Title RENEWABLE ENERGY PROJECT RATESCHED by cio18038

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									Consolidated Fiscal Note – 2007-08 Session                                             Fiscal Impact             Yes     No
                                                                                State                             X
Bill #: H3537-0       Complete Date: 03/05/08
                                                                                Local                             X
Chief Author: BLY, DAVID                                                        Fee/Departmental Earnings         X
Title: RENEWABLE ENERGY PROJECT RATE SCHED                                      Tax Revenue                               X

          Agencies:    Public Utilities Commission (03/03/08)              Commerce (03/05/08)

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only.
                            Dollars (in thousands)       FY07         FY08            FY09           FY10            FY11
 Net Expenditures
      General Fund                                                             0         1,247          1,187           1,221
          Commerce                                                                         465            418             430
          Public Utilities Commission                                          0           782            769             791
      Misc Special Revenue Fund                                                            190            193             199
          Commerce                                                                         190            193             199
 Revenues
      General Fund                                                             0         1,247          1,187           1,221
          Commerce                                                                         465            418             430
          Public Utilities Commission                                          0           782            769             791
      Misc Special Revenue Fund                                                            190            193             199
          Commerce                                                                         190            193             199
 Net Cost <Savings>
      General Fund                                                             0              0              0                0
          Commerce                                                                            0              0                0
          Public Utilities Commission                                          0              0              0                0
      Misc Special Revenue Fund                                                               0              0                0
          Commerce                                                                            0              0                0
     Total Cost <Savings> to the State

                                                        FY07           FY08           FY09           FY10            FY11
 Full Time Equivalents
      General Fund                                                          0.00         13.00          13.00           13.00
          Commerce                                                                        6.00           6.00            6.00
          Public Utilities Commission                                       0.00          7.00           7.00            7.00
      Misc Special Revenue Fund                                                           2.00           2.00            2.00
          Commerce                                                                        2.00           2.00            2.00
                                      Total FTE                             0.00         15.00          15.00           15.00

Consolidated EBO Comments

I have reviewed this Fiscal Note for accuracy and content.

EBO Signature: KEITH BOGUT
Date: 03/05/08 Phone: 201-8034




H3537-0                                                                                                                Page 1 of 9
Fiscal Note – 2007-08 Session                                                          Fiscal Impact             Yes        No
                                                                                State                             X
Bill #: H3537-0      Complete Date: 03/03/08
                                                                                Local                                        X
Chief Author: BLY, DAVID                                                        Fee/Departmental Earnings            X
Title: RENEWABLE ENERGY PROJECT RATE SCHED                                      Tax Revenue                                  X

    Agency Name:       Public Utilities Commission

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only.
                            Dollars (in thousands)       FY07         FY08            FY09           FY10                FY11
 Expenditures
      General Fund                                                             0           782            769                791
 Less Agency Can Absorb
      General Fund                                                             0              0              0                   0
 Net Expenditures
      General Fund                                                             0           782            769                791
 Revenues
      General Fund                                                             0           782            769                791
 Net Cost <Savings>
      General Fund                                                             0              0              0                   0
     Total Cost <Savings> to the State

                                                        FY07           FY08           FY09           FY10            FY11
 Full Time Equivalents
      General Fund                                                          0.00           7.00          7.00               7.00
                                      Total FTE                             0.00           7.00          7.00               7.00




H3537-0                                                                                                                   Page 2 of 9
Bill Description
HF 3537 establishes a feed-in tariff for certain forms of renewable energy generation.
Section 1: FINDINGS
     • Establishes broad legislative findings regarding the importance of enabling Minnesota citizens to
        economically profit from that certain renewable energy generation.

    •     States the purpose of the tariff established under Section 3.

Section 2: DEFINITIONS
   • Provides a number of new definitions which relate to other provisions of the bill.

Section 3: TARIFF ESTABLISHED
   • Establishes a tariff, that is modeled to some extent on, but is much more detailed and comprehensive
        than, the existing C-BED tariff requirements under Minn. Stat. §216B.1612, primarily designed to facilitate
        investment opportunities instead of defining terms of services to utility end-users. Specifically, the tariff is
        to provide opportunities for citizens of Minnesota to own and invest in renewable electricity generation.
        To foster such opportunities, the tariff also requires utilities to purchase the energy produced by such
        generation which is connected to the electrical distribution system as defined in Section 4; the
        Commission could extend the requirement to generation connected to the transmission system under
        certain circumstances.

Section 4: TARIFF
   • Establishes a tariff filing date less than six months after enactment, i.e., December 1, 2008. Filings are
        required from all utilities providing retail electric service; i.e., approximately 175 entities.

