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                            CHAPTER 444-H.F.No. 637 
                  An act relating to energy; allowing for a market value 
                  exclusion for electric power generation facilities 
                  based on facility efficiency; permitting certain 
                  consumptive use of water; providing for electric 
                  supply agreements; providing for an analysis of 
                  utility taxation; proposing coding for new law in 
                  Minnesota Statutes, chapters 216B; and 272. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  [216B.1621] [ELECTRIC SERVICE AGREEMENTS.] 
           Subdivision 1.  [AGREEMENT.] When a retail customer of a 
        public utility proposes to acquire power from or construct a new 
        electric power generation facility in the assigned service area 
        of the utility serving the retail customer to provide all or 
        part of the customer's electric service needs, the public 
        utility may negotiate with and enter into an agreement with the 
        customer to supply electric power to the customer in order to 
        defer construction of the facility until the utility has need of 
        power generated by the proposed facility, if the public 
        utilities commission approves the agreement under subdivision 2. 
           Subd. 2.  [COMMISSION APPROVAL.] The commission shall 
        approve an agreement under this section upon finding that: 
           (1) the proposed electric service power generation facility 
        could reasonably be expected to qualify for a market value 
        exclusion under section 272.0211; 
           (2) the public utility has a contractual option to purchase 
        electric power from the proposed facility; and 
           (3) the public utility can use the output from the proposed 
        facility to meet its future need for power as demonstrated in 
        the most recent resource plan filed with and approved by the 
        commission under section 216B.2422. 
           Sections 216B.03, 216B.05, 216B.06, 216B.07, 216B.16, 
        216B.162, and 216B.23 do not apply to an agreement under this 
        section. 
           Sec. 2.  [272.0211] [SLIDING SCALE MARKET VALUE EXCLUSION 
        FOR ELECTRIC POWER GENERATION EFFICIENCY.] 
           Subdivision 1.  [EFFICIENCY DETERMINATION AND 
        CERTIFICATION.] An owner or operator of a new or existing 
        electric power generation facility, excluding wind energy 
        conversion systems, may apply to the commissioner of revenue for 
        a market value exclusion on the property as provided for in this 
        section.  This exclusion shall apply only to the market value of 
        the equipment of the facility, and shall not apply to the 
        structures and the land upon which the facility is located.  The 
        commissioner of revenue shall prescribe the forms and procedures 
        for this application.  Upon receiving the application, the 
        commissioner of revenue shall request the commissioner of public 
        service to make a determination of the efficiency of the 
        applicant's electric power generation facility.  In calculating 
        the efficiency of a facility, the commissioner of public service 
        shall use a definition of efficiency which calculates efficiency 
        as the sum of: 
           (1) the useful electrical power output; plus 
           (2) the useful thermal energy output; plus 
           (3) the fuel energy of the useful chemical products, 
        all divided by the total energy input to the facility, expressed 
        as a percentage.  The commissioner must include in this formula 
        the energy used in any on-site preparation of materials 
        necessary to convert the materials into the fuel used to 
        generate electricity, such as a process to gasify petroleum 
        coke.  The commissioner shall use the high heating value for all 
        substances in the commissioner's efficiency calculations.  The 
        applicant shall provide the commissioner of public service with 
        whatever information the commissioner deems necessary to make 
        the determination.  Within 30 days of the receipt of the 
        necessary information, the commissioner of public service shall 
        certify the findings of the efficiency determination to the 
        commissioner of revenue and to the applicant.  The commissioner 
        of public service shall determine the efficiency of the facility 
        and certify the findings of that determination to the 
        commissioner of revenue every two years thereafter from the date 
        of the original certification. 
           Subd. 2.  [SLIDING SCALE EXCLUSION.] Based upon the 
        efficiency determination provided by the commissioner of public 
        service as described in subdivision 1, the commissioner of 
        revenue shall subtract five percent of the taxable market value 
        of the qualifying property for each percentage point that the 
        efficiency of the specific facility, as determined by the 
        commissioner of public service, is above 35 percent.  The 
        reduction in taxable market value shall be reflected in the 
        taxable market value of the facility beginning with the 
        assessment year immediately following the determination.  For a 
        facility that is assessed by the county in which the facility is 
        located, the commissioner of revenue shall certify to the 
        assessor of that county the percentage of the taxable market 
        value of the facility to be excluded. 
