Dive Brief:

• The Minnesota Public Utilities Commission (PUC) on Tuesday issued an order that keeps the state in the forefront of the movement away from traditional cost-of-service rate making and toward performance-based rates.

• The PUC's order, the culmination of a process that began in September 2017, establishes the procedures and goals that will be used to arrive at metrics for performance-based rates.

• The order adopted the recommendations of the state's Office of the Attorney General, which will be used to begin the discussions and workshops that over the next nine months will result in the final performance based rate metrics.

Dive Insight:

Minnesota, Hawaii and Rhode Island are in the lead of the 13 states that are discussing performance-based rates, according to Energy Innovation. The Minnesota PUC’s Jan. 8 order keeps the state in that position by setting out the procedures for establishing new performance metrics.

"The order is a reflection of the changes in the regulatory environment," Joseph Pereira, regulatory director at the Citizens Utility Board, told Utility Dive, referring to innovations such as time-of-use rates and advanced meters.

If it were not for grid modernization and advanced meters, "we wouldn't be having performance metric conversation. Ratepayers are paying for the equipment," so there should be a way to measure its performance, Pereira said.

The state's performance-based rate discussions work "hand in hand" with Minnesota's pursuit of decarbonization and Xcel Energy's December announcement that it plans to eliminate carbon dioxide emissions from its power plants by 2050, Pereira said.

The process of moving toward performance based rates was triggered when Xcel filed a multi-year rate plan in 2017. The docket applies specifically to Xcel, which is the largest investor owned utility in Minnesota. The state's other utilities, Minnesota Power and Otter Tail Power, were not included because they have not filed multi-year rate plans.

When the performance-based rate process is finalized, in about nine months, the new metrics could be used for the utility's next rate plan, if they chose to file one, Daniel Wolf, executive secretary of the PUC, told Utility Dive. PUC staff has already met with Great Plains Institute, which has been chosen to facilitate the next phase of the process, to talk about procedures and set a schedule for a series of workshops, he added.

"At the end of nine months, we will have a set of metric and verification procedures," Trevor Drake, program manager at Great Plains, told Utility Dive. "We are not talking about incentives yet; we are just measuring to determine if we are getting what we want out of the utility." After that, the next step will be setting up a reporting dashboard and possibly setting incentives, but that timeline is undetermined and up to the PUC, Drake said.

The PUC entertained recommendations from a variety of stakeholders in the nearly two-year process leading up to the order this month.

"There was a long stakeholder process related to this docket, which is typical for Minnesota," Pereira said. By the time an order is released, the parties are usually about 90% in agreement, he said.

In other states the process is "contentious. In Minnesota, it is consensus. We are happy with the outcome. It is great for consumers," Pereira said.

"There was a lot of agreement" in the process leading up to the order, Carolyn Berninger, climate and clean energy associate at the Minnesota Center for Environmental Advocacy, told Utility Dive. "Our main point is we want to be sure greenhouse gas emissions will be addressed" in the performance-based rate metric along with the expansion of distributed energy resources and beneficial electrification such as electric vehicles, she said.

Among the PUC's goals and outcomes are establishing metrics for affordability, reliability and environmental performance.

The PUC also adopted four of the steps in the multi-step program laid out by the Office of the Attorney General, which will be used to guide the next phase of the performance-based rate process. "It is a stepwise approach that is unique to Minnesota," Drake said. In other states, the process moves more quickly to establish incentives and penalties, he said.