    •     Requires electric utilities to purchase, for a period of not less than 20 years, all of the generation from
          qualifying renewable energy generator according to terms established in tariff by the Commission.

    •     Establishes minimum prices utilities must pay for renewable generation of various types (i.e., wind,
          hydroelectric, anaerobic digester (or other biomass systems), landfill gas, and photovoltaic) and scale
          (i.e., less than or more than various capacity limits, depending on type).

    •     Prohibits the Commission from approving a tariff that permits a project owner to receive other special
          renewable financial incentives unless the tariff requires such incentives are deducted from amounts paid
          the owner.

    •     Prohibits project owners from voluntarily selling ownership interest in generator governed by the tariff
          during the term of the purchase contract with the utility unless the sale is to another qualifying owner and
          is first approved by the Commission.

    •     Beginning in 2011, requires the Commission to biennially review and adjust rates for all of these individual
          company tariffs in order to achieve adequate renewable energy development, account for inflation,
          provide for owner profits, promote C-BED development, and minimize costs to ratepayers.

    •     Authorizes the Commission extend the tariff provisions to renewable energy projects connected to the
          transmission grid if the Commission first determines that the objectives of the renewable energy standard
          are not likely to otherwise be met. If the Commission so determines, it may then require utilities to
          purchase qualifying renewable generation in accordance with the terms of the tariff.

    •     Requires the tariff to ensure that utilities will interconnect renewable generators to the electrical
          distribution system “to the maximum extent of state jurisdiction allowed under federal law.”

    •     Requires the Commission to consult with the Federal Energy Regulatory Commission, the Midwest
          Independent System Operator and others to establish an interconnection request review procedure to
          determine whether interconnection under state authority is possible.


H3537-0                                                                                                           Page 3 of 9
    •     Requires the Commission to issue orders creating interconnection tariffs for a special interconnection
          process for renewable energy projects.

    •     Requires the Commission to establish standard interconnection contracts and schedules.

    •     Authorizes direct cost recovery by utilities for the interconnection of renewable electrical generators
          provided by this bill.

    •     Requires the Commission to approve a standard contract to be used for energy purchases made under
          the tariff. Specifies certain elements.

Section 5:
   • Requires the Commission to order the utilities to file seek automatic rate adjustment to recover costs of
        the energy purchased under the tariffs.

Assumptions

The Commission would have two over-arching major new responsibilities resulting from this bill: a) establishment
and management of “feed-in” tariffs and b) establishment and management of an interconnection approval
process for generation under the tariffs.

“Feed-in” tariffs and standard contract:

Initial tariff review and approval: In late November, the Commission would expect to receive approximately 175
“feed-in” tariff filings. (The definition of “electric utility” in Sec. 2 is not totally consistent with the requirement
applying to all electric utilities providing retail service in this Section. For this fiscal note, we assume it applies to
all entities.)

The bill provides considerable detail about what should be in the tariff. The Commission assumes that all the
underlying work required for developing such a tariff has been completed and that the Commission is only going
to be looking at initial tariff approval. If those details are not worked out, more Commission time will be required.
Despite the specificity of the bill language, for each tariff filed the Commission must evaluate several qualitative
conditions for renewable projects of various types. For example: determining whether “adequate” renewable
energy development is occurring; whether “reasonable” profits are being realized; whether biomass project satisfy
“efficiency” criteria. These findings would require specialized evaluation processes, particularly the evaluation of
efficiency for biomass and landfill projects.

On-going tariff management: Besides initial review, the Commission will have on-going responsibilities to
manage these tariffs and their implementation. For example, starting on February 1, 2011 and every 2 years
thereafter, the Commission must review each tariff, re-evaluate their effectiveness and adjust terms if necessary.
Also, at some point the Commission could be called upon to determine if the tariff needs to be expanded to
projects connected at the transmission level.

Power purchase agreements under the tariffs: The Commission assumes it will not have to approve individual
power purchase agreements established under the bill. However, if Commission approval of individual contracts
proves to be necessary, the work load of the Commission will increase dramatically. The bill does require the
Commission to approve any voluntary sale of ownership interest during the 20 year term of the arrangement. It is
difficult to foresee how many such sales the Commission is likely to be asked to review. The Commission
assumes the number will be small.

Cost recovery: The bill requires the Commission to order utilities to file rate schedules that provide for the
automatic recover of costs directly related to electricity purchased in the feed-in tariffs. The Commission assumes
the bill’s intent is that the Commission should review these schedules to ensure they recover only the direct costs
of such energy. The Commission assumes there will be a rate schedule filing for each tariff filing and that these
special rate schedules will need to be adjusted periodically going-forward to account for changing conditions.

