Xcel doesn't expect to face huge cost from federal cross-state regulations

Long-fought federal regulations to curb smokestack emissions that cross state lines may not be as costly as once asserted by Xcel Energy Inc.

The Minneapolis-based power company, one of many utilities that challenged the "good neighbor" pollution rule, has in the past said the rule might mean $700 million in fuel-shifting costs and pollution control investment for its Texas coal power plants.

The U.S. Supreme Court this week upheld the cross-state rule affecting 27 Midwestern and Appalachian states, including Minnesota and Texas. But Minnesota's largest power company no longer is seeing dire consequences from the rule.

"Bottom line, we don't see it as very significant to our capital plans," Xcel CEO Ben Fowke said Thursday during a quarterly earnings call with analysts. "We think any gaps we may have in compliance we probably can meet with the purchase of allowances."

Allowances are tradable credits that are part of the U.S. Environmental Protection Agency's complex strategy to control pollutants wafting across the eastern United States, contributing to smog and fine soot in some downwind urban areas.

Now, with the rule reinstated, utilities and regulators are only beginning to look at how it will be applied. Some parts, including one relating to Minnesota, await further appellate court review. Industry groups and the EPA have offered few details on what happens next, although some utilities have warned that coal power plants may need to be shut down.

Fowke said Xcel, which operates in eight states, is in a better position than in the past to comply in Texas, where it once worried that customers could end up paying $8 more per month because of compliance costs.

He said that Xcel's recently added Texas wind power, which displaces fossil-fuel generation; a new natural gas generating unit in that state, and coal-plant upgrades there have reduced the potential costs of compliance. He said the retirement of coal power plants by some utilities should help, in part by making available allowances that utilities like Xcel could purchase to meet their emission targets.

Frank Prager, Xcel's vice president for policy and strategy, said Xcel didn't overstate the costs in 2011, when the rule was proposed. He said EPA added Texas to the rule late in the process, which would have forced Xcel to operate less-efficient, older generating plants while investing in coal-plant upgrades.

"We don't sue EPA lightly," Prager said in an interview.

Prager said utilities are still assessing Tuesday's ruling, and he did not offer a new estimate of Xcel's likely costs. But the retirement of older coal units — including two in Burnsville — and widespread utility industry emission reductions under other federal clean air programs make it easier to address cross-state emissions, he said.

"A lot of things that the rule was designed to do are happening anyway," he added.

Minnesota Power, a Duluth-based utility that long has been the state's most coal dependent, has taken steps similar to Xcel's, including additional wind power and pollution-control upgrades and planned conversions to natural gas of coal-burning generators.

"We fully expect to be in good standing — either in compliance or close to it," said Mike Cashin, the company's environmental policy manager.

Minnesota's contribution to cross-border air pollution under the rule is limited to particulate matter that wafts 300 miles east to Milwaukee. EPA modeling says Minnesota emissions contribute to less than 2 percent of the problem there. Indiana, Ohio and Missouri, for example, were blamed for 8 percent of the fine soot problems in some downwind cities, according to data EPA released with the rule in 2011.

In Minnesota, Xcel's main beef with EPA is that the utility isn't getting credit for lowering emissions in the last decade by upgrading one Minnesota coal power plant and replacing two others with cleaner natural gas units. Xcel contends that under the 2011 rule, the company would have gained emission allowances if it had postponed those projects, a disincentive for acting early.

Prager said that issue remains before the U.S. Circuit Court of Appeals for the District of Columbia.

"It was setting a precedent that we thought could be very, very hurtful to us and our customers," Prager said.

David Shaffer • 612-673-7090 Twitter: @ShafferStrib