Minnesota could face more aggressive greenhouse gas reductions than some neighboring states under a proposed federal rule to cut carbon dioxide from coal-fired plants, state regulators and utility officials say.
The draft rule to reduce carbon emissions by 30 percent by 2030 potentially would affect electric utilities in different ways depending on where power plants are located and whether a utility has invested in highly efficient natural-gas-fired electrical generators.
Minnesota's largest utility, Xcel Energy Inc., which has made significant investments in wind, natural gas generation and conservation, is questioning whether the rule asks too much.
"Unless we can make changes from the proposed rule to the final rule, we will be asked to do more than we should be asked to do," said Ben Fowke, CEO of Xcel, in an interview with the Star Tribune.
Minnesota Power, the state's third-largest power company, is concerned that more than $800 million in wind power investments appear to be credited to North Dakota, where the wind farms were built, rather than to Minnesota, where the power is delivered.
"We just don't like the fact that Minnesota seems to have gotten very little credit for how much it accomplished," said Dave McMillan, a senior vice president for the Duluth-based utility. "Our customers shouldn't pay again while other states do less."
At Great River Energy, the state's No. 2 power producer, the initial reaction is more favorable even though it relies on coal for 67 percent of its power — all produced in North Dakota. That's more than Xcel, which burns coal for 36 percent of its Upper Midwest customers.
"We are encouraged by our early review of the rule," said Eric Olsen, general counsel for Maple Grove-based Great River.
The U.S. Environmental Protection Agency on June 2 proposed the rule to cut carbon emissions from U.S. fossil-fuel power plants. The agency is taking comments for 120 days. The final regulation is expected in 2015, then states will get one or two years to develop plans to comply.
The rule seeks reductions from 2005 emission levels, but federal officials used 2012 emissions data to calculate 2030 goals. Under that approach, Minnesota's pre-2012 carbon-reducing actions — such as closing some coal power plants — may not get fully counted, said David Thornton, assistant commissioner for air at the Minnesota Pollution Control Agency.
"If you look at the national picture, our target looks more aggressive than 30 percent, and it's more aggressive than our neighboring states," Thornton told a state environmental board last week. "We are going to be looking into whether that's fair."
In an e-mail Friday, the EPA said the goals were determined "by looking at where states are today with respect to energy and carbon pollution — and where they are going. We used that information to set reasonable, achievable goals.''
Unlike other air pollutants, carbon emissions can't be reduced using standard smokestack controls. The EPA's Clean Power Plan is modeled after policies in place in Minnesota and other states. Some coal-burning power plants would close or run less often, and utilities would be encouraged to generate with natural gas — which has half the carbon emissions of coal — and invest in renewable energy and efficiency programs.
Fowke said Xcel is on track to reduce its carbon emissions by 30 percent by 2020, but that appears to fall short of EPA's Minnesota target.
"We've always thought we could do more," he said. "But we don't want to do more because we are forced to. We want to do it because it makes sense and in collaboration with our policymakers and, frankly, in a way that is the most advantageous for our customers."
Xcel has invested in highly efficient natural gas generators, replacing coal units. Overall, Minnesota utilities have seven "combined-cycle" units, which capture waste heat to boost output. Yet Xcel's combined-cycle units, such as the Riverside plant in Minneapolis, run just 25 percent of the time, typically when demand spikes or wind farms go idle.
The EPA assumes these plants could run 70 percent of the time. "EPA is saying 'Run your natural gas plants and offset coal use,' " said Brian Potts, a Madison, Wis., attorney who co-authored an analysis of the draft rule for the Electricity Journal.
Fowke said that probably won't work. "When you have as much wind as Xcel Energy, you're really not able to run your gas plants full-out," he said. "They need to work in conjunction with wind. That is really how our system was designed."
In North Dakota, utilities rely on coal for 80 percent of the state's power and haven't built a single combined-cycle natural gas plant. Under the EPA's proposed rules, Potts said, North Dakota isn't expected to run gas plants it doesn't have — so its carbon-reduction target is lower.
That regulatory strategy seems favorable to Great River Energy. Olsen, the general counsel, said its three North Dakota coal plants, including a now-idle unit, should remain in service under the EPA proposal.
Fowke said the draft rule is likely to change. He said he supports the parts focused on renewable energy and conservation.
"I know it is very important for us to continue to reduce carbon," he said. "It is also very important that we keep costs in mind. … Let's do things that leave no regrets and still advance the carbon agenda we have in the state."