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Minnesota’s Comments on the Proposed Federal Plan and Model Trading Rules

January 15, 2016

Trading programs as the federal plan and for model rules Minnesota supports the use of a flexible trading-ready program for the federal plan. The success of the

Clean Power Plan rests in part on its flexibility. States, and not EPA, remain the most appropriate regulators

of environment and energy programs, and an inflexible federal plan could interfere with orderly energy

planning from state to state, threatening reliability and resulting in significant ratepayer impacts. Trading

and trading-ready programs can provide considerable flexibility, resulting in a more cost-effective

achievement of required emissions performance standards. EPA must ensure that when finalizing the

model rules and federal plan, it supports to the greatest extent possible a robust and liquid trading market.

Minnesota supports the proposed provision of two separate model trading rules (rate- and mass-based) to

assist states seeking to develop trading and trading-ready state plans. The full benefits of trading programs

will only be realized if robust programs with sufficient numbers of trading partners and “currency” are

developed. The proposed model rules provide such a framework and with some modifications, can ensure

least cost achievement of Clean Power Plan requirements.

While Minnesota is on a path to adopt its own plan, the federal plan decision (i.e., whether the federal plan

will incorporate rate- or mass-based targets and trading) may have important implications for us, as it will

influence potential trading partners and overall compliance flexibility. We are aware that some of our

stakeholders will recommend EPA maintain flexibility for federal plan states, and finalize the plan option

(either rate- or mass-based) that works best for each individual state’s circumstances rather than selecting

one approach for all federal plan states. While Minnesota is not yet ready to declare whether it prefers a

rate- or mass-based approach for either its state plan or for the federal plan, we strongly encourage EPA, to

the extent that it remains committed to finalizing one plan approach for all federal plan states, to identify

its preferred approach as early as possible – preferably no later than summer 2016, so that states can

consider federal plan pathways as they begin state plan decision-making.

EPA administered tracking system As proposed by the model rule, state trading-ready plans must use an EPA-administered tracking system.

Minnesota recommends EPA broaden its rule language to provide the opportunity for states to use either

an EPA-administered tracking system or an EPA-designated tracking system that is interoperable with an

EPA-administered system. While we agree that an EPA-administered tracking system provides a valuable

resource for states just beginning renewable energy tracking and crediting programs, we believe that

including interoperable systems (in addition to the EPA-administered system) is more supportive of a broad

trading program. Renewable Energy Credit (REC) tracking systems currently support broad interoperability

among states with similar Renewable Portfolio Standard programs with important variations like limitations

on fuel types, vintages, etc.

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The Minnesota Public Utilities Commission and utility commissions of surrounding states established the

Midwest Renewable Energy Tracking System (M-RETS) in the 2000s.1 The overall purpose of M-RETS is to:

allow each jurisdiction to verify that:

o renewable energy was produced and delivered to the electric system,

o the renewable energy meets requirements of the various jurisdictions, and

o the renewable energy is counted only once towards any renewable energy requirements.

allow utilities additional flexibility in meeting various requirements by allowing them to purchase a

credit, in addition to the options of developing and operating their own renewable generation, or

purchasing renewable energy under power purchase agreements.

assist utilities and regulatory staff in determining utility compliance with requirements.

In Minnesota, data regarding delivery of renewable energy to the transmission system comes from the

Midcontinent Independent System Operator (MISO), which provides sufficient arms-length verification of

renewable energy production when the power is delivered to the transmission system. Minnesota supports

a model rule approach that would allow it to use both M-RETS and MISO to verify renewable energy

generation on at least a monthly interval and believes the M-RETS functionality (and that of similar

systems) could be adapted to the tracking and trading of emission rate credits (ERCs) under the Clean

Power Plan as well.

Trading linkages between federal plan states and trading-ready state plan states Minnesota supports EPA’s proposed approach, allowing broad linkages between federal plan states and

trading-ready state plan states that use the same form of the standard (i.e., rate or mass). The success of a

trading program is at least partially dependent on a sufficient number of trading partners, and allowing

linkages between state and federal plan states better ensures a sufficient pool of these trading partners.

Proposed unlimited ERC banking/prohibit borrowing Minnesota supports EPA’s proposed approach to ERC and allowance banking, wherein ERCs and allowances

do not expire and can be banked and/or used for compliance in perpetuity. This approach has been

successful in other federal trading programs, such as the Acid Rain Program, in that emissions reductions

continued to occur as expected (and even beyond initial expectations), even as the number of allowances

available increased due to the existence of banked allowances. Early emissions reductions that exceed

performance required by the applicable standard or target, and therefore provide the availability of banked

allowances, tend to be followed by continued good emissions performance ensuring program success.

