Small utilities bracing for effects of proposed clean air regulations

Utilities are positioning themselves to deal with the recently proposed new source performance standards (NSPS) for new power plants as well as forthcoming U.S. Environmental Protection Agency (EPA) regulations for existing plants, while some smaller utilities are bracing for an out-sized impact, according to a discussion at the 125th Annual Meeting of the National Association of Regulatory Utility Commissioners (NARUC) in Orlando, Fla., on Nov. 18.

Brian Kalk, commissioner with the North Dakota Public Service Commission, allowed “that the perspective of Florida might be different than Washington state, which might be different from the Northeast.” However, he said, it is clear that the proposed regulations issued by the EPA on Sept. 20 will affect power generators in all areas, and will affect some more than others.

The proposed rules would set new limits on carbon dioxide emissions from power plants, and would set separate standards for natural gas-fired turbines and coal-fired units.

One of those that expects to be significantly affected is Montana-Dakota Utilities (MDU), the electric utility of MDU Resources Group (NYSE:MDU). A relatively small and heavily coal-dependent utility, MDU serves 133,000 customers and has a peak load of less than 600 MW. It obtains 50% of its generation from coal-fired units, 24% from gas generation, and 7% from renewable sources, according to Andrea Stomberg, vice president of electric supply of MDU.

The company is still reviewing the 463-page proposed rule, which Stomberg said does not appear to be easily understood, adding, “It does seem to complicate the selection of technology available to us that is appropriate for our small system to meet ongoing load growth.”

What is clear, she said, is that the proposed rules are very cogent and very constraining.

“At the outset, they are written to virtually prohibit new coal,” she said. 

“The decisions on how we meet the load growth are right in front of us but clarity on how we do this is not,” she said, referring to the types of generation effectively allowed by the proposed rules and the limitations of powering a smaller system.

Her utility is projecting a 5% growth in load over the next five years, due in part to production in the Bakken oil fields.

EPA’s proposed rules are natural gas-based and combined-cycle focused, Stomberg said, noting that her company’s least-cost modeling never selects combined-cycle technology over a smaller combustion turbine based on the relatively small size of its load.

“Very few simple-cycle frame combustion turbines meet EPA CO2 standards as proposed, but it is exactly that sort of equipment that is optimal in terms of fitting our system,” she said, citing factors including cold weather operability, compatibility with existing pressures in the gas pipelines that would feed generation to the relative ease of on-site or in-house repair.

The company also faces challenges posed by EPA’s “best available control technology” standard, which she said appears to be based on the emissions from an aero-derivative engine rather than a frame engine.

Although the company currently procures 20% of its energy from the Midcontinent ISO (MISO) market, it prefers to generate its own energy. Within those constraints, an option is to join with other companies to invest in a larger combined-cycle turbine that would be economic for all of the companies, and the company is exploring that option with six other utilities, she said.

Further, the exemption that EPA has put forward for peaking plants will limit their overall usefulness to 33% of their generating capability.

“How can we ask our 134,000 customers to pay tens of millions of dollars for a peaking unit, knowing we will have to severely limit its ability to run?” she asked. “This seems terribly short-sighted and wasteful to me.”

In addition, the units that could meet the EPA’s emissions criteria might only be able to achieve the allowable CO2 limits when run at full load, further limiting their usefulness for ramping up and ramping down when necessary to meet system demands. Finally, the units may need to be run at full load longer than would otherwise be necessary to meet the proposed emission standards through averaging, to offset higher emissions during start-up and shut-down periods.

“None of this makes any sense in support of an efficient and cost-effective, reliable electric generation fleet,” Stomberg said. “I fear our systems will be less robust, our dollars less well-spent, and small systems like Montana-Dakotas will impose relatively higher costs on their few customers.”

During the comment period, MDU is working with its state utility commissions and trade groups to make sure the states understand the consequences of the proposed rules. It is also hoping its vendors, including General Electric (NYSE:GE), will be able to develop compliant technology that is appropriate for the size of its system.

In the meantime, it is deferring decisions about future equipment purchases until it has more clarity about the rules, and will maintain its existing fleet as long as possible.

Finally, she said, “We’re hoping for a bit more common sense from the EPA.”

EPA will accept public comments on the proposal for 60 days from their publication in the Federal Register.