pursuant to this section is not eligible for a financial
incentive pursuant to section 216B.241, subdivision 2c.
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new text begin (n) "Total incremental cost" means the sum of:
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new text begin (1) return of and on capital investments for the production, processing, pipeline
interconnection, storage, and distribution of innovative resources included in a utility
innovation plan approved pursuant to subdivision 2;
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new text begin (2) incremental operating costs associated with capital investments in infrastructure for
the production, processing, pipeline interconnection, storage, and distribution of innovative
resources included in a utility innovation plan approved under subdivision 2;
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new text begin (3) the incremental cost to procure innovative resources from third parties;
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new text begin (4) the incremental costs to develop and administer programs included in a utility
innovation plan; and
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new text begin (5) incremental costs for research and development related to innovative resources
approved pursuant to subdivision 2, less the sum of:
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new text begin (i) any value received by the natural gas utility upon the resale of the innovative resources
or their by-products including any environmental credits included with the resale of renewable
gaseous fuels or value received by the natural gas utility when innovative resources are used
as vehicle fuel;
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new text begin (ii) any cost savings achieved through avoidance of conventional natural gas purchases,
including but not limited to any avoided commodity purchases or avoided pipeline costs;
and
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new text begin (iii) any other revenues received by the utility that are directly attributable to the utility's
implementation of an innovation plan.
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new text begin Subd. 2. new text end

