Minnesota PUC Issues Orders on Carbon-Free Standard Compliance and Reporting

Introduction

On August 7, 2025, the Minnesota Public Utilities Commission (Commission) issued the first of two orders from its July 17, 2025, agenda hearing on determining the next phase of compliance with Minnesota’s Carbon-Free Standard (CFS). The August 7 Order was the Commission’s response to recent federal legislation (PL 119-21) that restricts access to tax credits for certain renewable energy projects. The August 7 Order requires Minnesota utilities that file integrated resource plans to submit a report by October 15, 2025, describing actions to maximize federal financial support for renewable energy projects and suggesting supportive actions the Commission and other Minnesota state agencies can take to mitigate adverse effects resulting from PL 119-21. The Commission also incentivized utilities to construct or purchase new projects that will meet the new expedited timeline for continued federal tax credit eligibility by extending the current four-year shelf life of Renewable Energy Credits (RECs) and Environmental Attribute Credits (EACs) generated by qualifying wind or solar projects.

On September 16, 2025, the Commission issued a second order stemming from the July 17 hearing that addresses CFS compliance and reporting requirements. The September 16 Order clarifies what credits are acceptable for CFS compliance, how net market purchases may count toward partial compliance, annual reporting requirements and how the Commission will approach potential future changes related to hourly matching and credit expiration.

On November 7, 2024, the Commission initiated an investigation regarding a Fuel-Life Cycle Analysis Framework for Utility Compliance with Minnesota’s Carbon-Free Standard in Docket E-999/CI-24-352. The Commission has requested comments on several topics on how to determine what resources qualify as full or partial carbon-free resources based on a fuel life-cycle analysis and is expected to have an agenda hearing later this year to address these issues.

Regulatory Background

In 2023, Minnesota’s renewable energy statute (Minn. Stat. § 216B.1691) was amended to add the CFS. Minn. Stat. § 216B.1691, subd. 2g. The CFS requires that electric utilities procure sufficient electricity from carbon-free energy technologies so that the percentage of total energy supplied to Minnesota customers derived from carbon-free sources will be meet the following percentages:

• 80% for public utilities and 60% for other electric utilities by 2030
• 90% for all electric utilities by 2035
• 100% for all electric utilities by 2040

Utilities are authorized to utilize RECs to substantiate compliance. RECs are serialized, trackable credits equivalent to one MWh of electricity generated by a qualifying technology; RECs can be purchased or generated by a utility-owned asset and are retired in the M-RETS system to demonstrate compliance with the CFS. In addition to RECs, Alternative Energy Credits (AECs) are another type of serialized credit used to track attributes of carbon-free generation that is not “renewable” under Minn. Stat. § 216B.1691 but still counts toward CFS compliance (e.g., nuclear or fossil fuel generation with carbon capture). RECs, AECs and similar serialized credits are referred to collectively as Environmental Attribute Credits (EACs). Under current Commission orders, credits are valid for the year in which they are generated plus the following four years.

PL 119-21 shortens the timeline for which solar or wind generation projects are eligible for federal tax credits. The Commission’s August 7 Order addressed how utilities should respond to these changes and extended the shelf life of certain credits for qualifying expedited projects.

The August 7 Order

By October 15, 2025, each electric utility that is required to file a resource plan under Minn. Stat. § 216B.2422, subd. 2, must file an additional plan that addresses:

• If and how the utility intends to accelerate the construction and in-service dates of carbon-free energy projects to maximize federal incentives for the benefit of Minnesota customers;
• Additional efforts the utility will take to avoid other aspects of PL 119-21 that would otherwise increase costs for Minnesota customers; and
• What supportive actions the Commission or other state regulatory bodies could take to mitigate negative impacts of recent federal energy policy changes.

The Order also extends the shelf life for RECs/EACs generated by new solar and wind projects that comply with the RES and that meet the expedited time frames necessary to qualify for federal tax credits. Under that Order, credits from qualifying expedited projects will not expire on the normal schedule; instead, they will remain valid longer to support near-term CFS implementation. Specifically, the Order extends the shelf life of credits for any project that “began construction after July 4, 2026, and was placed in service by December 31, 2027, or  began construction before July 5, 2026, and was placed in service within four years after construction began….” The existing four-year shelf life for credits generated by these projects is extended such that they will not expire prior to January 2032.

The September 16 Order

Eligible Credits for CFS Compliance:

The Commission authorized utilities to demonstrate compliance with the CFS by retiring RECs, AECs, or equivalent EACs registered with M-RETS. The Order recognizes that alternative credits from carbon-free resources may be used for compliance when registered and retired in M-RETS.

