A guide to the Minnesota DFL’s 100% carbon-free standard

The DFL bill that would steer utilities toward a carbon-free electric grid is simple in concept: All electric utilities in the state would be asked to use 100% emissions-free energy by 2040.

But the proposal — which Democrats have advanced through the Legislature at lightspeed in January — is really a complex regulatory scheme with exceptions, carve outs, off ramps and enough details to fill more than two dozen pages of dense legislation.

The bill has also morphed from a plan that most utilities harbored serious concerns over to a proposal that many power companies appear to find at least somewhat palatable, though plenty still have concerns about keeping costs low and keeping the lights on while rapidly changing their fleet of electricity generators.

Gov. Tim Walz and many Democrats have fought for years to shape the future of electricity in an effort to slash greenhouse gas emissions, even as electric utilities have made far more progress than the transportation sector — another top carbon-producing industry — in reducing pollution. But the 100% bill has only now become possible after the DFL flipped the Republican-led Senate in the 2022 election to win full control of state government.

The GOP still has many objections to the legislation. So do some utilities, especially in more rural areas. North Dakota even has issues with the bill. But opponents have little power to stop it if Democrats are united in support. And on Thursday, DFLers in the Minnesota House were united, passing the bill on a 70-60 vote that broke along party lines. The state Senate is expected to take up the legislation as soon as next week.

Here’s what you need to know about the bill, and how it would manage the electric sector over the next two decades.

How the bill works

The bill actually has more than one power standard for electric utilities. 

One is a renewable energy standard, which expands current law that already required power companies to hit 25% renewables by 2025. Now, utilities would need to reach 55% renewables by 2035. 

But the most consequential change is an entirely new carbon-free standard, which ramps up for electric utilities in the bill from 80% in 2030 to 90% in 2035, and then finally to 100% in 2040.

There is a difference in the proposed law in what’s considered to be carbon free and what is defined as renewable. Anything that doesn’t emit carbon is considered to be carbon free. That includes nuclear, hydroelectric power and more, along with wind and solar.

But not every renewable resource is carbon free. For instance, biomass counts as renewable, which includes power derived from burning waste. And not every carbon-free resource is considered renewable. Nuclear power doesn’t qualify for the renewable standard. In addition, only certain hydroelectric power is considered renewable under the bill. A notable exception: The waste-burning Hennepin Energy Recovery Center (known as HERC) in Minneapolis would explicitly not count as renewable under the bill, which House Majority Leader Jamie Long said was because of environmental justice concerns.

Separately, the bill also eases some regulations on some wind, solar and low-voltage transmission line projects.

There are exceptions to the rules

One of the most controversial aspects of the bill is what happens if a utility can’t actually get to 100% carbon-free energy by 2040. And that’s a distinct possibility. 

Annie Levenson-Falk, executive director of the Citizens Utility Board, which advocates for low power bills but also supports the 100% bill, told lawmakers at a House hearing last week that she is confident utilities can climb above 90% clean energy without risking reliability or increasing costs. Moving too slowly toward carbon-free power might even raise power bills more in the long run, she said.

However, Levenson-Falk said she “can’t sit here today and say, though, that Minnesota can for sure get to 100% percent carbon-free electricity on this timeline without issues.”

“I think that advances in technology and grid management solutions will make it possible, but that last 10% requires a bit of faith,” she said.

With that in mind, the bill has two main “outs” for utilities. One is a system of renewable energy credits, also known as RECs. Power companies can buy these credits in lieu of hitting carbon-free or renewable goals as a way to offset the carbon emissions. They essentially pay for clean energy efforts elsewhere, and are already part of the existing renewable energy standard in Minnesota law.

However, a utility would also be able to ask Minnesota’s Public Utilities Commission — made up of five officials appointed by the governor — to allow it to break the regulations if adhering to them would threaten affordability for customers or reliability of the grid.

The ease with which utilities will be able to use a so-called “off ramp” has been hotly debated at the Capitol. But generally speaking, the exceptions mean the bill does not absolutely require that Minnesota electricity will be fully carbon free by 2040. It also doesn’t block power companies from owning or building new fossil fuel plants. Since power companies plan on long timelines, it’s possible an “off-ramp” request could come sooner rather than later.

Because of the off ramps and the renewable credits, Sen. Nick Frentz, a North Mankato DFLer who is prime sponsor of the bill in the Senate, has been calling his bill a carbon-neutral goal rather than a carbon-free mandate.

Another exception in the bill is for what’s known as “beneficial electrification.” For example, if a utility wants to expand its capacity to take on more electric vehicles but as a result can’t reach 100% carbon-free energy, the PUC can grant an exception if reducing gas cars would still bring an overall benefit to the state.

Lawmakers have negotiated with utility companies — and made concessions

The bill has changed in some ways since DFLers last proposed the 100% standard and passed it off the House floor in 2021. That year, Republicans who controlled the state Senate blocked the measure.

Much of the changes were made to address concerns from power companies. “Whenever a bill looks like it could become law, then all of the sudden it becomes serious,” said Long, a Minneapolis DFLer and prime sponsor of the House bill. “We’re trying to make sure that we’re being responsive to legitimate questions and concerns while still keeping the overall framework and goals intact.”

One change in the bill is tied to hydroelectricity. Only smaller hydro plants — less than 100 megawatts — have been considered renewable power under the existing Renewable Energy Standard. But now, existing hydro will count as renewable energy.

That means hydro power used by Duluth-based Minnesota Power that comes from a large facility in Manitoba will count toward the 55% renewables goal when it previously did not, said Julie Pierce, vice president of strategy and planning for the company. Minnesota Power says it already generates half its energy from renewable resources, including a significant chunk from hydro. The company also plans to reach 70% renewable by 2030.

