Audit: Renewable energy grant program lacks focus

State legislators and Xcel Energy have used a fund designed to research and promote alternatives to nuclear and coal power in Minnesota ineffectively, according to a report from the state's Legislative Auditor.

The Renewable Energy Development Fund currently raises $19.5 million a year. It was set up in 1994 when the Legislature agreed to let Xcel Energy store radioactive waste in casks at nuclear power plants at Prairie Island, and later Monticello.

In its 11-year life, the fund has paid for about 200 projects -- everything from lab research to wind turbines at schools around the state. Originally the fund was administered by the state Public Utilities Commission.

The commission, which has authority over utility rates and expenditures, receives advice from an ad-hoc advisory board that includes representatives of environmental groups, the Prairie Island Indian Community, Xcel Energy, and Xcel customers.

But in the last 10 years, the legislature has several times insisted on funding specific projects.

The author of the report, Joel Alter, told the Legislative Audit Commission on Friday that the Legislature hasn't always made the best choices. One of the most questionable, he said, was the biggest project ever funded -- a proposed coal gasification plant on the Iron Range called the Mesaba plant.

Xcel spent $10 million from the energy development fund on the project, Alter said, "but it's unclear that there will ever be any plant actually constructed or any electricity generated."

The report notes that the Mesaba plant is one of several projects pushed by legislators that should not have qualified for funding.

The commission has control over 44 percent of the money. The University of Minnesota receives 11 percent and the state Department of Commerce the rest. The report said the legislature's actions have been responsible for the fund's limited impact.

Xcel collects the renewable energy development fund from customers and then distributes it according to orders from the legislature.

State Legislative Auditor James Nobles urged legislators to make a choice between giving more authority to the Public Utilities Commission and taking on the entire task themselves.

"If the legislature really wants to direct how this money is used, I think you really need to seriously consider bringing it into the state treasury and then putting it through the normal budgetary process," Nobles said.

But Nobles said there is no legal mechanism to do that as normally the state collects money by imposing a tax or a fee. That begs the question of whether the fund should draw on money from all utility customers in the state, he said.

State Sen. Ann Rest, DFL-New Hope, said a formal role for the legislature would provide more openness than we've had up to now.

"It would be on the public record," said Rest, who chaired the meeting. "It would subject to open meeting requirements to the extent they are met by the legislature."

But Rest said she is just as open to the idea of delegating more authority to the Public Utilities Commission, which regulates Xcel and other power companies.

Bill Grant, s an energy expert and a member of the Public Utilities Commission's advisory group, said the system has worked pretty well. After the utilities commission approves the group's requests for proposals, an expert consultant ranks the proposals and the commission makes the final decisions.

Grant said the Renewable Energy Development Fund is fulfilling the goal originally laid out for it.

"I think the biggest drag on its ability to achieve its purpose has been the involvement of the legislature in redirecting money to other purposes," he said.