Can Minnesota discriminate against coal?

Minnesota and North Dakota appear to be headed for a showdown -- that could take the friendly, neighboring states into court -- over the price of carbon dioxide.

The North Dakota Legislature last month set aside $500,000 for a litigation war chest to "protect and promote" its lignite industry -- a step many believe is aimed at Minnesota.

At issue is a one-paragraph section of Minnesota's huge Next Generation Energy Act, signed into law this past legislative session and better known for its aggressive renewable energy goals. The paragraph requires the Minnesota Public Utilities Commission to calculate the growing costs around carbon dioxide -- CO2 -- a major greenhouse gas emitted in large quantities from the chimneys of coal-fired power plants.

The intent is to include the environmental costs of every kind of energy -- from coal to wind farms -- to get a true apples-to-apples megawatt-hour comparison when utilities come before the commission, which sets the rates that they will charge their customers.

But some North Dakotans -- including government officials, editorial writers and industry groups -- are calling this a "coal tax" that will hit its plants hard, because they export half their electricity to Minnesota. They also stand on states' rights, arguing that Minnesota cannot legislate a charge on businesses outside the state.

Supporters here, on the other hand, say this new math will finally put real prices on all energy. And even though electricity comes from North Dakota coal, it is Minnesota customers who will bear the air cleanup costs in their utility bills, these supporters argue.

"Minnesota's regulators, politicians and the administration have an obligation to protect consumers from any hidden price impacts that are inevitable and just around the corner," said Michael Noble, executive director of Fresh Energy, a clean-energy advocacy group in St. Paul. "North Dakota shouldn't take it personally."

Specifically, the Public Utilities Commission will look for the likely costs associated with new CO2 regulations. Those regulations could be many things, but a likely scenario is what's called a "cap and trade" marketplace for CO2, Noble said. Each U.S. company would be allowed to emit a limited amount of CO2 -- the cap -- and if it emits more it will have to buy extra allowances -- the trade -- from others that have extra. The regulatory costs the commission is supposed to predict could be as simple as the price the polluting company will have to pay per extra allowance, Noble said.

"This is a work in progress," commission executive director Burl Haar said.

Because it's unlikely to meet the Jan. 1 deadline, Minnesota Deputy Commerce Commissioner Ed Garvey has proposed using $9 per ton of CO2 as an interim price. Some environmentalists predict that the real figure will be closer to $20 or even $50 a ton.

From the west

The Industrial Commission of North Dakota and the Bismarck-based Lignite Energy Council have sent letters to Minnesota's Public Utilities Commission to complain.

North Dakota coal mines are beyond the jurisdiction of these new price formulas, Karlene Fine, executive director of North Dakota's industrial commission, wrote Minnesota regulators in early October.

"It would appear to be an improper extraterritorial extension of state regulatory authority into another state," Fine wrote.

A letter from the lignite energy council about the same time pointed out that North Dakota legislators have banned this very practice -- applying environmental cost values -- within their state.

"If I was to draw an analogy, I would say that people in North Dakota eat cake mixes made with flour milled in Minnesota," council communications director Steve Van Dyke said in an interview. "But the North Dakota commission that regulates elevators here isn't drawing up rules to regulate Minnesota elevators just because the grain passed through some of them."

Van Dyke said the council wants the Minnesota Public Utilities Commission to back away from applying these formulas to energy from North Dakota coal plants.

"Or, we'd like to begin some talks, and maybe we can come to some sort of mutual agreement," he said.

H.J. Cummins • 612-673-4671