Net Market Purchases (Partial Compliance):

The Commission clarified how partial CFS compliance can be demonstrated through annual net purchases from regional transmission organizations, without requiring the utility to generate or retire associated credits for this purpose.

The Commission determined that Minn. Stat. § 216B.1691, subd. 2d(b)(ii), expressly authorizes utilities to demonstrate partial compliance with the Carbon-Free Standard through net market purchases based on the carbon-free portion of those purchases and without needing to retire credits. The Commission reasoned that reading subdivision 2d(b)(ii) to also require retiring credits for these purchases would render that subdivision meaningless / superfluous since compliance by retiring credits is already permitted under Minn. Stat. § 216B.1691, subd. 4.

Thus, the statute provides net market purchases as a separate, additional compliance option. Specifically:

• Utilities may calculate the carbon-free portion of annual net market purchases using the average annual fuel mix for MISO Local Resource Zones 1–7 (or another applicable regional fuel mix), on an annual basis.
• To mitigate double counting, utilities must adjust this calculation by removing from the fuel-mix calculation the carbon-free electricity the utility generated itself or procured via power purchase agreements in that year.
• Utilities need not retire credits to claim the carbon-free portion of net market purchases.

The Order addresses partial-compliance treatment of net market purchases now; questions about measuring the “carbon-free” portion of resources that are only partially carbon-free will be addressed in the separate life-cycle analysis docket (E-999/CI-24-352).

Annual Reporting – CFS Preparedness and Compliance:

Beginning in 2026, each electric utility must file by June 1 each year a CFS compliance report with its annual Renewable Energy Objectives (REO) filing (Docket No. E-999/PR-YR-12). Each report must include:

• Annual Minnesota retail sales for the previous calendar year
• Annual net market purchases from the previous year
• Annual purchases of unbundled credits for the purpose of complying with the CFS
• Qualifying carbon-free energy procured or generated by the utility in the previous year, including:
• The number of facilities registered to that utility in M-RETS; and
• The number of eligible credits those facilities generated in the past year
• A list of facilities determined to be partially compliant with the CFS, including the facility name, fuel type and the percent of the facility’s output determined to be carbon-free

From 2026 through 2030, the report must also include:

• The estimated amount of carbon-free generating capacity the utility would need to obtain by 2030
• The estimated MWh of carbon-free energy needed to meet the 2030 CFS requirement
• A brief summary of ongoing efforts to obtain carbon-free energy, including an overview of the anticipated resource mix to comply with the CFS
• Any considerations, such as those in Minn. Stat. § 216B.1691, subd. 2b, that may create challenges for achieving compliance and could allow the Commission to modify or delay implementation

Template updates:

The Commission delegated authority to its Executive Secretary to work with the Department of Commerce and utilities to update the REO reporting template to incorporate these CFS reporting requirements and to modify them as needed based on the life-cycle analysis docket.

Hourly Matching and Credit Duration:

The Department had initially recommended the Commission require hourly matching, which would have required utilities to align the retirement of RECs/EACs with customer load on an hourly basis. Instead of demonstrating compliance based on annual totals, hourly matching would have required that the amount of carbon-free energy credited to a utility matches the actual load for each hour of the year. The Department modified its recommendation, and the Commission did not adopt hourly matching requirements at this time. Instead, the Commission ordered utilities filing resource plans to include, if practicable, sensitivities using an hourly matching construct and discuss the potential costs, benefits and limitations of a future hourly matching requirement.

The Commission did not change the general credit-expiration rule. RECs, AECs and equivalent EACs may continue to be retired in the year generated or in any of the following four years, unless otherwise specified (including the August 7 Order’s extended duration for certain expedited projects). However, to inform potential future changes for credits generated after 2034, each electric utility subject to the CFS must, by June 1, 2026, file an analysis describing how it would use existing and anticipated credits under the following scenarios:

• Credits expire after two years.
• Credits expire after one year.
• Credits expire in the year generated.

For each scenario, utilities must discuss costs and benefits, including potential ratepayer impacts and effects on greenhouse gas emissions from owned or contracted generators.

Conclusion

The Commission’s September 16 Order clarifies acceptable CFS compliance credits, establishes how net market purchases may contribute to partial compliance without credit retirement, sets new annual CFS reporting requirements beginning in 2026, preserves the current credit-expiration framework for now and invites optional hourly matching sensitivities in resource plans. These actions, together with the August 7 Order addressing federal incentive timelines and extending credit duration for qualifying expedited projects, are intended to support utilities’ progress toward Minnesota’s statutory carbon-free requirements.