Minnesota Power argues over remaining life for doomed Taconite Harbor coal units

The Minnesota Public Utilities Commission at its Aug. 18 meeting is scheduled to look at arguments over a Minnesota Power proposal to shut the last coal units at the Taconite Harbor power plant, but to keep open options at the site.

On Aug. 10, PUC staff filed a briefing memo that outlines the issues in this matter.

In July 2015, Minnesota Power (MP) submitted its 2015 Remaining Lives Depreciation Petition and requested the commission approve:

  • The remaining lives of all facilities to be adjusted for one year’s passage of time, with the exception of Laskin Energy Center (LEC);
  • New salvage rates for each of its thermal and wind generation facilities based on a new decommissioning study; and
  • The remaining lives of all general plant accounts to be adjusted for one year’s passage of time, with no changes to salvage rates.

Minnesota Power’s Taconite Harbor Energy Center currently has two operating coal-fired units with a combined capacity of 150 MW. In this filing, the company requested that the commission allow it to continue to recover the remaining plant balances over the current remaining life of the plant, which is 2026. MP proposed a one-year passage-of-time adjustment for Taconite Harbor, resulting in a remaining life of 12 years based on the plant’s current anticipated retirement date of Dec. 31, 2026. The effect of MP’s proposal is that the company would continue to depreciate THEC for six years after it plans to cease coal operations at the plant.

The state Department of Commerce asked MP to explain why it would be reasonable to continue to record a depreciation expense for six years after retirement of THEC. MP responded that the company is exploring future options for the plant, including refueling, repurposing, or retiring. The company stated there are valuable port, rail and other associated infrastructure at the facility site that may help spur future economic development and business growth opportunities. The company stated that it is possible that some of the infrastructure at the plant will not be retired in 2020, which means that a 2026 retirement date is reasonable for depreciation purposes.

Based on the information the company submitted, the Department recommended a six-year remaining life for THEC. The Department made the recommendation in order to match the depreciable life with the operational life, and to prevent ratepayers from continuing to pay for a plant well after it has retired. The Department noted that any future authorized capital additions would appropriately be depreciated over their useful life as determined at that time. The Department stated it understands that shortening THEC’s remaining life to six years will result in the plant’s annual depreciation expense doubling, which will negatively impact MP until the company files a rate case. It said the commission could approve a remaining life between six and twelve years for THEC. However, the Department concluded that a six-year remaining life is conservative and reasonable. The Department estimated that this change will result in an increase in annual depreciation expense of $8.8 million relative to MP’s proposal. MP disagreed with the Department’s recommendation and requested the commission approve use of the current remaining useful life of twelve years (2026) for THEC.

Minnesota Power said it opposes the Department’s recommendation in part because it unfairly penalizes Minnesota Power for early action to reduce carbon emissions The commission recently determined in MP’s 2015 integrated resource plan (IRP), the most economic resource alternative for THEC, with the best optionality for customers, is to idle the facility until 2020 at which point the Company will stop using coal to fuel the station. Future refueling and re-missioning options will be considered in Minnesota Power’s next Integrated Resource Plan. Minnesota Power stated the company and its customers should not be penalized for its “economic idling” proposal, which results in substantial carbon emission reductions, by having the depreciation accelerated for the THEC as a result of shortening the remaining life to six years. 

The electric industry is in a significant state of change, the memo noted. Reliance on more intermittent energy sources and natural gas as an energy source creates new and different electric system dynamics. These dynamics are further amplified in remote northeastern Minnesota where large electric customers dominate MP’s system. Minnesota Power is planning to idle Taconite Harbor and preserve the assets so it can be restarted to protect reliability for electric customers in the event of any unforeseen system developments. The company’s electric customers benefit from having Taconite Harbor available to be restarted during a time of great change to the electric industry.

Said the staff analysis on the Taconite Harbor issue: “The Commission issued an Order in relation to MP’s 2015 Integrated Resource Plan (IRP) regarding THEC between the time of the initial filing in this docket and the date of the briefing papers. The Commission may want to consider its decision in the 2015 IRP when it determines the appropriate remaining life of THEC. In the 2015 IRP Order, the Commission agreed with Minnesota Power and the Large Power Intervenors that idling Taconite Harbor Units 1 and 2 would provide the Company with needed flexibility to call the units back into service for reliability purposes as it transitions away from coal-fired operations. The idling of these units will also allow the Company to take advantage of inexpensive replacement energy offered in the wholesale market. The Commission Order required Minnesota Power to idle Taconite Harbor Units 1 and 2 in 2016, retaining the ability to restart them to address reliability or emergency needs on the transmission system, and cease coal-fired operation by the end of 2020. The Commission stated it will consider future refueling and re-missioning opportunities for these units in the context of the Company’s next resource plan, which will be filed on February 1, 2018.”

Said the Aug. 3 quarterly Form 10-Q statement of Minnesota Power parent ALLETE Inc.: “In a November 2013 order, the MPUC approved Minnesota Power’s 2013 IRP which detailed its EnergyForward strategic plan, announced in January 2013. Significant elements of the EnergyForward plan include major wind investments in North Dakota completed in the fourth quarter of 2014, the installation of emissions control technology at Boswell Unit 4 completed in December 2015, planning for the proposed [Great Northern Transmission Line], the conversion of Laskin from coal to natural gas completed in June 2015 and the retirement of Taconite Harbor Unit 3 completed in May 2015. In September 2015, Minnesota Power filed its 2015 IRP with the MPUC which includes an analysis of a variety of existing and future energy resource alternatives and a projection of customer cost impact by class. The 2015 IRP also contains the next steps in Minnesota Power’s EnergyForward plan including the economic idling of Taconite Harbor Units 1 and 2 in the fall of 2016, the ceasing of coal-fired operations at Taconite Harbor in 2020, and the addition of between 200 MW and 300 MW of natural gas-fired generation in the next decade.”

The Form 10-Q added: “In an order dated July 18, 2016, the MPUC approved Minnesota Power’s 2015 IRP with modifications. The order accepts Minnesota Power’s plans for Taconite Harbor, directs Minnesota Power to retire Boswell Units 1 and 2 no later than 2022, requires an analysis of generation and demand response alternatives to be filed with a natural gas resource proposal and requires Minnesota Power to conduct request for proposals for additional wind, solar and demand response resource additions subject to further MPUC approvals. Minnesota Power’s next IRP must be filed by February 1, 2018.”

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.