new text begin Innovation plans. new text end

new text begin (a) A natural gas utility may file an innovation plan with
the commission. The utility's recommended plan must describe or include, as applicable,
the following components:
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new text begin (1) the recommended innovative resource or resources the utility plans to implement to
advance the state's goals established in section 216C.05, subdivision 2, clause (3), and
section 216H.02, subdivision 1, within the requirements and limitations set forth in this
section;
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new text begin (2) any recommended research and development investments related to innovative
resources the utility plans to undertake as part of the plan;
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new text begin (3) the total lifecycle greenhouse gas emissions that the natural gas utility expects to
reduce or avoid pursuant to the plan;
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new text begin (4) the natural gas utility's estimate of how emissions expected to be avoided or reduced
compare to total emissions from natural gas use by its customers in 2020;
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new text begin (5) any pilot program proposed by the natural gas utility related to the development or
provision of innovative resources, including an estimate of the total incremental costs to
implement the pilot program;
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new text begin (6) the cost effectiveness of innovative resources proposed from the perspective of the
natural gas utility, society, the utility's nonparticipating customers, and participating
customers as compared to other innovative resources that could be deployed to reduce or
avoid the same greenhouse gas emissions targeted by the utility's proposed resource;
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new text begin (7) for any pilot not previously approved as part of the utility's most recent innovation
plan, a third-party analysis of the lifecycle greenhouse gas intensity of any innovative
resources proposed to be included in the pilot;
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new text begin (8) for any proposed pilot not previously approved as part of the utility's most recent
innovation plan, a third-party analysis of the forecasted lifecycle greenhouse gas emissions
reductions achieved or the lifecycle greenhouse gas emissions reduced or avoided if the
proposed pilot is implemented;
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new text begin (9) an explanation of how the utility calculated the lifecycle greenhouse gas emissions
avoided or reduced by each pilot including descriptions of how the utility's method deviated,
if at all, from the carbon accounting frameworks established by the commission;
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new text begin (10) whether the recommended plan supports the development and use of alternative
agricultural products, waste reduction, reuse, or anaerobic digestion of organic waste, and
the recovery of energy from wastewater, and, if so, a description of where those benefits
will be realized;
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new text begin (11) a description of third-party systems and processes the utility plans to use to:
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new text begin (i) track the proposed innovative resources included in the plan so that environmental
benefits are used only for this plan and not claimed for any other program; and
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new text begin (ii) verify the environmental attributes and greenhouse gas intensity of proposed
innovative resources included in the plan;
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new text begin (12) a description of known local job impacts and the steps the utility and its energy
suppliers and contractors are taking to maximize the availability of construction employment
opportunities for local workers;
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new text begin (13) a description of how the utility proposes to recover annual total incremental costs
and any steps the utility has taken or proposes to take to reduce the expected cost impact
on low- and moderate-income residential customers;
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new text begin (14) any steps the utility has taken or proposes to take to ensure that low- and moderate-
income residential customers will benefit from innovative resources included in the plan;
and
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new text begin (15) a report on the utility's progress toward implementing the approved proposals
contained in its previously approved innovation plan, if applicable; and
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new text begin (16) a report of the utility's progress toward achieving the cost-effectiveness objectives
established upon approval of its previously approved innovation plan, if applicable.
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new text begin (b) Along with its recommended plan, the natural gas utility must provide forecasted
total incremental costs and lifecycle greenhouse gas emissions for:
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new text begin (1) a set of pilots that the utility estimates would provide approximately half of the
greenhouse gas reduction or avoidance benefits of the utility's preferred plan;
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new text begin (2) a set of pilots that the utility estimates would provide approximately one and a half
times the greenhouse gas reduction or avoidance benefits of the utility's preferred plan; and
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new text begin (3) a set of pilots that the utility estimates would provide approximately twice the
greenhouse gas reduction or avoidance benefits of the utility's preferred plan.
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new text begin (c) In deciding whether to approve, modify, or deny a plan, the commission may not
approve an innovation plan unless it finds that:
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new text begin (1) the size, scope, and scale of the plan and the incremental total cost of the plan will
result in net benefits under the cost-benefit framework established by the commission;
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new text begin (2) the plan will promote the use of renewable energy resources and reduce or avoid
greenhouse gas emissions at a cost level consistent with subdivision 3;
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new text begin (3) the plan will promote local economic development;
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new text begin (4) the innovative resources included in the plan have a lower lifecycle greenhouse gas
intensity than conventional geologic natural gas;
