Xcel nearing final new SO2 limits from EPA for the Sherco coal plant

Xcel Energy (NYSE: XEL) said in its Feb. 19 annual Form 10-K report that is Northern States Power-Minnesota unit is still awaiting final action related to a lawsuit settlement from last year where it agreed to limit SO2 emissions from the coal-fired Sherburne County (Sherco) Units 1-3. 

The deal was worked out under the Reasonably Attributable Visibility Impairment (RAVI) program of EPA. RAVI is intended to address observable impairment from a specific source such as distinct, identifiable plumes from a source’s stack to a national park. In 2009, the U.S. Department of the Interior certified that a portion of the visibility impairment in Voyageurs and Isle Royale National Parks is reasonably attributable to emissions from NSP-Minnesota’s Sherco Units 1 and 2.

In December 2012, a lawsuit against the EPA was filed in the U.S. District Court for the District of Minnesota by environmental groups including the National Parks Conservation Association and the Sierra Club. In May 2015, NSP-Minnesota, the EPA and the six environmental groups filed a settlement agreement in the court. The agreement anticipates a federal rulemaking that would impose stricter SO2 emission limits on Sherco Units 1, 2 and 3, without making a RAVI attribution finding or a RAVI best available retrofit technology (BART) determination.

The emission limits in this deal for Units 1 and 2 reflect the success of a recently completed control project, Xcel noted.The Unit 3 emission limits will be met through changes in the operation of the existing SO2 scrubber. The District Court issued an order staying the litigation for the time needed to complete the actions required by the settlement. The plaintiffs agreed to withdraw their complaint with prejudice when those actions are completed. Plaintiffs also agreed not to request a RAVI certification for Sherco Units 1, 2 and/or 3 in the future.

After a public comment period, the EPA notified the court in July 2015 that the settlement agreement is final. The EPA has seven months to recommend and adopt a rule which will set the agreed-upon SO2 emissions. In October 2015, the EPA proposed that rule.  No public comments were received on this proposal. A final rule is anticipated in March of this year. NSP-Minnesota does not anticipate the costs of compliance with the proposed settlement will have a material impact on the results of operations, financial position or cash flows.

The Form 10-K also noted an October 2015 proposal from NSP-Minnesota to the Minnesota Public Utilities Commission (MPUC) that was a revision to its latest integrated resource plan. The revision addressed stakeholder recommendations as well as the final, CO2-reducing Clean Power Plan (CPP) issued by the EPA. The proposal included:

  • The addition of 800 MW of wind and 400 MW of utility-scale solar to the pre-2020 time-frame;
  • The addition of 1,000 MW of wind and 1,000 MW of utility-scale solar between 2020-2030;
  • The retirement of Sherco Unit 2 in 2023 and Sherco Unit 1 in 2026;
  • The addition of a 230-MW natural gas combustion turbine in North Dakota by 2025;
  • Replacement of Sherco coal generation with a 786 MW natural gas combined cycle unit at the Sherco site no later than 2026; and
  • Operation of the Monticello and Prairie Island (PI) nuclear plants through their current license periods in the early 2030s.

Xcel wrote in the Form 10-K: “NSP-Minnesota believes this will provide substantial opportunities for the ownership of renewable generation and replacement thermal generation. In January 2016, NSP-Minnesota filed supplemental economic and technical information in support of its revised Plan, demonstrating anticipated compliance with the CPP while maintaining reasonable costs for customers. Additionally, NSP-Minnesota responded to MPUC inquiries regarding forecasted cost increases at PI (through end of licensed life) and committed to provide additional information if the MPUC wishes to further explore alternatives to operating PI through its current licenses. While the procedural schedule has not yet been finalized, the current expectation is that the MPUC will make a decision in the second half of 2016.”

The Sherco plant, located at Becker, Minn., is made up of Unit 1 (680 MW net dependable summer), Unit 2 (682 MW) and Unit 3 (NSP’s 59% share represents 517 MW).