Big customers want updated power study from Minnesota Power

The Large Power Intervenors (LPI), which are some of the largest power customers of Minnesota Power, want the utility to reconsider some of its assumptions in a Feb. 6 resource plan update due to fast-changing environmental regulations and other factors.

The LPI group filed that request May 7 at the Minnesota Public Utilities Commission. The group includes: ArcelorMittal USA (Minorca Mine); UPM-Blandin Mill; Boise Inc.; Hibbing Taconite Co.; Mesabi Nugget Delaware LLC; NewPage Corp.; and PolyMet Mining Inc. The comments are on Minnesota Power’s Baseload Diversification Study filed Feb. 6 with the commission.

In May 2011, the Minnesota commission issued an order accepting Minnesota Power’s 2010 integrated resource plan and requiring further filings. In particular, the commission ordered Minnesota Power to file a baseload diversification study, including analysis of the following:

  • A continue-to-operate and a shut-down cost analysis for the 110-MW Laskin and 200-MW Taconite Harbor facilities through 2024, which includes specific plans for shutting down the Laskin and Taconite Harbor units in the near future;
  • A ratepayer and reliability impact assessment taking into consideration the costs for continuing to operate or for unit shutdowns, including existing and enhanced demand side management initiatives;
  • A more detailed analysis of the configuration, time, and cost-effectiveness of a combined cycle gas unit as Minnesota Power’s next expansion unit;
  • Further analysis of the justification for an additional 100-MW baseload contract power sale; and
  • An analysis of scenarios that address the cost of compliance with proposed and finalized U.S. Environmental Protection Agency regulations relevant to fossil fuel generation.

Minnesota Power was also directed to work with the state Department of Commerce-Division of Energy Resources, environmental organizations and LPI in preparing the study. Minnesota Power’s February study largely addresses each of the commission’s ordering points and provides a foundation on which Minnesota Power can build its next resource plan. “But the commission should order Minnesota Power to conduct further analysis to ensure it is able to implement the least cost, reliable resource plan,” the LPI group said.

Changing EPA air regs make decisions harder

The landscape for federal environmental regulations is clearly in flux and difficult to incorporate into the study, the group added. In December 2011, for example, EPA announced its Mercury and Air Toxics Standards (MATS), mandating compliance within three years of April 2012.

The study notes “Minnesota Power began, but was not able to complete, its assessment of the impact of the MATS Rule on its analysis prior to submitting its Report.” Minnesota Power has committed to updating its analysis of MATS in the 2013 resource plan filing. “This commitment is insufficient given the timing of potentially available extensions,” the group said. “Extensions of up to one year are permitted under the Clean Air Act (‘CAA’) if necessary for the installation of controls.”

As for the part of the order that said Minnesota Power has to conduct a continue-to-operate and a shut-down cost analysis for the 110-MW Laskin and 200-MW Taconite Harbor facilities through 2024, rather than focusing its analysis solely on these facilities, Minnesota Power incorporated the Boswell Energy Center into the study, the group said. Then, using the Strategist Proview expansion model, Minnesota Power analyzed over 90 unique expansion plans to take into consideration various levels of stringency of federal regulations, load growth and other pertinent factors.

The February study notes that the following four trends emerged: environmental controls to meet EPA regulations are expensive and impact the viability of Laskin and Taconite Harbor Unit 3; natural gas generation would likely be the replacement for this capacity; beyond a potential Bison 4 project, wind is not cost effective; and CO2 regulations will significantly impact the shut-down risk to Laskin and Taconite Harbor Unit 3.

“Given Minnesota Power’s comments on the significant impact of the federal environmental controls and potential carbon regulations, and the fast pace at which new developments emerge, what is currently considered a reasonable expectation could be unreasonable by the summer of 2013,” the group said. “LPI therefore respectfully requests Minnesota Power to re-evaluate whether the reference case and four scenarios remain appropriate for the 2013 resource plan. LPI does not believe it is appropriate at this time to invest too much time reviewing the particular assumptions in each scenario of the Study. LPI believes the Study, as a compliance filing, sufficiently addresses the cost-analysis requirements of ordering paragraph 2.a. of the Order.”

LPI wants the commission to find that Minnesota Power’s ratepayer and reliability impact analysis is insufficient and require Minnesota Power to: continue evaluating the impact of MATS and other impending regulations; analyze the reliability impacts of any potential shutdowns; determine whether it is in ratepayers’ best interests to seek an extension on MATS compliance; and provide ratepayers and the commission its updated analysis and intentions no later than Dec. 31, 2012. It should include in that analysis potential locations for replacement generation, related infrastructure upgrades and the cost of those upgrades, LPI said.

Study lays out the options through 2034

The Feb. 6 study from the Minnesota Power unit of ALLETE (NYSE: ALE) examines the cost and reliability impacts of retiring or continuing to operate the Laskin, Taconite Harbor and Boswell coal-fired facilities through 2034 amidst a range of proposed EPA regulations.

Minnesota Power’s environmental investments in recent years have resulted in significant benefits at reasonable cost, the study found. Costs of anticipated controls to meet new EPA requirements will impact Minnesota Power’s smaller and oldest units the most. Investments at the company’s largest unit, Boswell 4, are showing environmental and economic benefits for customers for the long-term planning period, the report said. The company has invested more than $355m in the past six years to reduce emissions, such as SO2, NOx and mercury by more than 70% system-wide at Laskin, Taconite Harbor and Boswell.

Minnesota Power operates three coal-fired facilities in northeastern Minnesota: Boswell Units 1-4; Laskin 1-2; and Taconite Harbor Units 1-3. These three facilities have a current capability of about 1,300 MW, using Minnesota Power’s 80% share of Boswell Unit 4 net capability.

The Feb. 6 report noted that the current company power supply initiatives impacting the projected capacity positions in the long-term outlook scenarios are: the implementation of Minnesota Power’s renewable plan, which incorporates 100 MW of additional wind resources in North Dakota above the current Bison 1, 2 and 3 wind projects by 2025; the gradual phase-out of 227 MW of coal-based generation from the co-owned Young 2 lignite facility in North Dakota by 2026; implementation of a 250-MW Manitoba Hydro power purchase agreement in 2020 through 2034; and the utilization of the wholesale market.

Minnesota Power’s most recent load outlook indicates the potential for significant new large industrial load requirements. Therefore, Minnesota Power is not pursuing another long-term, 100-MW baseload contract sale of power at this time. The company will revisit this item in its 2013 plan submittal to the Minnesota commission upon further clarity on timing and magnitude of industrial load growth.

Significant increases in capital investment for emission controls above the current continued operational plan would put Laskin and Taconite Harbor Unit 3 at risk of shutdown as baseload coal-fired sources before the year 2020. Taconite Harbor Units 1-2 are less likely to be at risk of shutdown before 2020 as they require a lower increment of capital investment to meet more stringent EPA regulations due to recent emission reduction investments.

A major environmental retrofit was recently completed on Boswell Unit 3, somewhat protecting it from near-term shutdown. Minnesota Power continues to evaluate requirements to reduce emissions at Boswell Unit 4 and investment in environmental control technology at this facility is showing itself to be beneficial to Minnesota Power customers for the long-term planning period, the report said. Boswell Units 1-2 continue to be economic resources for Minnesota Power customers until extreme levels of environmental capital requirements are in place.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.