Based on the anticipated significant volume of filings, the establishment of these tariffs, their on-going review and
the related responsibilities would require 3 permanent professional FTE (rates and/or financial analysts;


H3537-0                                                                                                          Page 4 of 9
administrative). Costs are assumed at $93,000 per FTE per year. In addition, the Commission would need to
obtain more office space to accommodate these employees, as well as office panels and equipment. The
Commission estimates space at $4,000 per FTE per year and office equipment at $5,000 per FTE for FY 2009.

Interconnection:

The Commission assumes that two phases would be required. First, the jurisdictional issues for off-site
generators would need to be clarified (namely, determine the extent of the state’s authority to approve
interconnection). Second, an interconnection approval and oversight process would need to be established,
including the establishment of standard contracts. The oversight process could involve anything from a mini-
MISO at the state level, to simply requiring reports from utilities on how they are managing the process.

These tasks would require specialized professionals with training and experience in transmission engineering,
planning and management as well as federal and state law. If the task of establishing an interconnection process
under state authority were to be done “in-house” it is expected that at least 4 professional FTE (engineering and
planning skills) would be needed through the 2012-2013 biennium. Adding resources to the Commission to
develop the interconnection process would ensure the resulting specialized expertise would remain with the
agency responsible for its oversight. However, the tasks required to establish an interconnection process
(jurisdictional issues, technical standards, oversight process, standard contracts) also could be “out-sourced” via
a professional/technical contract for services. Another alternative would be to have the Reliability Administrator at
the Department of Commerce’s Office of Energy Security provide the expertise. Finally, there could be some
combination of these options. The Commission assumes the work will be done with “in-house.” Costs are
assumed at $110,000 per FTE per year. Even if much of the work was outsourced, the Commission would need
at least 1FTE with engineering expertise to advise the Commisison on implementation and for on-going
management of the process.

Beyond establishment of the process, the Commission’s on-going responsibilities for management of
interconnection and the siting of facilities as contemplated in the bill would require 2-3 permanent professional
FTE (engineering, planning; administrative). Costs are assumed at $110,000 per FTE per year. Added to this
are the costs noted above for office space and equipment.

Added Note: The feed-in tariffs must be filed by December 1, 2008. However, the tariffs may not be able to be
used much until the interconnection issues had been resolved. Therefore, utilities may need to modify or re-file
tariffs once the interconnection process had been established.




Expenditure and/or Revenue Formula
                   Needed                                 Biennium 2010-     Biennium 2012-
    Task                         FY 2009                           1                             On-going
                 resources                                    2011                2013
                 3 FTE on-
                  going @
                $93,000 per
Feed-in tariff
               year; $5,000
establishment
                  for office     $306,000                 $607,361              $642,888         $680,578
     and
               equipment in
management
                  FY 2009;
                 $4,000 per
               FTE per year


1
    Costs for fiscal periods beyond FY 2009 were adjusted by an inflation factor of 3%.



H3537-0                                                                                                   Page 5 of 9
                  for rent on-
                     going

                 4 FTE through
                     2013 @
                 $110,000 per
                  year; 3 FTE
                  after that @
Interconnecti
                 $110,000 per
 on process
                 year; $5,000                                $951,996         $1,008,024        $808,598
establishment                          $476,000
                    for office
     and
                  equipment in
management
                    FY 2009;
                   $4,000 per
                 FTE per year
                   for rent on-
                      going
    Total                              $782,000              $1,559,357       $1,650,912       $1,489,176

Long-Term Fiscal Considerations
As noted, the bill creates substantial responsibilities for the Commission that will carry over to future biennium.
It is not known how the minimum prices established for eligible renewable resources in the bill will compare with
market prices for such resources. Establishing a price floor can lead to uneconomic outcomes if market prices go
lower than the minimum. If that were to occur under the proposed feed-in tariffs, it would cause utility ratepayers
to pay more for energy than could be obtained in an open market.
The automatic cost recovery mechanism in the bill adds to a rapidly growing list of special exemptions Minnesota
utilities are receiving for various types of expenditures or investments. While these provisions may be useful in
some contexts, they have the effect of marginalizing the Commission’s rate-making authority.

Local Government Costs
Not aware of any direct effects on local government. However, those municipalities who own electric distribution
systems would be affected by the tariff requirements.
References/Sources
Burl Haar, Executive Secretary, Minnesota Public Utilities Commission – 651/201-2222


FN Coord Signature: BURL HAAR
Date: 03/03/08 Phone: 201-2222

EBO Comments

I have reviewed this Fiscal Note for accuracy and content.