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new text begin (5) reasonable systems will be used to track and verify the environmental attributes of
the innovative resources included in the plan, taking into account any third-party tracking
or verification systems available;
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new text begin (6) the costs and revenues expected to be incurred pursuant to the plan are reasonable
in comparison to other innovative resources the utility could deploy to address greenhouse
gas emissions and considering other benefits of the innovative resources included in the
plan;
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new text begin (7) the costs and revenues expected to be incurred for any energy efficiency, district
energy, or strategic electrification measures included in the plan are reasonable in comparison
to the costs of renewable natural gas, biogas, hydrogen produced via power-to-hydrogen,
or ammonia produced via power-to-ammonia resources that the utility could deploy to
address greenhouse gas emissions;
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new text begin (8) the total amount of estimated greenhouse gas reduction or avoidance to be achieved
is reasonable considering the state's goals established in section 216C.05, subdivision 2,
clause (3), and section 216H.02, subdivision 1, customer cost, and the total amount of
greenhouse gas reduction or avoidance achieved under the natural gas utility's previously
approved plans, if applicable; and
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new text begin (9) 50 percent or more of estimated costs included for recovery in the plan are for the
procurement and distribution of renewable natural gas, biogas, hydrogen produced via
power-to-hydrogen, or ammonia produced via power-to-ammonia.
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new text begin (d) The utility bears the burden to prove the actual total incremental costs to implement
the approved innovation plan were reasonable. Prudently incurred costs incurred pursuant
to an approved plan and prudently incurred costs for obtaining the third-party analysis
required in paragraph (a), clauses (6) and (7), are recoverable either:
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new text begin (1) under section 216B.16, subdivision 7, clause (2), via the utility's purchased gas
adjustment;
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new text begin (2) in the natural gas utility's next general rate case; or
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new text begin (3) via annual adjustments provided that, after notice and comment, the commission
determines that the costs included for recovery through the rate schedule are prudently
incurred. Annual adjustments shall include a rate of return, income taxes on the rate of
return, incremental property taxes, incremental depreciation expense, and incremental
operation and maintenance expense. The rate of return shall be at the level approved by the
commission in the natural gas utility's last general rate case, unless the commission
determines that a different rate of return is in the public interest.
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new text begin (e) Upon approval of a utility's plan, the commission shall establish plan cost-effectiveness
objectives based on the cost-benefit test for innovative resources. The cost-effectiveness
objective for each plan should demonstrate incremental progress from the previously
approved plan's cost-effectiveness objective.
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new text begin (f) A natural gas utility with an approved plan must provide annual reports to the
commission regarding the work completed pursuant to the plan, including the costs incurred
under the plan and lifecycle greenhouse gas reduction or avoidance accomplished under
the plan; a description of the processes used to track, verify, and retire the innovative
resources and associated environmental attributes; an update on the lifecycle greenhouse
gas accounting methodology consistent with current science; an update on the economic
impact of the plan including job creation; and the utility's progress toward achieving the
cost-effectiveness objectives established by the commission on approval of the plan. As
part of the annual status report the natural gas utility may propose modifications to pilot
programs in the plan. In evaluating a utility's annual report the commission may:
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new text begin (1) approve the continuation of a pilot program, with or without modifications;
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new text begin (2) require the utility to file a new or modified plan to account for changed circumstances;
or
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new text begin (3) disapprove the continuation of a pilot program.
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new text begin (g) Each innovation plan shall be in effect for five years. Once a natural gas utility has
an approved innovation plan, it must file a new innovation plan within four years for
implementation at the end of the prior five-year plan period.
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new text begin (h) A utility may file an innovation plan at any time after this section becomes effective.
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new text begin (i) For purposes of this section, and the commission's lifecycle carbon accounting
framework and cost-benefit test for innovative resources, whenever an analysis or estimate
of lifecycle greenhouse gas emissions reductions, lifecycle greenhouse gas avoidance, or
lifecycle greenhouse gas intensity is required, the analysis will include, but not be limited
to, as applicable:
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new text begin (1) avoided or reduced emissions attributable to utility operations;
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new text begin (2) avoided or reduced emissions from the production, processing, and transmission of
fuels prior to receipt by the utility; and
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new text begin (3) avoided or reduced emissions at the point of end use, but in no event shall the analysis
count any one unit of greenhouse gas emissions avoidance or reduction more than once.
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new text begin The analysis or estimate may rely on emissions factors, default values, or engineering
estimates from a publicly accessible source accepted by a federal or state government agency,
where direct measurement is not technically or economically feasible, if such emissions
factors, default values, or engineering estimates can be demonstrated to produce a reasonable
estimate of greenhouse gas emissions reductions, avoidance, or intensity.
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new text begin Subd. 3. new text end