While programs with expiring allowances or credits also work successfully, they do reduce program

flexibility somewhat, and increase complexity of tracking and trading systems. Because the success of the

Clean Power Plan rests in part on a liquid trading market, Minnesota recommends EPA finalize its model

rules and federal plan with unlimited banking of non-expiring allowances and ERCs.

Minnesota also concurs with EPA’s proposal to prohibit allowance or ERC “borrowing” from future

compliance periods. Whereas the ability to bank allowances/ERCs depends on earlier performance

exceeding expectations of the program targets, borrowing indicates failure to meet earlier target

1 For example, on October 19, 2004, the Minnesota Public Utilities Commission issued an ORDER--SECOND ORDER

IMPLEMENTING MN. STAT. 216B.1691, OPENING DOCKET TO INVESTIGATE MULTI-STATE PROGRAM FOR TRACKING AND

TRADING RENEWABLE CREDITS, & REQUESTING PERIODIC UPDATES FROM STAKEHOLDER GROUP. On October 9, 2007, the

Commission issued its ORDER--APPROVING MIDWEST RENEWABLE ENERGY TRACKING SYSTEM AND REQUIRING UTILITIES TO

PARTICIPATE IN M-RETS.

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expectations. Early emissions reductions – at a minimum, those expected by EPA’s earliest targets, are

necessary to ensure progress in national efforts to address climate change. Allowance or ERC borrowing

essentially allows a state or electric generating unit (EGU) to delay this critical progress, and is therefore

inappropriate. Furthermore, the model rule provides for multi-year compliance periods with allowances

distributed for the entire compliance period at one time, rather than year by year, which make

allowance/ERC borrowing unnecessary.

Subcategorized rate-based trading approach Minnesota supports the use of the subcategorized emissions performance rates in a trading and trading-

ready system. The uniform performance standards ensure equal value of credits across states that would

otherwise have disparate blended state-specific target rates, better facilitating movement of credits (ERCs)

in the market, both within and across state borders.

ERC generation - disparate treatment between federal plan and model rules

While Minnesota expects to take advantage of broad ERC generation eligibility proposed in the model rules

if we craft a rate-based state plan, we appreciate the challenge posed by EPA’s possible inclusion of a

broader set of ERC-eligible activities for federal plan states. Because energy planning decisions are typically

made at the state or even local level, EPA’s involvement in reviewing and crediting generation and savings

from programs that require thoughtful and rigorous evaluation, measurement and verification (EM&V)

protocols and reporting can be administratively onerous. It also expands EPA’s involvement in areas of

energy planning best left to states. However, as mentioned previously, the success of the Clean Power Plan

rests in part on its flexibility; limiting ERC-eligible activities for a certain subset of states serves to reduce

flexibility and market liquidity, and potentially disincentivizes carbon-reducing programs that might

otherwise occur in such states. Further, because some states limit the authority of state air agencies to

adopt regulations and requirements more stringent or expansive than federal requirements, we are

concerned that a federal plan that includes only a small subset of sources as ERC-eligible (and therefore,

covered by federal regulation) could potentially serve to limit the ability of states developing their own

plans to expand ERC-eligibility.

We also note that EPA does intend to manage EM&V and tracking for demand side energy efficiency for

federal plan states under the Clean Energy Incentive Program and believe EPA could, at a minimum,

accommodate energy efficiency as an ERC-eligible resource throughout the federal plan compliance period.

We recommend that both the model rule and federal plan allow for the broad set of ERC-eligible activities –

and by extension the EM&V associated with them - authorized by the final Clean Power Plan regulatory

language. To the extent that EPA may be unable to finalize EM&V protocols for the full range of (final Clean

Power Plan defined) ERC-eligible activities prior to federal plan finalization, we suggest that EPA maintain

such activities as potentially ERC-eligible for the federal plan pending finalization of EM&V plans.

Definition of energy efficiency for ERC eligibility EPA may want to include “system efficiency as a result of program, project or measure efficiency” in its

definition of efficiency for both the federal plan and model rules. Measures such as air conditioning cycling

programs or thermal storage through use of hot water heaters that potentially add load to the electric

system may result in system efficiencies through their demand and consumption reduction capacity.

