1.
The
Role
of
Natural
Gas
in
Minnesota’s
Energy
Future
by
Phyllis
A.
Reha,
Commissioner
Minnesota
Public
Utilities
Commission
Environmental Initiative Policy Conference
Concordia University,
September 21, 2012

2. At
the
Cross
Roads
• One cannot avoid risk by avoiding decisions.
• The future is uncertain, so decisions about the
future will always involve uncertainty.
• Electric utilities must spend very large
amounts on long-lasting systems under both
political and economic uncertainty.
• Regulators must help ensure wise investments
that address uncertainty and mitigate risks.

3. Present
Energy
Prices
(US-­‐Energy
Information
Administration)
Minnesota Price
U.S. Avg. Price
Period
Energy Source
Natural Gas: City Gate
$3.21/thousand cu ft
$4.32/thousand cu ft
May-12
Natural Gas: Residential
$9.26/thousand cu ft
$12.19/thousand cu ft
May-12
Coal Delivered to Electric
$ 2.01 /million Btu
$ 2.41 /million Btu
May-12
Power Sector
Minnesota
U.S. Avg.
Period
Electricity
Residential
11.31 cents/kWh
11.97 cents/kWh
May-12
Commercial
8.58 cents/kWh
10.02 cents/kWh
May-12
Industrial
6.23 cents/kWh
6.57 cents/kWh
May-12

4. Minnesota
Home
Heating
(US-­‐Energy
Information
Administration)
Home Heating Source
Share of Households
U.S. Avg.
Period
Natural Gas
68 %
51.2 %
2000
Fuel Oil
6 %
9.0 %
2000
Electricity
12 %
30.3 %
2000
Liquefied Petroleum Gases
10 %
6.5 %
2000
Other/None
4 %
1.8 %
2000

5. Minnesota
Electricity
Generation
(US-­‐Energy
Information
Administration)
Minnesota
Share of U.S.
Period
Total Net Electricity
3,872 thousand MWh
1.1 %
May-12
Generation
Petroleum-Fired
6 thousand MWh
0.6 %
May-12
Natural Gas-Fired
786 thousand MWh
0.7 %
May-12
Coal-Fired
1,243 thousand MWh
1.1 %
May-12
Nuclear
824 thousand MWh
1.3 %
May-12
Hydroelectric
113 thousand MWh
0.4 %
May-12
Other Renewables
873 thousand MWh
4.6 %
May-12

6. Public
Utilities
Commission
• Protects and promotes the public interest in safe, adequate, and
reliable utility services at fair, reasonable rates.
• Provides independent, consistent, professional , and
comprehensive oversight and regulation of utility service
providers.
• Balances private and public interests affected in each docket so
decisions are “consistent with the public interest” including
– protecting the environment,
– ensuring universal access to utility services,
– reliability of utility services,
– Promoting competitive markets and other public policy goals
directed by lawmakers.

7. Next
Generation
Energy
Act
(Laws
of
Minnesota,
2007,
Ch.136,
Art.1,
Sec.
2,
Subd.2)
Energy Policy Goals. It is the energy policy of
the state of Minnesota that:
1. The per capita use of fossil fuel as an energy input
be reduced by 15 percent by the year 2015,
through increased reliance on energy efficiency
and renewable energy alternatives; and
2. 25 percent of the total energy used in the state be
derived from renewable energy resources by the
year 2025.

8. Next
Generation
Energy
Act
Utility Energy Savings Goals
– 1.5% annual savings goal for all utilities*
– Adjustable to 1% by commissioner
– Supply side projects up to 0.5%**
• Electric utility infrastructure improvements
• Waste heat to electricity generation
* Small municipal gas utilities with sales of ≤ 1 billion CF exempted from CIP.
Interim savings goal of 0.75% for 2010-2012 for natural gas utilities per 2009
legislation. 1% savings goal in subsequent years.
** Gas utilities may count biomethane purchases per 2009 legislation.

9. Integrated
Resource
Plans
(IRP)
(Stat.
216B.2422;
Rule
7843.0100-­‐0600)
• Examines a utility’s customer needs and
the resources needed to meet them for
next 15 years
• Develops a least cost plan, including
environmental costs, to ensure that
adequate resources are available in a
cost-effective manner

10. Integrated
Resource
Plans
(IRP)
(Stat.
216B.2422;
Rule
7843.0100-­‐0600)
• Considers cost-effectiveness of using both
demand side and supply side resources to
meet future needs
• Ensures the utility complies with all
applicable laws in planning for future
generation.
• Provides a public forum for stakeholders
and the Commission to be informed and to
have input into the plan

11. Challenges
Today
• Estimating natural gas supply, demand
and price relationships in future
markets
• Internalizing environmental
“externalities”
• Valuing energy efficiency and DSM
• Valuing renewable energy

12. Uncertain
Natural
Gas
Market
• Natural supplies are presently growing as
domestic shale gas is developed
• Fracturing the rock around these wells
(“fracing”) may require additional costs to
safely produce the gas
• Demand for natural gas is expected to grow
as the overall economy improves
• Prudent planning cannot assume an
endless supply of cheap natural gas

13. Projected
Prices
Depend
on
Shale
Gas
Resource
Economics
(US-­‐EIA,
Annual
Energy
Outlook
2012)

14. Uncertain
Environmental
Costs
• US-EPA initiatives
-- Mercury and Air Toxics Standards (MATS)
-- Cross State Air Pollution Rule (CSAPR)
-- Carbon Pollution Standard for New Power Plants
• “Beyond Gas” campaign by Sierra Club
and others raising concerns over natural
gas development and continuing CO2
emissions.

15. Valuing
DSM/Efficiency
• Benefits
-- Saves money
-- Energy independence and security
-- Improves system reliability
-- Reduces peak demand, water use by power plants, GHG
emissions and other pollution detrimental to public health
• Barriers
-- Need for timely, useful consumer information that can be
acted on to save money and/or reduce energy use
-- Need to develop community culture
-- Process of uncoupling utility rewards from maximizing
energy sales

16.
NGA
Paper:
Enhancing
State
Energy
Efficiency
by
April
23,
2012
Better
Informing
and
Motivating
Consumers
Table
1:
Average
Cost
of
Energy
3
Average or
Resource Levelized Cost
(cents/kWh)
Energy Efficiency 2.5 – 4.3
Natural Gas (conventional
6.6
combined cycle)
Coal (conventional) 9.5
Onshore Wind 9.7
Nuclear 11.4
Solar Photovoltaic 21.1
Offshore Wind 24.3
3Energy efficiency costs: Friedrich et al 2009 and Cooper and Wood 2012.
Levelized electricity costs: US Energy Information Administration, Annual Energy Outlook
2011 (Washington, DC: EIA, December 2010). http://www.eia.gov/oiaf/aeo/
electricity_generation.htmlhttp://www.eia.gov/oiaf/aeo/electricity_generation.html

17. Looking
Forward
• A robust portfolio of both demand-side
and supply-side options will reduce the
eventual environmental costs of global
warming and shale-gas fracturing.
• Minnesota’s Integrated Resource
Planning process gives stakeholders the
opportunity to be informed about, and to
influence, these choices.

18. Thank
You
!
• Phyllis A. Reha
Minnesota Public Utilities Commission
121 7th Place East
St. Paul, MN 55101
phyllis.reha@state.mn.us
651-201-2240