Minnesota PUC to look at issues with Rapids Energy Center

The Minnesota Public Utilities Commission at its Sept. 25 meeting will be looking at the issue of a Minnesota Power request to transfer the coal- and wood-fired Rapids Energy Center from non-regulated to regulated service.

The Rapids Energy Center is a non-regulated cogen owned by Minnesota Power (MP) and is located at the Blandin Paper Mill (Blandin) in Grand Rapids, Minn. Rapids is fueled by a mixture of wood and coal. Minnesota Power purchased the Rapids facility from UPM-Kymmene (UPM) in 2000 after UPM purchased the paper mill.

When the commission approved this buy in 2000, the assets were classified as non-regulated and were not included in MP’s rate base. Similarly, all revenues and expenses associated with operating Rapids were classified as non-regulated.

Minnesota Power and Blandin operate under the terms of an Electric Service Agreement (ESA) and a Steam Agreement. The ESA currently in effect between Minnesota Power and Blandin was approved by the commission in 2008.

Under the terms of the Steam Agreement, Rapids operates as a cogen and provides Blandin with the electricity generated by Rapids, as well as the steam and compressed airrequirements necessary for Blandin to run the paper mill. The initial term of the Steam Agreement, established at the time of Minnesota Power’s purchase of Rapids, extended to March 2010. Minnesota Power and Blandin are currently operating under a “bridging agreement,” whichextends the existing Steam Agreement to allow for the required corporate and regulatory approvals of a new agreement. The new Steam Agreement, along with a new ESA, was signed by Minnesota Power and Blandin in September 2012. The new ESA is currently before the commission, commission staff noted in a Sept. 19 briefing memo.

In December 2012, MP filed a petition seeking approval to:

  • transfer the Rapids Energy Center (Rapids) from non-regulated to regulated operations;
  • recover $10m in costs for a Biomass Optimization Project (Rapids Project) at Rapids through the company’s Renewable Resources Rider; and
  • include fuel purchases used to generate electricity at Rapids in the company’s Rider for Fuel and Purchased Energy Adjustment (called the FPE Rider).

In March, the Minnesota Department of Commerce, Division of Energy Resources, opposed MP’s proposals. On June 21, MP filed its reply comments. In those comments, the company modified its proposal to delay the implementation of the Rapids project. However, MP requests that the energy produced as a result of the Rapids project, should MP pursue the project in the future, will qualify as renewable energy pursuant to the requirements under state code.

Arguments have included whether this facility should be shut

On July 24, a letter in support of MP’s request was filed by Blandin Paper. On Aug. 14, reply comments were filed by the Large Power Interveners (LPI) group of major industrial electricity customers.

As an existing biomass generator, Rapids is considerably less expensive than a new biomass facility, MP has argued. The company believes that the cost of new biomass plant construction will likely increase in the future and that it is prudent to secure Rapids as a low-cost biomass renewable option. The original petition demonstrated that the levelized busbar cost of Rapids’ existing facility is lower than new wind generation located in Northeastern Minnesota. Further analysis shows that Rapid’s existing facility is lower cost than North Dakota wind generation when built with a gas peaking unit to make it a comparable dispatchable unit, the memo added.

The Department argues that MP has not addressed the basic issue of why retail ratepayers should pay for any part of Rapids. LPI supports the proposal to move Rapids Energy Center into regulated operations.

The Department now not only opposes the transfer, but appears to be advocating for Rapids Energy Center’s retirement, apparently on the basis of cost, staff noted. However the Department concedes, shutting down Rapids Energy Center would require shutting down the Blandin paper mill, the largest manufacturing employer in Itasca County. LPI urges the Commission to exercise extreme caution in considering this action. LPI also reminded the commission that Minnesota Power and Blandin appear to have arrived at an agreement based, at least in part, on the positions of the Department and commission in Minnesota Power’s 2008 rate case. To nullify those efforts and force the parties back to the negotiating table would be extremely inefficient, LPI has argued.

Rapids consists of four boilers (identified as boilers 5, 6, 7, and 8), two steam turbine generators (TG6 and TG7), and two hydro-generators (4 and 5). The two primary boilers, boiler 5 and boiler 6, are coal- and wood-fired units that produce steam at the rate of up to 175,000 pounds per hour each. The two other boilers, boiler 7 and boiler 8, are natural gas fired units that provide steam at a lower pressure and temperature of 400-psi and 640ºF at the rate of 200,000 pounds per hour each, and are typically utilized as backup to the primary boilers to assure consistent steam supply for the paper-making process.

The two steam turbines TG6 and TG7 have nameplate capacity ratings of 12.5 MW and 14 MW respectively and together typically generate 15 MW to 22 MW of electricity. The two hydro generators, hydro 4 and hydro 5, are located on the Mississippi River Dam and help augment the electrical power produced at the facility. Hydro 4 has a nameplate capacity of 0.6 MW and hydro 5 has a nameplate capacity of 1.5 MW.

The Rapids Project will enable Rapids to increase biomass generation up to 56,000 MWh per year by deploying underutilized capacity on the solid fuel boilers and steam turbines at the facility. Currently, the boilers and steam turbines are operated to fit the steam demands of the paper manufacturing process and building heat requirements.

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.