Limiting the demand-side efficiency definition to what occurs at a facility, premise, project, or measure

level may hinder investment in opportunities that afford greater efficiency throughout the distribution

network (as opposed to the generation or transmission parts) of the electric system.

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ERC generation – restricting ERC issuance for emissions reductions in mass-based states As proposed in the model rule, EPA intends to restrict ERC issuance for any emission reduction measures

located in a mass-based state, except for renewable energy, and only that renewable energy shown to

meet load in the rate-based state seeking to issue ERCs (demonstrated with power delivery contracts or

power purchase agreements and payments thereon). Minnesota believes these limitations to be

reasonable to prevent double counting of resources and ensure program integrity.

Mass-based allocations Minnesota strongly supports the proposed approach allowing federal-plan states (as well as model

rule/trading-ready states) to assume control of allocations with a limited state-plan submittal. Modifying

allowance allocation does not affect program stringency, but can provide an important means to address

unique, state-specific energy planning requirements that EPA’s proposed allocation strategy may not be

able to support.

Allocations to units that retire As proposed, EPA intends to shift allowances for units that do not operate for two full calendar years to the

renewable energy set-aside, but it is unclear whether this proposal is specific only to federal plan states, or

whether this component is part of the “presumptively approvable” elements from the model rules for

states developing plans. Minnesota does not support this component as part of a presumptively approvable

plan pathway for states developing their own plans.

If, however, EPA does finalize the model rule with this component included as a presumptively approvable

element for state plans, Minnesota recommends that EPA modify its proposed approach regarding

allocations to units that “retire.” Xcel Energy’s Sherburne County Generating Station (Sherco) Unit 3 in

Minnesota was offline nearly two full years for repair from November 2011 to October 2013 (this outage

resulted in a need for EPA to modify Minnesota’s baseline for the Clean Power Plan). Under EPA’s

proposed approach, an outage of similar length, were it to fall over two calendar years, could cost a unit its

“share” of allowances, even though in the case of Sherco, Unit 3 did return to service and continue

operating. At a minimum, EPA’s treatment of non-operating units should consider circumstances wherein a

plant might be temporarily idled for necessary repair work that can take significant amounts of time to

complete. Further, EPA’s approach should recognize the significant compliance resource retiring units can

make available to an affected utility, and ensure that the affected utility receives the benefit of this

resource for more than one compliance period, lest they disincentivize possible retirement strategies by

such utilities. As proposed, Minnesota fears that EPA’s treatment could result in utilities keeping older, less-

efficient units operating longer than necessary if only to ensure continued availability of allowances. We

recommend EPA consider additional flexibility for retiring/non-operating units.

Addressing leakage Minnesota is concerned that the proposed federal plan/model rule set-asides for renewable energy and

output-based generation will not adequately protect against the new source leakage they are intended to

address. We are particularly concerned whether the one-size-fits-all approach identified in EPA’s set-asides

meshes with current and planned energy profiles in different states to actually align incentives for existing

natural gas combined-cycle (NGCC) units under mass-based programs to those under rate-based programs.

In the case of the proposed output-based set-aside, only generation from existing NGCCs operating higher

than 50% capacity is eligible – this is intended to incentivize generation that would not have occurred

absent this set-aside. In many states, however, business-as-usual NGCC capacity factors are far lower than

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50%, raising the question whether any units would generate at levels high enough to qualify for the set-

aside, or whether the set-aside will be largely (or entirely) returned to the general pool of allowances. Such

an outcome renders the set-aside as a largely useless paperwork exercise that has no actual impact

regarding leakage. Minnesota recommends EPA consider whether the output-based updating set-aside

should rely upon each individual state’s typical NGCC capacity factor (or even each unit’s typical capacity

factor) in terms of defining the point at which NGCC units can earn allowances from the output-based

updating set-aside .

In the case of the renewable energy set-aside, Minnesota recommends EPA allow energy efficiency, and

broader categories of renewable energy as identified by states in state plans (if desired), be eligible to earn

allowances from the set aside. States are in a better position to assess energy planning needs than is the

EPA, and to the extent that energy efficiency programs can, similar to renewable energy developments,

reduce emissions leakage to new sources, states should be allowed to leverage such resources as

presumptively approvable “leakage strategies.”

EPA must identify more presumptively approvable “leakage” strategies for model rule states, and provide

description of any required technical demonstrations needed to support the use of different strategies -

beyond those included in the final model rule. The final model rule should provide states with a menu of

presumptively approvable allowance set-aside options and/or other leakage strategies to provide choices

and combinations that may better suit each state’s particular energy profile.