new text begin Limitations on utility customer costs. new text end

new text begin (a) The first innovation plan submitted
to the commission by a natural gas utility may not propose, and the commission may not
approve, recovery of annual total incremental costs exceeding the lesser of (1) one and three
quarters percent of the natural gas utility's gross operating revenues from service provided
in the state at the time of plan filing, or (2) $20 per nonexempt customer based on the
proposed annual total incremental costs for each year of the plan divided by the total number
of nonexempt utility customers. Notwithstanding this limitation, the commission may
approve additional annual recovery of up to the lesser of (1) an additional quarter of one
percent of the natural gas utility's gross operating revenues from service provided in the
state at the time of plan filing for recovery, or (2) $5 per nonexempt customer based on the
proposed annual total incremental costs for each year of the plan divided by the total number
of nonexempt utility customers of incremental costs for the purchase of renewable natural
gas produced from:
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new text begin (i) food waste diverted from a landfill;
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new text begin (ii) community wastewater treatment; or
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new text begin (iii) an organic mixture including at least 15 percent sustainably harvested native prairie
grasses or locally appropriate cover crops selected in consultation with the local Soil and
Water Conservation District or the United States Department of Agriculture, Natural
Resources Conservation Service, by volume.
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new text begin (b) Subsequent innovation plans submitted to the commission may not propose and the
commission may not approve, recovery of annual total incremental costs exceeding the
limits set forth in paragraph (a) unless the commission determines that the utility has
successfully achieved the cost-effectiveness objectives established upon approval of a utility
innovation plan under paragraph (a), in which case the utility may propose, and the
commission may approve, recovery of annual total incremental costs of up to the lesser of
(1) two and three quarters percent of the natural gas utility's gross operating revenues from
service provided in the state at the time of plan filing, or (2) $35 per nonexempt customer
based on the proposed annual total incremental costs for each year of the plan divided by
the total number of nonexempt utility customers. Notwithstanding this limitation, the
commission may approve additional annual recovery of up to the lesser of (1) an additional
three quarters of one percent of the natural gas utility's gross operating revenues from service
provided in the state at the time of plan filing for recovery, or (2) $10 per nonexempt
customer based on the proposed annual total incremental costs for each year of the plan
divided by the total number of nonexempt utility customers of incremental costs for the
purchase of renewable natural gas produced from:
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new text begin (i) food waste diverted from a landfill;
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new text begin (ii) community wastewater treatment; or
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new text begin (iii) an organic mixture including at least 15 percent sustainably harvested native prairie
grasses or locally appropriate cover crops selected in consultation with the local Soil and
Water Conservation District or the United States Department of Agriculture, Natural
Resources Conservation Service, by volume.
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new text begin (c) Subsequent innovation plans submitted to the commission may not propose, and the
commission may not approve, recovery of total incremental costs exceeding the limits set
forth in paragraph (b) unless the commission determines that the utility has successfully
achieved the cost-effectiveness objectives established upon approval of a utility innovation
plan under paragraph (b), in which case the utility may propose, and the commission may
approve, recovery of annual total incremental costs of up to the lesser of (1) four percent
of the natural gas utility's gross operating revenues from service provided in the state at the
time of plan filing, or (2) $50 per nonexempt customer based on the proposed annual total
incremental costs for each year of the plan divided by the total number of nonexempt utility
customers. Notwithstanding this limitation, the commission may approve additional annual
recovery of up to the lesser of (1) an additional one and one-half percent of the natural gas
utility's gross operating revenues from service provided in the state at the time of plan filing
for recovery, or (2) $20 per nonexempt customer based on the proposed annual total
incremental costs for each year of the plan divided by the total number of nonexempt utility
customers of incremental costs for the purchase of renewable natural gas produced from:
new text end

new text begin (i) food waste diverted from a landfill;
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new text begin (ii) community wastewater treatment; or
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new text begin (iii) an organic mixture including at least 15 percent sustainably harvested native prairie
grasses or locally appropriate cover crops selected in consultation with the local Soil and
Water Conservation District or the United States Department of Agriculture, Natural
Resources Conservation Service, by volume.
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new text begin (d) A large customer facility that has been exempted by the commissioner of commerce
from a utility's conservation improvement program under section 216B.241, subdivision
1a, paragraph (b), shall be exempt from the utility's innovation plan offerings and shall not
bear any costs incurred to implement an approved innovation plan unless the large customer
facility files a request with the commissioner to be included in a utility's innovation plan.
The commission may prohibit large customer facilities exempted from innovation plan costs
from participating in innovation plan pilots. For purposes of this subdivision, "gross operating
revenues" do not include revenues from large customer facilities exempted from innovation
plan costs.
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new text begin (e) A natural gas utility filing an innovation plan may also include spending and
investments annually up to ten percent of the proposed total incremental costs related to
innovative plan pilots, subject to the limitations in paragraphs (a), (b), and (c).
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new text begin Subd. 4. new text end

new text begin Innovative resources procured outside of an innovation plan. new text end

new text begin Without filing
an innovation plan, a natural gas utility may propose and the commission may approve cost
recovery for:
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new text begin (1) innovative resources acquired to satisfy a commission-approved green tariff program
that allows customers to choose to meet a portion of the customers' energy needs through
innovative resources; or
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new text begin (2) utility expenditures for innovative resources procured at a cost that is within five
percent of the average of Ventura and Demarc index prices for conventional natural gas at
the time of the transaction per unit of fossil natural gas that the innovative resource will
displace.
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new text begin An approved green-tariff program must include provisions to ensure reasonable systems
are used to track and verify the environmental attributes of innovative resources included
in the program, taking into account any third-party tracking or verification systems available.
new text end

