Otter Tail Power is recommending to the Minnesota Public Utilities Commission the approval of “Scenario 2020 – Expected Retirement” for its coal-fired Hoot Lake power plant, which includes a $10m expenditure on upgraded emissions equipment and continued operation as a coal facility until only 2020.
A baseload diversification study that Otter Tail filed with the commission on Oct. 3 said the recommended scenario will delay the need for major spending in the near term. Otter Tail Power is a unit of Otter Tail Corp. (NASDAQ: OTTR).
“Given the volatility of natural gas prices and the uncertainty of CO2 legislation or regulation, customers should benefit from a plan that minimizes capital expenditures for constructing a new natural gas unit until decision makers have more natural gas price history and information about environmental regulations, particularly for CO2,” Otter Tail argued. “Likely even a bigger reason for recommending to continue with the expected 2020 retirement scenario is that Scenario 2020 – Expected Retirement minimizes costs to customers for Hoot Lake Plant at a time when they will see large rate increases due to required environmental upgrades already underway at Big Stone Plant.”
The commission on Feb. 9, as part of its review of the company’s 2012-2026 integrated resource plan (IRP), had ordered that the baseload diversification study, with a specific focus on Hoot Lake’s future, be filed within nine months. To comply with the order Otter Tail Power evaluated three scenarios:
- Scenario 2015 – Expedited Retirement: This option would retire Hoot Lake in 2015 to avoid the costs of complying with the new Mercury and Air Toxics Standards (MATS) and replace it with natural gas. This scenario assumes that Otter Tail will start immediately with retirement activities, since 2015 is the earliest date by which the facility could reasonably be retired and replaced. On one hand, retirement by 2015 allows Otter Tail to avoid the $10m investment required to comply with MATS. On the other hand, it requires Otter Tail to expend $226m prior to 2020 necessary to construct replacement resources.
- Scenario 2020 – Expected Retirement: This option, the preferred one, would add equipment to comply with MATS by 2015 and retire the plant in 2020.
- Scenario 2040 – Long-term Coal Operation: This scenario assumes preparation for a full refurbishment of the facility for long-term operation. It assumes that Otter Tail would install equipment to meet the MATS need in 2015 and an additional $125m to meet likely environmental regulations and upgrade existing equipment for reliable operation for another 20 years.
Hoot Lake has 140 MW of very reliable coal capacity
Hoot Lake’s two operating coal units, Unit 2 (60 MW) and Unit 3 (80 MW), came online in 1959 and 1964, respectively, and produce about 20% of Otter Tail Power’s generation. Hoot Lake is one of Otter Tail’s most reliable plants and routinely has higher availability than similarly sized units nationwide as measured by the National Energy Regulatory Corp.’s Generating Availability Data System, the utility noted. A 1,000-kW hydro power unit is adjacent to the coal-fired units.
Both units burn low-sulfur western subbituminous coal. Both were retrofitted in 1972 with precipitators that remove more than 98% of the fly ash. MATS, finalized in December 2011 by the U.S. Environmental Protection Agency, requires that these precipitators be upgraded by 2015. Both units also include low-NOx burners that cut NOx emissions by about 60%.
Otter Tail’s current major generation resources include two shared coal plants (Big Stone and Coyote), one solely-owned coal plant (Hoot Lake), three owned wind farms (Langdon, Ashtabula and Luverne), long-term purchased power agreements from two additional wind farms (Edgeley and Langdon), a simple-cycle natural gas combustion turbine (Solway), oil-fired peakers (Jamestown, Lake Preston and others), and other purchased power agreements.
Big Stone is undergoing construction of an Air Quality Control System (AQCS) project, already approved by the commission, to meet EPA Regional Haze regulations. The total project cost is estimated at $489m, of which $264m will be allocated to Otter Tail based upon its ownership share.
Otter Tail Power has a contract with Cloud Peak Energy Resources LLC for sub-bituminous coal through Dec. 31, 2012, for the Hoot Lake plant that provided for all of the plant’s coal needs in 2008-2011 and is expected to provide for all the plant’s coal needs in 2012. Included in this Cloud Peak contract is the ability to carry forward tons to future years to better match the coal needs within a given year, Otter Tail noted in an Aug. 31 filing with the Minnesota commission. The filing didn’t say anything about coal supply beyond 2012.
Hoot Lake receives sub-bituminous coal supply by unit train consisting of cars leased by the utility. The motive power is owned by the BNSF Railway and the cars are switched at Dilworth, Minn. The locomotives used from Dilworth to Hoot Lake are owned by the Otter Tail Valley Railroad. Transportation services are provided under the terms of a common carrier rate between the BNSF and Otter Tail. The rate is effective until Dec. 31, 2012.