Minnesota also notes that, while we share a concern that leakage on a national level may be a legitimate

problem, it appears likely that the problem may not exist in all states equally (or at all). Some states –

Minnesota included – have statutes and policies in place that serve to avoid the problem of emissions

leakage to new sources. It is important that EPA’s approach to leakage appropriately correct problems

where they exist, and clearly allow states to demonstrate how and where leakage problems don’t exist. We

recommend that EPA identify presumptively approvable elements of a state demonstration that new

source leakage is unlikely to occur in a specific state based on energy planning processes, statutory

requirements, technical demonstrations, etc. Such a demonstration would be intended to avoid the use of

EPA-prescribed allowance set-asides (or any other leakage strategies EPA finalizes in the model rule).

EPA might also identify in the model rule a prescribed end to the “leakage period” where model rule

leakage strategies (set-asides) may be allowed to expire. It is inappropriate to continue incentivizing

existing unit generation in perpetuity – this effectively subsidizes the continued operation of plants that

may be obsolete.

Evaluation, Measurement and Verification (EM&V)

Revenue quality metering for 10kw< renewable energy resources Minnesota suggests, instead of defining a size threshold for renewable energy projects, the differentiation

should be whether the renewable energy is interconnected to the transmission or distribution system.

Production of renewable energy interconnected to the transmission system can be verified by data from

the independent system operator or a regional transmission organization; production of renewable energy

interconnected to a utility’s distribution system relies on the utility’s metering. RE that is connected to both

the transmission and distribution system should be considered for compliance or ERC generation regardless

of size.

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Minnesota understands that measured output from a renewable energy system must be derived from a

revenue quality meter that meets the applicable ANSI C-12 standard or equivalent, and for customer-sited

generators that are interconnected behind the customer meter, measurement at the AC output of the

inverter, adjusted to reflect the energy delivered into the transmission or distribution grid at the generator

busbar is required. Minnesota is generally supportive of this approach if M-RETS or MISO data is

unavailable.

Minnesota is generally supportive of EPA’s approach to have third-parties or self-reporting of RE data that

does not go through the control settlements process be submitted, at least annually, to M-RETS for tracking

and verification.

Aggregation of generation data EPA sought comment on the appropriate requirements for allowing generation data to be aggregated.

Minnesota believes that utilities with affected EGUs need to keep track of the amount of renewable energy

produced by each renewable energy facility, but they can add up RECs for compliance purposes. Under M-

RETS, a REC is a REC regardless of how it is generated, as long as the technology is eligible to count toward

the renewable energy standard. Even if the renewable energy system is not being used to generate a REC

or the utility does not own the REC, a utility would still be tracking the production on their system.

Minnesota would want its utilities to keep track of production of each renewable energy facility

interconnected to the distribution system, so we can ensure not only compliance with the renewable

energy standard, but also compliance with the Clean Power Plan. Minnesota supports a state’s ability to be

able to aggregate data for compliance purposes or for ERC generation, assuming that all MWh of renewable

energy aggregated are zero-emitting sources. For renewable energy systems, such as combined heat and

power (CHP) or biomass, there may be emissions associated with these technologies and they should not

be aggregated in with zero-emitting sources such as solar energy.

Combined heat and power EM&V As noted previously, we recommend that both the model rule and federal plan allow for the broad set of

ERC-eligible activities, including combined heat and power (CHP), authorized by the final Clean Power Plan

regulatory language. We also believe CHP should be considered eligible for renewable energy set-asides

created under the mass based federal plan and model trading rule. Additionally, we recommend that the

EM&V requirements for systems under 25 MW not be limited to renewable energy EM&V methods. The US

DOE SEE Action Network’s Uniform Methods Project (UMP) is currently developing a methodology for

evaluating CHP as an efficiency measure and establishing methods for measurement and verification.

Minnesota encourages EPA to coordinate with this group and monitor the project to develop a more

comprehensive set of EM&V protocols for this technology. Minnesota also believes the UMP protocol

being developed can apply to waste-to-energy projects and that the EM&V for this measure should not be

limited to the metering requirements for renewable energy.

Energy efficiency EM&V

Developing energy efficiency EM&V Guidance Minnesota applauds EPA’s efforts in providing comprehensive EM&V guidance so that demand-side

efficiency can be quantified and included as an eligible resource for a state’s compliance under the Clean

Power Plan as well as a tradeable resource under the model trading requirements. Minnesota supports

EPA’s approach in providing EM&V guidance while also accepting alternative EM&V methods that

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demonstrate as much stringency as the presumptively approvable approach for states that opt for rate-

based compliance. Additionally, Minnesota supports the extension of these EM&V practices to non-utility

energy efficiency programs to ensure that all demand-side efficiency activity that occurs within a state that

has affected EGUs could be considered an eligible resource for ERCs.