new text begin Subd. 5. new text end

new text begin Thermal energy leadership challenge. new text end

new text begin The first innovation plan filed by a
natural gas utility with more than 800,000 customers must include a pilot thermal energy
leadership challenge for small- and medium-sized businesses. The pilot program must
provide small- and medium-sized business with thermal energy audits to identify
opportunities to reduce or avoid greenhouse gas emissions from natural gas use, and provide
incentives for businesses to follow through with audit recommendations. The utility must
develop criteria to identify businesses that take meaningful steps to follow through on audit
recommendations and recognize qualifying businesses as thermal energy leaders.
new text end

new text begin Subd. 6. new text end

new text begin Innovative resources for very high-heat industrial processes. new text end

new text begin The first
innovation plan filed by a natural gas utility with more than 800,000 customers must include
a pilot program that will provide innovative resources for hard-to-electrify industrial
processes. A large customer facility exempt from innovation plan offerings under subdivision
3, paragraph (e), shall not be eligible to participate in this pilot.
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new text begin Subd. 7. new text end

new text begin Electric cold climate air-source heat pumps. new text end

new text begin (a) The first innovation plan
filed by a natural gas utility with more than 800,000 customers must include a pilot program
that facilitates deep energy retrofits and the installation of cold climate electric air-source
heat pumps with natural gas backups in existing residential homes that have natural gas
heating systems.
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new text begin (b) For purposes of this subdivision, "deep energy retrofit" means the installation of any
measure or combination of measures, including air sealing and addressing thermal bridges,
that under normal weather and operating conditions can reasonably be expected to reduce
the building's calculated design load to ten or fewer British Thermal Units per hour per
square foot of conditioned floor area. Deep energy retrofit does not include the installation
of photovoltaic electric generation equipment, but may include the installation of a qualifying
solar thermal project, as defined in section 216B.2411.
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Sec. 3. new text begin PUBLIC UTILITIES COMMISSION LIFECYCLE CARBON ACCOUNTING
FRAMEWORK AND COST-BENEFIT TEST FOR INNOVATIVE RESOURCES.
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new text begin By June 1, 2022, the Public Utilities Commission shall issue by order frameworks for
the calculation of lifecycle carbon intensities of each innovative resource as follows:
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new text begin (1) a general framework for the comparison of power-to-hydrogen, strategic
electrification, renewable natural gas, district energy, energy efficiency, biogas, carbon
capture, and power-ammonia according to their lifecycle greenhouse gas intensities; and
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new text begin (2) a cost-benefit analytic framework to be applied to innovative resources and innovation
plans filed pursuant to section 216B.2427, that the commission will use to compare the
cost-effectiveness of those resources and plans. This analytic framework shall take into
account:
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new text begin (i) the total incremental cost of the plan or resource that would be evaluated under the
framework and the lifecycle greenhouse gas emissions avoided or reduced by the innovative
resource or plan, using the framework developed under clause (1);
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new text begin (ii) any important additional economic costs and benefits, programmatic costs and
benefits, additional environmental costs and benefits, and other costs or benefits that may
be expected under a plan; and
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new text begin (iii) baseline cost-effectiveness criteria against which an innovation plan should be
compared. In establishing the baseline criteria, the commission shall take into account the
options available for reducing lifecycle greenhouse gas emissions from natural gas end uses
and the goals in section 216C.05, subdivision 2, clause (3), and section 216H.02, subdivision
1. To the maximum reasonable extent, the cost-benefit framework shall be consistent with
environmental cost values established pursuant to section 216B.2422, subdivision 3, and
other calculation of the social value of greenhouse gas emissions reduction.
new text end

new text begin The commission may update frameworks established under this section as necessary.
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Sec. 4. new text begin EFFECTIVE DATE.
new text end

new text begin Sections 1 and 3 are effective the day following final enactment. Section 2 is effective
June 1, 2022.
new text end