Another Minnesota electric company is questioning how quickly it should retire aging coal-burning power generators, saying that is sure to mean rate increases for customers.

Otter Tail Power Co., which relies heavily on coal to serve customers in western Minnesota and two neighboring states, said Wednesday that it makes economic sense to upgrade and operate its two-unit Hoot Lake coal-fired plant near Fergus Falls, Minn., until 2020.

The state Commerce Department, which analyzes utility rates and investment decisions on behalf of customers, has recommended the plant be closed sooner. Like many coal power plants approaching the end of their useful life, Hoot Lake needs investment to comply with long-delayed air pollution regulations.

In a study ordered by Minnesota regulators, Otter Tail Power says the best option is to spend $10 million now on mercury-emission controls -- modest by utility standards -- and keep the plant running seven years. Then the company would spend more than $200 million on a plant that burns natural gas.

"It reduces the rate shock to our customers," Brian Draxten, manager of resource planning for the Fergus Falls-based utility, told the Star Tribune in an interview.

Already, Draxten said, the utility estimates its 129,000 customers could face up to a 15 percent rate hike in 2016 to pay for $490 million in upgrades to a larger South Dakota coal power plant. If additional investment is required in Hoot Lake during the same period, the rate hike could be even higher, he said.

The study is the second ordered by the Minnesota Public Utilities Commission to assess the economics of retiring specific coal generators. The first such study was done this year by Minnesota Power, a utility serving central and northern Minnesota. Like Otter Tail Power, the Duluth-based utility also relies heavily on coal and has resisted retiring three aging coal units.

Across the nation, utilities are weighing the economics of coal in light of current and pending environmental regulations. In nine midwestern states, 75 coal units are candidates for retirement, according to the Midwest Independent System Operator, which manages the power grid.

Rochester Public Utilities, a city-owned electric company, recently decided it would retire its Silver Lake plant, whose units include the state's oldest coal burner, built in 1948. Xcel Energy Inc., based in Minneapolis, plans to shut down its remaining coal units at the Black Dog power plant in Burnsville, and is studying the future of its newer, larger Sherco coal units in Becker, Minn.

No decisions by the PUC on Otter Tail's or the other utilities' plants are expected until at least next year, though a deadline is looming. Mercury emission controls must be installed by early 2015.

The Sierra Club, campaigning to retire old coal plants, immediately criticized the idea of keeping Hoot Lake. "Otter Tail Power's proposal to spend millions on dirty fossil fuels completely misses the mark," Jessica Tatro of the group's "Beyond Coal" campaign said in a statement.

One Hoot Lake generator went online in 1959, and the other in 1964. The plant supplies about 20 percent of Otter Tail customers' power in Minnesota, North Dakota and South Dakota, said company spokeswoman Cris Oehler.

David Shaffer • 612-673-7090