A beneficial addition to the EM&V guidance would be information or resources about calculating displaced

carbon dioxide (CO2) emissions from demand-side efficiency. Energy efficiency providers typically look at

efficiency as a least cost resource rather than a primary method of reducing emissions. In tying energy

efficiency regulation more closely to air regulation, common methods and best practices for describing and

quantifying displaced CO2 emissions would be of value to both frameworks and allow for better integration

of the concepts for practitioners. Additionally, states that place a monetary value on CO2 emissions could

use this information to better quantify this externality in determining the overall cost and benefit of energy

efficiency to the utility and to society. While accurate accounting of the MW/MWhs reduced is of primary

concern to the EPA, the externality figures will be of primary concern for states’ existing demand-side

EM&V frameworks. The full value of demand-side efficiency is and will be of primary concern to states with

existing energy efficiency frameworks and to those building new energy efficiency frameworks. While

EM&V criteria may be more applicable to states with rate-based compliance approaches, EM&V is still

important to states that opt for mass based compliance plans. Understanding the reliability of demand-side

efficiency through stringent EM&V can be a good predictor and provide certainty for how energy efficiency

can be relied on for emissions reductions – and planning will be a keystone for mass-based compliance

states.

Energy efficiency EM&V guidance format Given the evolving nature of EM&V in demand-side efficiency and given the technological advancements in

the energy efficiency market, EPA should not include the guidance in the final rule, and the current draft

document should be considered a living guidance document that is subject to modification over time. This

approach is consistent with providing states flexibility in determining their path to compliance and how

their existing demand-side efficiency frameworks use current best practices and differing types of rigor for

EM&V. An example of evolving practice is the development of quasi-experimental design with regard to

behavior-based efficiency programs. There is significant movement at the intersection of behavior-based

efficiency programs and the use of information technology to catalyze behavior change. As information

technology evolves and better data is procured for the purpose of behavior-based programs, EM&V

practices will inevitably evolve. Additionally, there has been advancement in metering technology that can

be used to determine baselines and verify savings at not only the facility level, but at the process, project

and measure levels as well. As the data collection technology evolves, standardizes and becomes more

cost-efficient, the EM&V practices will adjust accordingly. As a result of these advances, and many more on

the horizon, it is in the states’ best interest to have an ongoing dialogue and up-to-date EM&V guidance

from the EPA as they rely on demand-side efficiency, in part, to meet compliance goals under the Clean

Power Program or to generate ERCs. Otherwise, Minnesota is in general agreement of EPA’s

characterization of EM&V criteria applicable to demand-side efficiency as outlined in the proposed federal

plan and model trading rules.

Minnesota also looks forward to potential forthcoming, complementary guidance on how to manage

energy efficiency policies, programs and projects as a portfolio so that strategic investments in EM&V can

be made to reduce uncertainty and deliver energy efficiency in aggregate. The state supports the use of

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econometric analysis to ensure there is a balance between the cost of delivering EM&V and the benefit of

its application.

Energy efficiency baseline use Minnesota generally agrees with EPA’s characterization of how baselines are established within the context

of demand-efficiency programs as well as the difference between “net savings” and “gross savings” as they

apply to reported MWhs under the Clean Power Plan. Common practices, as outlined in the EM&V

guidance, should be used and flexibility afforded to the states in establishing baselines for program, project

or measure level efficiency mechanisms. Federal appliance standards, statewide appliance standards, and

statewide or local energy codes should be considered and flexibility afforded based on differing scenarios in

different states. With this flexibility, states should still be able to justify and characterize appropriate

baselines if they differ from common practices as EPA understands them.

States could benefit from a more clear definition of how net savings calculations could be used for non-

utility efficiency projects or programs. While the Uniform Methods Project Estimating Net Energy Savings:

Methods and Practices may be accessible to utility energy-efficiency providers, the connection may be less

clear for consumer-funded program administrators and for energy savings companies. This metric may be

the best alternative to a common practice baseline or a market average baseline; however, further

definition and guidance should be provided to ensure these programs are able to participate in the ERC

market similarly to utility-funded demand-side efficiency programs.

