As pollution rules kick in, state utilities face a costly decision: retrofit or retire?
Many of Minnesota's old, coal-burning power plants could be headed for retirement, as long-awaited environmental regulations force utilities and regulators to decide whether costly pollution-control upgrades are worth doing.
Half the generating units at the state's 10 largest coal power plants are at least 50 years old. Many may not be worth retrofitting under the array of environmental standards, including rules on mercury and other toxic emissions, that are due this week.
"Do we sink a lot of money into these old units to keep them running, or is it time to retire them and look at some options?" said David Thornton, assistant commissioner for air quality at the Minnesota Pollution Control Agency and a participant in an unprecedented government-utility study to answer that question.
Either way, electric customers could be hit with higher rates to pay for updating or replacing old plants. Clean-air advocates say the payoff is in protecting people who suffer from asthma or who don't want to eat mercury-tainted fish.
Minnesota, despite the expansion of wind power and cleaner generation from natural gas, still gets more than half its electricity from burning coal. All the coal-fired generators have some emissions controls, but few have the most advanced technology, which can cost hundreds of millions of dollars per plant.
Xcel Energy, the state's largest utility with 1.1 million customers, owns the state's largest coal power station -- in Sherburne County -- and plans to keep it. But the Minneapolis-based utility also has retired two coal plants in the Twin Cities and plans to stop burning coal at its Black Dog plant in Burnsville after 2014.
Decisions for midsized plants
Perhaps the most difficult decisions about retrofits or retirements confront the owners of midsized coal power plants in outstate Minnesota. Nine of these plants supply power to Minnesota Power's 146,000 customers, including Iron Range taconite mines, or to Otter Tail Power Co.'s 60,000 customers in western Minnesota.
The state Commerce Department, which monitors electric rates, has questioned whether some of these plants will become too costly to operate after expensive retrofits. Minnesota Power is conducting a keep-or-retire analysis at the request of state utility regulators. Otter Tail Power said it expects to conduct a similar analysis of two coal-burning generators at its Hoot Lake station near Fergus Falls.
Austin Utilities, which has a 40-year-old coal power plant on the city's northeast side, has decided to switch it to burning natural gas, partly because of the coming rules. "We put a drop-dead date of July 1, 2012, for burning coal, and it's likely that we are done with burning coal now," said Alex Bumgardner, the municipal utility's power production director.
In the 12 states that are part of the Midwest electrical grid, 45 to 160 coal-fired generators are potential retirement candidates because of environmental regulations, according to estimates by the system operator. The grid operator declined to release breakdowns by state, but it projected that Midwest electricity rates could increase by 7 percent to comply with the rules.
While much of the regulatory discussion is about costs, clean-air advocates say people shouldn't forget the benefits. The U.S. Environmental Protection Agency projects that full compliance with 1990 revisions to the Clean Air Act will reduce heart attacks and asthma attacks and prevent 230,000 U.S. deaths in 2020.
Xcel Energy recently announced that retrofitting two older coal units at its large Sherco station near Becker, Minn., will cost $365 million. Otter Tail Power has proposed spending $489 million -- its single largest investment ever -- to upgrade a single coal plant in South Dakota, where it also has customers.
"At the end of the day when utilities have to do all this stuff and raise the rates to pay for it all, how do we make sure that it doesn't price low income-folks out of business?" said Ron Elwood, a consumer attorney.
Most of the coming federal regulations have undergone years of regulatory review or court challenges. One rule that takes effect Jan. 1 applies to smog-related pollutants that cross state lines. Regulations related to greenhouse gases and regional haze are expected in 2012. Other coming rules apply to cooling water and coal ash.
Every large coal-fired power plant is affected by the regulations, but it's unclear how they'll be applied at each unit, or whether some rules will be revised by Congress or the Obama administration.
Meanwhile, the Midwest power grid operator is concerned about another uncertainty -- that too many power plants could be shut down at once for retrofitting or retirement, putting the grid's reliability at risk.
"There is a tremendous amount of uncertainty at this point on some of the rules, on whether they are going to be implemented," said Bill Grant, deputy state commerce commissioner for energy programs, who is involved in an EPA-inspired project to study the rules' implications in Minnesota.
One risk is that a utility could invest in advanced controls for some pollutants -- mercury, for example -- only to discover that future upgrades don't make economic sense. On the other hand, technology intended to control one pollutant often can help reduce other types of emissions, experts said.
Grant said Minnesota utilities are in better shape than power companies in some states. Six Minnesota coal-burning generators already have advanced mercury controls under an earlier state regulation. Xcel Energy has spent $1 billion to replace two coal-fired power plants with cleaner-burning natural gas units in the Twin Cities.
Minnesota's sweeping study of environmental rules could be a model for other states, EPA spokeswoman Enesta Jones said in an e-mail. Regulators, utilities, businesses, environmentalists and consumer advocates are jointly analyzing compliance costs for coal-fired power plants. A consulting firm is developing a Minnesota-specific computer model that may offer some answers, probably next year.
"What we're looking at is, what do we expect the costs to be and what are the options for achieving compliance, retirement being just one of the options?" Grant said.
One possible scenario is that Minnesota utilities will focus on upgrading the largest coal power plants. Minnesota Power has two large coal plants, one of which has received major retrofits. Xcel has upgraded is large Allen S. King coal-burning plant near Stillwater and says it favors keeping its three Sherco coal units.
"Sherco will continue to be one of the anchor coal plants on our system," said Laura McCarten, a regional vice president for Xcel. She added that the plant's future will be reviewed again in 2013, before most of the $365 million in pollution control upgrades are made on Sherco's two oldest units.
David Shaffer • 612-673-7090