Hydro from Manitoba has been controversial among some environmentalists because of tribal opposition and worry about the impact on natural resources. Minnesota Power is the second-largest private utility in the state and serves much of northeastern Minnesota.

The bill does say if a utility builds new hydro, only smaller plants will count toward the renewable goal. However, hydro power is considered carbon free under the bill in all circumstances.

Another provision of the bill offers some short-term protection for Minnesota Power’s use of a natural gas plant in Superior, Wisconsin, in line with an agreement the company struck with environmental advocates. Gas from the Nemadji Trail Energy Center would still count in determining the 2040 carbon-free energy mix.

A third major change in the bill was based on a request from electric cooperatives, who have had significant concerns with the bill. Cooperatives are generally smaller and have less money at their disposal compared to major utilities like Xcel Energy. They also have fewer existing “baseload” carbon-free resources like Xcel’s large nuclear capacity or Minnesota Power’s hydro. Baseload power, unlike wind and solar, is more  consistent and less intermittent.

All utilities that are not investor owned — which includes cooperatives and municipal power agencies — will only have to hit 60% carbon free by 2030, rather than 80%. The carbon-free standard will remain the same as for private utilities in later years. “Their request was, ‘look, we’re starting in a different place than a lot of the investor-owned utilities are,’” Long said.

Chris Clark, the regional president of Xcel Energy, told House lawmakers that the bill was also amended to support “the thoughtful wind-down of operations at our existing coal units.”

What utilities are saying

The reaction from utilities has been mixed. Most said the bill had improved thanks to amendments negotiated with utilities. But others still had significant concerns.

Xcel Energy offered “supportive comments” at a recent Senate hearing, said Bria Shea, regional vice president of regulatory policy. Shea said the measure encourages the utility to move faster than its current 2050 carbon-free goal, a prospect that is “exciting but also challenging.” Shea said Minnesota is well-positioned to take advantage of the federal Inflation Reduction Act and the previous infrastructure bill to help it reach goals. The utility is 60% carbon free now and plans to reach at least 80% by 2030.

Pierce, from Minnesota Power, told the Senate panel that the bill gives them tools to manage an accelerated energy transition and said she appreciated the “terrific work” of lawmakers and others who negotiated the legislation.

Justin Jahnz, president and CEO of East Central Energy based in Braham, said his co-op and the Minnesota Rural Electric Association have concerns with the bill and felt “the state’s cooperative voices were not being heard” when the measure was first introduced.

But after changes were made to the legislation, Jahnz said the MREA didn’t oppose the measure.

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Joe Hoppe, manager of legislative affairs for western Minnesota’s Otter Tail Power, said his company is one of the smallest private utilities in the country and has a very rural customer base that serves a median-sized community like the 174-person town of Winger and a median household income of $38,500.

Hoppe said as the Midcontinent Independent System Operator — the vast power distribution grid service known as MISO — has issued reliability warnings as power companies continue to retire fossil fuel production, lawmakers should be cautious in imposing mandates.

“The pace of the generation fleet transition must be affordable for our customers in towns like Winger and it must not jeopardize reliability,” he said.

And Joyce Peppin, general counsel for Wisconsin-based Dairyland Power Cooperative, said lawmakers should lift the state’s moratorium on new nuclear power so utilities can explore the new technology of smaller reactors. 

Republicans still have major concerns

At legislative hearings in January, Republicans have pushed back on what the GOP has deemed the “black-out bill.”

Some lawmakers questioned established science about human-caused climate change. But others in the GOP argued the DFL should consider lifting the state’s moratorium on nuclear power, or include provisions to support a prospective copper-nickel mining industry in northeastern Minnesota to power green technology.

Another Republican concern was that the “off ramp” for utilities won’t be easy enough to get, and small municipal and cooperative utilities — and more importantly their customers — will face higher costs from building infrastructure or buying credits that larger utilities can more easily absorb.

“For our small munis and co-ops especially, some type of knowledge that they have an ability if they cannot get to these standards that they’re not going to have to get there by going into technologies that they can’t afford or buying RECs from other places that they cannot afford that will be directly passed onto their ratepayers,” said Sen. Jason Rarick, R-Pine City.

Rarick also complained the major policy bill has moved so quickly through the Legislature that it can’t properly be vetted.

Princeton Sen. Andrew Mathews, the top Republican on the Senate’s Energy, Utilities, Environment and Climate Committee, said he appreciated changes to the bill, but said he still views it more as an “activist bill” rather than a “good governance bill.” He said power rates in Minnesota have gone up too quickly already. And he urged lawmakers to change the bill so that the standards would automatically be swept aside if the state experiences significant blackouts. 

The interpretation of affordability and reliability would be left up to the PUC in the bill.

The North Dakota question

Another wrinkle in the saga comes from out of state. North Dakota’s Gov. Doug Burgum and the state’s attorney general and ag commissioner sent Minnesota Gov. Tim Walz a letter asking the bill to apply only to electricity generated within Minnesota, rather than energy used by state utilities. Power is bought and sold across state lines.

The North Dakota officials had concerns the measure could impact some of its carbon capture efforts and prohibit utilities from using “dispatchable and accredited resources.” Burgum’s letter also said the legislation could violate constitutional rules governing interstate commerce. Minnesota lost a lawsuit over similar issues after passing the Next Generation Energy Act in 2007.

Frentz said the bill had been altered slightly in an effort to address those constitutional concerns, though it’s unclear if the change would appease North Dakota.