Energy efficiency by project or deemed savings Minnesota generally agrees with EPA’s approach to EM&V methods and the attempt to categorize different

program, project or measure scenarios to determine the most applicable means of performing EM&V. The

EPA may want to consider providing guidance on non-traditional demand-side efficiency projects that do

not easily fit into any of the defined conditions within the EM&V guidance. The EPA should consider what

kind of criteria would be necessary to justify energy savings for ERCs that fall within a more niche area of

the energy efficiency market. An example might be small baghouse dust collection systems applicable

across multiple small industries with waste products such as wood, chemical, mineral, combustible dust,

etc. Individually, the cost of conducting project-based monitoring and verification (M&V) for each shop is

likely prohibitive, yet the homogeneous population is not large enough nor is the program design conducive

to comparison group M&V. Additionally, given that an efficiency technology may be nascent or not

pervasive enough in the marketplace to derive deemed savings, how should a state justify the validity of

the realized energy savings? Could a singular project-based M&V result be applied to other similar projects?

Could a custom engineering algorithm be created and applied to each project, the result of which would be

a more specific figure than a deemed savings number? Utilities often categorize these types of projects as

custom projects.

In collaboration with utility and trade ally stakeholders, Minnesota developed a Technical Reference Manual

(TRM) that provides a source of standardized engineering algorithms for use when quantifying measure

level energy savings. The TRM is not intended to define a single set of deemed values; rather, the TRM is a

standard set of methodologies and inputs that Conservation Improvement Program (CIP) administrators

may reference when developing, implementing and reporting their demand-side efficiency programs.2 The

2 Additional information and examples of quantification methods can be found in the Technical Reference Manual

(http://mn.gov/commerce-stat/pdfs/trm-version-1.3.pdf).

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EPA may want to consider criteria for a deemed algorithm approach in addition to the deemed value

method of EM&V. An approach of this nature would define criteria for the assumptions used and inputs

necessary to quantify the energy efficiency results of a given project that does not meet the conditions

established in EPA’s EM&V guidance document.

Avoiding double counting To address the challenges of data management across such a large number of actors with multiple layers of

energy efficiency program administrative and reporting responsibilities, Minnesota developed an

innovative and rigorous reporting and tracking system for 180 utility demand-side efficiency programs.3

EPA will face similar challenges to ensure double counting emissions reductions from energy efficiency do

not occur. Instead of requiring states with approved plans to participate in a standardized reporting system

at the national level for individual project or measure applications, EPA should require that states address

this issue in their compliance plans in order to be approvable (whether states choose to participate in a

standardized reporting system or use their own accounting mechanisms). Reporting for compliance under a

rate-based scenario or for the creation of ERCs will require different accounting mechanisms that each

state should be charged with putting into their compliance plans. The EPA may want to focus, instead, on

collecting aggregated data from states. States would then be tasked with collecting data from both utility

and non-utility efficiency providers to ensure projects/measures are not double counted.

EPA, when reviewing compliance plans or establishing the rate-based federal plan requirements, may want

to consider certain criteria for tracking MWhs and emissions avoided to mitigate the likelihood of double

counting. Criteria could include the use of specific project/measure identification numbers, the use of

premise numbers, and/or physical addresses (or some other unique project identification technique) to

ensure that states with EGUs are not counting the same project multiple times or by multiple EGUs. This is a

similar approach that states may take to ensure projects are not double counted. Additionally, non-utility

based demand-side efficiency programs should be held to the same reporting standards as utility based

demand-side efficiency programs. With the use of unique project or program identifiers and the same

reporting requirements, the framework will be in place to ensure emissions reductions are not double

counted.

Minnesota recommends that EPA follow a recently funded study by the U.S. Department of Energy through

the State Energy Program Competitive Awards that will scope the development of a national energy

efficiency registry.4 In this project, the State of Tennessee, in partnership with NASEO, APX, Georgia,

Minnesota, Michigan, Oregon, and Pennsylvania, will develop a roadmap with potential pathways for

3 The reporting and tracking tool is a software platform called the Energy Savings Platform® (ESP) that was developed through

a public-private partnership with Energy Platforms, LLC. ESP is an essential tool for ensuring that utility EE programs are cost-

effective, achieving their approved energy savings goals, and meeting the requirements of Minnesota State law. ESP is made

up of two applications, ESP (operations) and ReportingESP. ESP (operations) is a user-configurable application for program

implementation and energy savings tracking by utilities. Additionally, ESP has the function of using automated calculators for

quantifying energy savings based on the energy efficiency algorithms found within Minnesota’s Technical Reference Manual

(TRM). All data within ESP (operations) are private by default, but can be shared with other organizations. ReportingESP is

Minnesota’s designated tool for energy efficiency program reporting by utilities and also serves as a central, publically-

accessible database of energy efficiency data. Information is entered at the program-level in ReportingESP and can be

dynamically grouped and analyzed by utility, aggregator, program category, market segment, etc. The State is currently funding

the development of web services to allow the automatic transfer of program implementation data from ESP (operation) and

other utility tracking systems. When this effort is completed, EE data flow will be fully automated from start to finish, from

project submittal through reporting.

