Minnesota Power looks at less coal

Nov 21 - John Myers Duluth News Tribune, Minn.

 

Even as Minnesota Power plunges headlong toward making more electricity from hydroelectric dams and wind turbines, the Minnesota Public Utilities Commission is asking for much more from the Duluth-based utility, including a study on how to shut down two of its coal-burning power plants while at the same time adding cleaner natural gas.

The PUC has ordered Minnesota Power to refigure its future energy demands and generation for the next 15 years -- called a Baseload Diversification Study -- and report back in February.

It's the first time the PUC has ordered a Baseload Diversification Study.

The study could help chart how much consumers and industry will pay for electricity in future decades, how that electricity is made and how much it pollutes.

The order said the study must consider "a continue-to-operate and a shut-down cost analysis'' for both the Laskin coal-burning plant in Hoyt Lakes and the Taconite Harbor coal plant through 2024. The study must include "specific plans for shutting down the Laskin and Taconite Harbor units in the near future."

The PUC's order also demands "a more detailed analysis of the configuration, time and cost-effectiveness'' of a large natural gas generation unit that could serve as the utility's major expansion of electrical generation for decades to come.

Minnesota Power officials declined to speak about the effects the order and closing plants could have on area jobs, saying that was too far into the future to determine.

The order also tells Minnesota Power to figure the cost and methods to comply with upcoming federal regulations on carbon, mercury and other air emissions.

Some of those federal regulations are expected to come as soon as December, and state regulators want to know if it makes economic sense for Minnesota Power to add expensive pollution control equipment on coal-burning plants that already are more than 60 years old.

Minnesota Power officials said they will have the report finished on time, and this month held private meetings with

environmental groups, taconite plants and other large customers on how they should proceed.

The public will have three months to review and comment on the study next spring.

"This fits in with our planning process. It's really an update of our long-range plans,'' part of the utility's so-called Integrated Resource Plan filed in 2009, said Margaret Hodnik, Minnesota Power's vice president of regulatory and legal affairs. "We don't see this as any major shift in

direction."

Less coal, more gas?

Indeed, Minnesota Power, northern Minnesota's largest supplier of electricity, already is on its way to meeting the 2007 state-mandated shift to producing 25 percent of its power from renewable sources by 2025. Much of that will come from North Dakota wind farms and burning biomass (trees and waste wood) at small Minnesota plants.

Just a few years ago, some 95 percent of Minnesota Power's electricity came from burning coal. By 2025, that number will drop to 53 percent, and could go even lower.

"It shows an industry in transition,'' said Al Rudeck, vice president of strategy and planning for Minnesota Power. "In the past, our customers demanded coal because it was the least expensive source that could provide a reliable supply. ... But that's now changing for a lot of different reasons.''

Until the PUC's order, however, Minnesota Power's plans included no provision to phase out any Minnesota coal burning plants. But it's clear that's where some interests are pushing the utility.

Dan Wolf, spokesman for the PUC, said commission staff and members wouldn't comment on the reasoning behind the order, instead saying the agency usually lets orders speak for itself.

J. Drake Hamilton, policy director for Fresh Energy, a Minnesota group that promotes renewable energy, said Minnesota Power should focus more on Minnesota sources of energy rather than looking outside the state. Indeed, nearly all of the utility's current expansion into non-coal generation is in North Dakota or Manitoba.

"Adding wind in North Dakota is great, but they need to take a closer look at adding it in Minnesota and keeping those jobs in Minnesota,'' Hamilton said. "Adding natural gas is clearly in their future. And the commission wants them to look at retiring some coal and replacing that with natural gas. They could do natural gas at one of the existing coal plants as a retrofit ... so Minnesota would get the benefit of jobs and cleaner air."

Cost to customers

Adding cleaner-burning natural gas as part of the utility's primary generation capacity will not only cut air emissions, Hamilton suggests, with less carbon dioxide and other air pollutants, but also could save money. While the cost of coal has increased about 40 percent over the past decade in Minnesota, the price of natural gas has gone down by about the same amount, Hamilton said.

The cost of wind generators also has dropped considerably during the global economic recession, a change Minnesota Power already has capitalized on by expanding its proposed Bison wind farm project in North Dakota sooner than previously planned.

Whenever the utility looks for new power sources, Minnesota Power officials have said repeatedly, the cost to its customers is a top priority.

Hamilton said the transition away from coal doesn't have to cost more.

"It's pretty clear that from the cost savings (from fuel) and the cost savings of not having to add costly air emissions control systems, that the addition of wind and natural gas makes sense for Minnesota Power's customers,'' Hamilton said. "Wind is now competitive with just about any source, when pollution control is factored in. And gas is always there for their big customers like taconite plants when they need it."

Big industrial demand

Minnesota Power officials counter that wind generation only makes sense in areas where wind blows often, such as the North Dakota prairies.

Hodnik said industrial customers use 48 percent of the electricity Minnesota Power produces, and taconite plants and paper mills can't turn off when the wind isn't blowing. Minnesota Power has the highest constant demand of any utility in the nation because so much of that demand, 48 percent, is from big industrial customers that run 24/7.

"Wind makes a good partner with hydro because hydro can be ramped up when wind isn't blowing,'' Hodnik said. "But we need to be careful not to rely too heavily on wind because it isn't consistent. ... Natural gas makes more sense going forward than going too much more into wind."

The utility said there are too many variables to say what direction is most likely, noting the economy, fuel costs and changing pollution regulations will weigh heavily in the outcome. As recently as 2009, for example, when all of the state's taconite plants were shut down in the depths of the global recession, it looked as if Minnesota Power might not ever need any additional generation. The utility and PUC even studied Minnesota Power selling some of its capacity. Now, all those plants are running full speed and more are on the way, and the long-term forecast is for slowly building demand for the utility.

"This isn't about shutting down coal plants and not replacing them with anything,'' Hamilton said. "It's about keeping the lights on and the hospitals running, but doing it a reasonable price, doing it as you create jobs in Minnesota and making Minnesota air a little cleaner."