Big Stone II coal-plant debate turns to carbon regulation

A coalition of environmentalists fighting a proposed coal-fired power plant near the Minnesota-South Dakota border said it suspects the project’s investors are underestimating the impact of future carbon regulations on its finances.

The group of utilities backing the Big Stone II power plant, slated to be built near Milbank, S.D., filed new documents with Minnesota utility regulators Tuesday. The filing includes, for the first time, cost estimates for electricity prices that assume some type of carbon tax, cap-and-trade program or other regulation will add to the cost of generating power.

An environmental lawyer representing the project’s opponents said they’re skeptical about a figure used by the utilities, though. The hypothetical cost of carbon regulation used in their report is $9 per ton of carbon dioxide emitted.

“We think $9 is a very low estimate of potential carbon costs,” said Beth Goodpaster, attorney for the Minnesota Center for Environmental Advocacy, who had only briefly reviewed the documents, which were submitted to regulators late Tuesday afternoon.

The dollar amount is critical because Minnesota utility regulators under state law aren’t allowed to approve new power plants if the same electricity demand can be met more cost-effectively with conservation measures or renewable energy sources instead.

A variety of legislation is being discussed at the state and national levels that would penalize carbon emissions. The goal is to make renewable energy sources like wind and solar more competitive. Many people who follow energy issues think it’s now just a matter of time before some system of carbon regulation is in place.

Dan Sharp, spokesperson for the Big Stone II project, said the $9 figure is an estimate provided by the Minnesota Department of Commerce. Sharp did not know the details of how it was applied to the new cost estimates for Big Stone II’s electricity prices, for example, whether or how it factored inflation of carbon emission costs over the life of the power plant.

“There is a chance that Congress could impose a higher than $9-a-ton carbon cost, but it is our judgment that Congress will not,” said Ward Uggerud, vice president for Otter Tail Power Company, one of the partners, in an interview with the Sioux Falls Argus Leader.

A spokesperson for the Minnesota Department of Commerce could not be reached for comment Tuesday evening.

Goodpastor said consultants for the environmental organizations will spend the next month, among other things, studying how the carbon cost estimate was arrived at and applied to the utilities’ price calculations. Other studies have estimated the long-term cost of carbon regulation proposals as high as $30 per ton of emissions.

About the plant

The battle over Big Stone II has been going on for more than two years. The plant would be built in South Dakota but it depends on Minnesota regulators approving construction of two high-voltage power lines that would carry electricity to customers in Minnesota.

In December 2005, the Minnesota Public Utilities Commission referred the matter to an administrative law process, which is common in cases that are expected to be highly contested. After several hearings and months of deliberation, a two-judge panel in August advised the utilities commission that the project met requirements to approve the transmission lines.

After winning the favorable decision from the administrative law judges, however, two of the plant’s seven investors, Great River Energy and Southern Minnesota Municipal Power Agency, dropped out of the project. As a result, the remaining five partners could not fund the 630-megawatt plant that was proposed.

The remaining utilities include Otter Tail Power Company, Missouri River Energy Services, Montana-Dakota Utilities, Central Minnesota Municipal Power Agency and Heartland Consumers Power District.

Delays increase costs

Those utilities went back to the drawing board and submitted new plans Tuesday that call for a smaller plant. The proposal now stands for a 500- to 580-megawatt coal-fired plant. Costs for building the plant have gone up, however, due to delays. Early estimates priced the plant at $1.3 billion. Sharp said Tuesday the facility will now cost up to $1.6 billion to build and won’t be operational before summer of 2013, two years later than its original target.

Recently, the project’s partners said other parties have expressed interest in taking place of the two departed investors, which underscores the need for additional power generation in the region, they argued. The revised plans also reflect new rules from 2007 Minnesota conservation and renewable energy legislation, the utilities said in a press release Tuesday.

The plans call for equipping the plant with technologies to reduce the amount of mercury, particulates and sulfer dioxide, but what does escape will be carried almost entirely into Minnesota by the prevailing westerly winds and the Minnesota River, which flows out of nearby Big Stone Lake.

Opponents’ main concern is the amount of carbon the plant would spew into the atmosphere. The 630-megawatt plant was projected to annually release about 4.7 tons of carbon. Those emissions could wipe out many of the carbon reductions made in Minnesota through use of conservation and renewable energy.

Other groups opposing the plant include Fresh Energy, the Izaak Walton League, Union of Concerned Scientists and Wind on the Wires.

A new round of hearings before the administrative law judges is tentatively scheduled to start in January, with a vote at the Public Utilities Commission penciled for sometime in April 2008.