4 More information on the grant award can be found on DOE’s web site: http://energy.gov/eere/wipo/state-energy-program-

2015-competitive-award-selections.

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voluntary adoption and implementation of a national energy efficiency registry. States, including the EPA,

could benefit from the road-mapping and registry exercise, as it will support the multitude of efforts related

to state and federal energy policy and emissions reduction goals. Inevitably, the topic of double counting

will arise throughout the course of this project.

Avoided transmission and distribution losses from energy efficiency EPA indicated that the presumptively approvable approach to quantifying the electricity savings resulting

from avoiding a transmission and distribution system loss (including provisions in the proposed model rule)

specified that each EM&V plan must quantify the transmission and distribution loss based on the lesser of

6% of the site-level electricity consumption measured at the end use meter or the statewide annual

average transmission and distribution loss rate from the most recent year published in the U.S. EIA State

Electricity Profile.

In Minnesota’s experience, limiting the avoided transmission and distribution line loss factor to 6% has

resulted in an inaccurate accounting of the impact of energy efficiency on losses between the busbar value

and the meter value. Variations in utilities’ generation, transmission, and distribution networks as well as

geography have led to higher values of line loss adjustments ranging between 6.9% and 8.1%. EPA may

want to reconsider allowing states the flexibility to derive more accurate line loss adjustments based on the

configuration of the affected EGU systems rather than applying a national average. Minnesota would

encourage EPA to consider providing guidance on actually deriving the line-loss factor to get a more

accurate accounting of the impact of energy efficiency on the transmission and distribution system.

Clean Energy Incentive Program (CEIP)

Renewable energy in low-income communities Minnesota urges EPA to consider additional ERCs/allowances for renewable energy implementation in the

low income segment of the CEIP, thus expanding the program beyond just energy efficiency investments.

Depending on the final definition of “low income community,” there could be significant opportunity to

spur early investments in both energy efficiency and renewable energy in low income communities which

would have a greater impact on this vulnerable population. Minnesota believes the most effective way to

mitigate the potential rate impacts of the Clean Power Plan on vulnerable populations is to incentivize

implementation and development of both energy efficiency and renewable energy. Using both tools – EE

and RE – will bring these communities closer to a net-zero condition whereby the energy consumed is equal

to or less than the amount of energy generated, thus mitigating a disproportionate rate impact.

Minnesota previously submitted the below comments, along with additional comments pertaining to the

CEIP, to the non-regulatory CEIP docket that closed on December 15, 2015. That package is included as an

attachment to this document.

EPA reserves of matching allowances EPA proposes to create an account of “matching” allowances for each state participating in the CEIP that

reflects each state’s pro rata share of a federal pool of additional allowances. It then proposes to reserve

some portion of each state-specific matching allowance pool for energy efficiency programs in low-income

communities and some for eligible wind and solar projects, and proposes that unused allowances in either

reserve be redistributed among participating states. Minnesota recommends that EPA allow state plan

states to re-direct unused matching allowances from one reserve to another before releasing those

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allowances for redistribution to other states. It is unlikely that energy programs in different states would

align precisely with the planning considerations EPA will use to develop its reserves for renewable energy

and energy efficiency in low-income communities. States who worked to incentivize early CO2 reductions

would risk losing a significant portion of their incentive simply because EPA’s assumptions may or may not

reflect precisely the energy planning occurring in that state. While it is understandable that EPA’s approach

seeks to achieve a reasonable balance between the CEIP-eligible activities, and especially seeks to ensure

that low-income communities are able to realize benefits from energy planning decisions that have

historically been unavailable to them, Minnesota worries that a strict formula for each reserve size is

inappropriate for a state-by-state process. If EPA is unwilling to provide states with full flexibility on the

treatment of unused allowances in each reserve, it should provide some type of process whereby states

could demonstrate the appropriateness of re-directing some portion of unused allowances into the other

reserve. Such an approach could require that states with an undersubscribed reserve (whether RE or EE in

low-income communities) demonstrate that they have made a good-faith effort to achieve matching

allowances/ERCs according to EPA’s prescribed approach. After such a demonstration, the state could

redistribute unused allowances/ERCs to the other reserve (to the extent that reserve is adequately

subscribed) before such allowances/ERCs would redirected and made available to other states.