EBO Signature: KEITH BOGUT
Date: 03/03/08 Phone: 201-8034




H3537-0                                                                                                  Page 6 of 9
Fiscal Note – 2007-08 Session                                                          Fiscal Impact             Yes     No
                                                                                State                             X
Bill #: H3537-0         Complete Date: 03/05/08
                                                                                Local                             X
Chief Author: BLY, DAVID                                                        Fee/Departmental Earnings         X
Title: RENEWABLE ENERGY PROJECT RATE SCHED                                      Tax Revenue                               X

    Agency Name:         Commerce

This table reflects fiscal impact to state government. Local government impact is reflected in the narrative only.
                            Dollars (in thousands)       FY07         FY08            FY09           FY10            FY11
 Expenditures
      General Fund                                                                         465            418             430
      Misc Special Revenue Fund                                                            190            193             199
 Less Agency Can Absorb
      -- No Impact --
 Net Expenditures
      General Fund                                                                         465            418             430
      Misc Special Revenue Fund                                                            190            193             199
 Revenues
      General Fund                                                                         465            418             430
      Misc Special Revenue Fund                                                            190            193             199
 Net Cost <Savings>
      General Fund                                                                            0              0                0
      Misc Special Revenue Fund                                                               0              0                0
     Total Cost <Savings> to the State

                                                        FY07           FY08           FY09           FY10            FY11
 Full Time Equivalents
      General Fund                                                                         6.00          6.00            6.00
      Misc Special Revenue Fund                                                            2.00          2.00            2.00
                                      Total FTE                                            8.00          8.00            8.00




H3537-0                                                                                                                Page 7 of 9
Bill Description
HF 3537 requires each electric utility providing retail service in the state to have a “feed in tariff” for community
based renewable energy generation. The feed in tariff requires the utility to contract with any and all projects that
agree to generate electricity from renewable technologies, and requires the utility to pay above market rates for
that electricity. Additionally the bill mandates that the Minnesota Public Utilities Commission (Commission) create
a state-wide system for facilitating these renewable facility interconnections into the distributions of all of the
state’s approximately 175 retail (municipal, cooperative and state-regulated) electric utilities.


Assumptions
This bill includes a number of mandates on the Commission and, therefore, also on the Minnesota Office of
Energy Security (Office), as the Commission’s analytical “arm” and main public interest advocate. These
mandates must be fulfilled within a relatively short period of time and will lead to a material increase in the
agencies’ workloads including:
• Each of the approximately 175 retail electric utilities must file a request for a feed-in tariff. All of these
    requests must be reviewed and processed by the Office and decided by the Commission prior to December 1,
    2008.
• At the same time as the tariffs are in process, the Office and the Commission must establish a state “queue”
    system for methodically studying the reliability and electric “grid” impacts of interconnecting renewable
    projects.
• Once the tariffs and interconnection “queue” system is in place, in addition to managing the queue’s
    operation, the Office and Commission will need to review a potentially very large number of purchase power
    contracts executed by retail utilities to ensure compliance with the statutes and tariff provisions as well as
    arbitrate and decide disputes regarding such contracts.
• The department is assuming that these costs are recoverable under our general assessment authority and
    the energy facility permitting assessment authority.


Expenditure and/or Revenue Formula
Based on the workload assumptions detailed above there is need for a number of new staff. Staff would include 2
rates analyst positions, 2 state planner positions, and 4 clerical staff for docket and data entry related work. Staff
needs are estimated to be:

                                FY 2009        FY 2010         FY 2011
     Salary and Fringe        $476,000        $491,600       $507,600
     Rent                     $41,600         $41,600        $41,600
     Supplies                 $3,200          $3,200         $3,200
     Equipment                $10,400         $0             $0
     Misc costs               $4,000          $4,000         $4,000
     Indirect                 $70,000         $70,800        $72,900
     Total                    $605,200        $611,200       $629,300

There will also be other costs related to computer software that will allow tracking of items in the queue. Software
and development would cost approximately $50,000 in FY 2009.

Long-Term Fiscal Considerations
The costs are on-going, unless noted otherwise, since the requirements of the bill will require a continued level of
support in future fiscal year.


Local Government Costs
HF 3537 will impact local units of government as they will be responsible for overseeing the local permitting,
construction, placement, operation and environmental, technological, and neighboring citizens’ impacts of
customers’ renewable energy projects within local government’s boundaries. This impact could be significant.


References/Sources

FN Coord Signature: MONTY LARSON


H3537-0                                                                                                    Page 8 of 9
Date: 03/05/08 Phone: 296-3409

EBO Comments

I have reviewed this Fiscal Note for accuracy and content.

EBO Signature: KEITH BOGUT
Date: 03/05/08 Phone: 201-8034




H3537-0                                                      Page 9 of 9

								
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