           Subd. 3.  [REVOCATION.] (a) The commissioner of revenue 
        shall revoke the market value reduction under this section, if: 
           (1) the applicant exercises its right under federal law to 
        require an electric utility to purchase power generated by the 
        facility; and 
           (2) the electric utility notifies the commissioner that the 
        applicant has exercised its right to require purchase of power. 
           The revocation is effective beginning the first assessment 
        year after notification of the commissioner. 
           (b) For purposes of this subdivision, the following terms 
        mean: 
           (1) "Federal law" is the federal Public Utility Regulatory 
        Policies Act, United States Code, title 16, section 824a-3, and 
        regulations promulgated under that section, including Code of 
        Federal Regulations, title 18, sections 929.303 and 929.304. 
           (2) "Electric utility" means an electric utility as defined 
        in federal law described in clause (1). 
           Subd. 4.  [ELIGIBILITY.] An owner or operator of a new or 
        existing electric power generation facility who offers electric 
        power generated by the facility for sale is eligible for an 
        exclusion under this section only if: 
           (1) the owner or operator has received a certificate of 
        need under section 216B.243, if required under that section; 
           (2) the public utilities commission finds that an agreement 
        exists or a good faith offer has been made to sell the majority 
        of the net power generated by the facility to an electric 
        utility which has a demonstrated need for the power.  A right of 
        first refusal satisfies the good faith offer requirement.  The 
        commission shall have 90 days from the date the commission 
        receives notice of the application under subdivision 1 to make 
        this determination; and 
           (3) the electric utility has agreed in advance not to offer 
        the electric power for resale to a retail customer located 
        outside of the utility's assigned service area, or, if the 
        utility is a generation and transmission cooperative electric 
        association, the assigned service area of its members, unless 
        otherwise permitted by law. 
           For the purposes of this subdivision, "electric utility" 
        means an entity whose primary business function is to operate, 
        maintain, or control equipment or facilities for providing 
        electric service at retail or wholesale, and includes 
        distribution cooperative electric associations, generation and 
        transmission cooperative electric associations, municipal 
        utilities, and public utilities as defined in section 216B.02, 
        subdivision 4. 
           Sec. 3.  [LEGISLATIVE APPROVAL OF CONSUMPTIVE USE OF 
        WATER.] 
           Pursuant to Minnesota Statutes, section 103G.265, 
        subdivision 3, the legislature approves the consumptive use 
        under a permit of more than 2,000,000 gallons per day average in 
        a 30-day period in Rosemount and Inver Grove Heights in 
        connection with a cogeneration power facility which utilizes 
        gasified petroleum coke as its primary fuel source, subject to 
        the commissioner of natural resources making a determination 
        that the water remaining in the basin of origin will be adequate 
        to meet the basin's need for water and subsequent approval by 
        the commissioner. 
           Sec. 4.  [ANALYSIS OF UTILITY TAXATION.] 
           The commissioner of revenue, in consultation with the 
        commissioner of public service and the public utilities 
        commission, shall undertake an analysis of the following issues 
        and report the findings and recommendations of the analysis to 
        legislative committees with jurisdiction over these issues by 
        January 15, 1997: 
           (1) the amount of taxes paid by utilities in this state 
        relative to other states; 
           (2) a comparison of taxes paid by investor-owned utilities, 
        municipal gas and electric utilities, cooperative utilities, 
        producers of cogeneration power, and independent power 
        producers; 
           (3) the competitive aspects and consequences of disparities 
        in utility taxation, to the electric and gas industry and to the 
        state, in light of the restructuring that is occurring in the 
        industry; and 
           (4) other issues related to utility taxation and 
        recommendations for reform of the utility tax system, including 
        property taxes. 
           For the purposes of this section, "taxes paid" includes 
        payments made in lieu of taxes and other payments and 
        contributions of goods and services in the nature of payments in 
        lieu of taxes. 
           Sec. 5.  [EFFECTIVE DATE.] 
           Section 2 is effective for taxes levied in 1996 and 
        thereafter, for taxes payable in 1997 and thereafter.  Sections 
        1 and 3 are effective on the day following final enactment. 
           Presented to the governor April 4, 1996 
           Signed by the governor April 11, 1996, 11:32 a.m.