CEIP Eligibility Dates Minnesota understands that certain elements of the CEIP are prescribed in the final Clean Power Plan rule

language published on October 23, 2015 (80 FR 64661) and are not currently open for comment.

Nevertheless, Minnesota is concerned that the eligibility dates for CEIP projects identified in the final rule

will serve to delay the early action the CEIP seeks to incentivize. The EPA determines eligibility in part based

upon whether a project is able to “commence construction in the case of RE, or commence operation in the

case of demand-side EE, following the submission of a final state plan to the EPA, or after September 6,

2018 for a state that chooses not to submit a final state plan by that date…” Minnesota recommends that

EPA modify its rule language to expand the eligibility trigger date to initial plan submittal (i.e., the

September 2016 submittals wherein most states are expected to seek a plan submittal extension).

Minnesota also recommends that EPA modify its rule language to expand the time period in which eligible

projects can earn allowances/ERCs from 2020-2021 to 2018-2021 (or from the date upon which EPA

approves a state’s final plan through 2021, which could better ensure that projects are subject to EPA-

approved EM&V protocols). Minnesota further recommends that EPA replace the eligibility criteria that

projects “commence construction” (in the case of renewable energy) with a requirement that qualifying

renewable energy project “have a commercial online date” after the eligibility trigger date. Such a

modification would incentivize utilities and renewable energy developers to begin construction sooner.

These adjustments would expand the incentive for early renewable energy and energy efficiency projects,

which will provide earlier CO2 emissions reductions. Further, the current deadlines provide minimal time for

eligible RE projects to complete construction in order to generate ERC/allowances and associated matches

in the 2020-2021 time frame. The rule language, as finalized, could create an incentive to pause clean

energy projects for the immediate future to ensure CEIP eligibility, and then asks that potentially eligible

projects be completed rapidly in order to actually generate credits. Pushing the eligibility date earlier and

widening the time period in which allowances/ERCs may be generated resolve both concerns.

12

Administrative elements

Conditional approval of state plans The EPA is proposing to amend the framework regulations and amend the process for acting on Clean Air

Act Section 111(d) state plans under 40 CFR part 60, subpart B, changes that would be applicable to any

future section 111(d) rules going forward – not simply the Clean Power Plan emissions guidelines.

Minnesota supports these changes (partial approvals/disapprovals, conditional approvals, calls for plan

revisions, error corrections, completeness criteria, and updates to deadlines for EPA action) and

recommends that EPA align the process with the Section 110(k) State Implementation Plan process as

closely as possible.

Minnesota specifically recommends that EPA clarify the conditional approval process to ensure that it may

approve a state plan based on a “commitment of the State to adopt specific enforceable measures by a

date certain, but not later than 1 year after the date of approval of the plan…” and identify the one-year

time period between plan approval and submittal of enforceable measures explicitly. Currently, the Clean

Energy Incentive Program eligibility date for renewable energy projects/energy efficiency programs is based

upon the submittal date of the state plan. In order to ensure that CEIP set-asides and matching allowances

are fully subscribed, states will likely seek to submit plans as early as possible. Unfortunately, for many

states, the rulemaking process needed to incorporate enforceable regulations required by the Clean Power

Plan is considerably longer and more administratively onerous than is the process to develop a state plan

and could result in delays to early plan submittal. Allowing states the opportunity to submit a plan prior to

completion of the rulemaking process can not only ensure states have full access to the benefits of the CEIP

program, but it can allow for more orderly energy planning in that states can share compliance plans prior

to formal completion of administrative rulemaking procedures. This opportunity for earlier plan submittal

will allow states submitting later plans to review and consider earlier plans, and will provide Independent

System Operators/Regional Transmission Organizations with information necessary to support reliability

planning earlier than would a process that requires completion of all rulemaking activities prior to plan

submittal.

By specifying that EPA may conditionally approve a state plan, as long as the state plan committed to adopt

specific enforceable measures no later than one year after the date of plan approval, EPA could support the

flexibility necessary to support sensible energy planning and broaden states’ opportunities for CEIP-eligible

programs.