How one Midwestern state is plowing ahead with climate rules

Source: Daniel Cusick, E&E reporter • Posted: Wednesday, February 17, 2016

MINNEAPOLIS — Frank Kohlasch, one of the lead architects of Minnesota’s compliance strategy for the Obama administration’s signature climate regulation, had just arrived at St. Cloud State University last Tuesday when news broke that the Supreme Court had slammed the brakes on the federal effort.

St. Cloud State was hosting the first of four statewide public “listening sessions” on U.S. EPA’s Clean Power Plan, where Kohlasch and his Minnesota Pollution Control Agency colleagues expected questions from citizens about what exactly the agency would require of Minnesota’s power plants. But the first query stumped him.

“Someone came over and asked me, ‘What did [you] think about the court stay?'” Kohlasch recalled. “I thought they were talking about the D.C. Court of Appeals decision from a few weeks ago. But this person said, ‘No, the Supreme Court decision.’ I had to quickly grab the cellphone to get up to speed on what was going on.”

Such was the case across the country, where state regulators and elected officials met the Supreme Court’s temporary block of the Clean Power Plan with a mix of surprise, elation and dismay. Many were thrown into even more confusion with the weekend death of Supreme Court Justice Antonin Scalia, whose absence leaves the court’s final decision on the regulation up in the air.

A difficult question quickly followed: What now?

For Minnesota, which has invested significant amounts of time and money into planning over the last 18 months, the consensus among regulators and elected officials is to forge ahead. Their expectation, they said, is some form of the climate regulation will emerge from the legal battles unfolding in Washington, D.C.

“While the Court’s temporary stay is disappointing, it does nothing to diminish our resolve in Minnesota to keep moving forward on clean energy initiatives, including the development of our state’s Clean Power Plan,” Gov. Mark Dayton (D) said in a statement last week.

Under the Clean Power Plan, the United States is expected to cut its emissions from power plants 32 percent by 2030 compared with 2005 levels. Minnesota is expected to cut its emissions rate 41.7 percent below 2012 levels. States are required to come up with their own plan to meet the administration’s goals by September.

Much riding on upcoming meetings

Some lawmakers, including Minnesota House Speaker Kurt Daudt (R) and 13 other members of the House Republican caucus, have urged regulators to stand down. They argued in a letter to MPCA Commissioner John Stine that continuing to engage the public and local officials on Clean Power Plan implementation “will only serve to raise anxieties throughout the state.”

“As the [Supreme] Court’s ruling proactively spares employers and employees in every state from incurring unnecessary costs and bearing the weight of unnecessary hardship,” the lawmakers wrote, “you need to act to ensure that additional Minnesota tax dollars are not wasted on championing a program that has so many flaws and has raised so many concerns with the highest court in the land.”

Kohlasch said Minnesota regulators are unlikely to be swayed by such arguments. “We believe that the Clean Power Plan is an appropriate and ultimately a legal approach to reducing carbon emissions from power plants under the Clean Air Act,” he said.

At the same time, he acknowledged that the rule’s uncertain status risks “creating confusion and raises the possibility that the good work and the good collaborations that we’ve built so far are not going to be as effective because of that uncertainty.”

Tonight will be a key test of where Greater Minnesota stands on the Clean Power Plan after the Supreme Court stay, as MPCA hosts its second listening session in Bemidji, the city that gave rise to the legend of Paul Bunyan and Babe the Blue Ox.

Meetings are also scheduled later this month in Duluth, the Great Lakes port and gateway to the state’s Iron Range, and Marshall, in southwestern Minnesota.

About 240 miles from the Twin Cities, Bemidji and surrounding Beltrami County’s cultural touchstones include a woodsy ruggedness, ice hockey and ice fishing, and deep Native American roots, as the region is home to the Red Lake, Leech Lake and White Earth bands of the Ojibwe tribe. The region’s economy is increasingly service-based, but it also supports a scattering of small manufacturers and maintains historical ties to the state’s timber and milling industries.

Utilities staying at the negotiating table

Northern Minnesota’s utility sector is also different from the southern part of the state, which is dominated by Xcel Energy Inc., one of the nation’s largest utility holding companies and a policy heavyweight in both St. Paul and D.C. To date, Xcel has been largely supportive of Minnesota’s Clean Power Plan planning process. It also has moved to shift its generation profile away from coal in favor of natural gas and renewables.

In a statement last week, Xcel said regardless of the plan’s legal status, it will “work with our states and stakeholders on sound plans to create sustainable and affordable energy futures,” including ensuring “compliance with existing and new regulations.”

While pursuing their own renewable energy goals, including importing more wind power from points west and south, northern Minnesota’s electricity providers are more deeply vested in coal-fired generation. Substantial amounts of power come from baseload fossil plants both in Minnesota and in neighboring North Dakota and South Dakota.

For example, Otter Tail Power Co., headquartered in Fergus Falls, Minn., derives much of its baseload generation from two large coal plants, the 475-megawatt Big Stone Plant on the Minnesota-South Dakota border near Milbank, S.D., and the 427-MW Coyote Station in Beulah, N.D. A third smaller coal plant, in Fergus Falls, is slated for closure in 2020, according to the utility.

Brad Tollerson, Otter Tail’s vice president for planning and strategy, said the company has invested heavily in environmental controls for its larger coal plants, which are jointly owned by other utilities in North and South Dakota. Yet it remains unclear how the Clean Power Plan, if it survives a court challenge, would change those operational dynamics, or how Otter Tail’s 61,000 Minnesota ratepayers would be affected by the plan’s implementation in North and South Dakota.

“Overall, we view the Supreme Court’s decision favorably and believe it is prudent to stay implementation until all legal issues have been decided by the courts,” Tollerson said last week in an email exchange.

Yet, he added, the company will remain at the negotiating table in Minnesota, since the current “planning process will form the foundation of future efforts — regardless of whether the CPP ultimately moves forward.”

Duluth-based Minnesota Power, the state’s second-largest investor-owned utility, with 144,000 customers mostly in central and northeast Minnesota, said it, too, would remain engaged in Minnesota’s planning process, even as the federal courts consider the “many legal concerns” raised by the Clean Power Plan.

A debate over how, not whether, to cut carbon

Among the greatest concerns facing Minnesota Power is the fate of its Boswell Energy Center, which recently underwent more than $300 million in environmental upgrades to comply with EPA’s Mercury and Air Toxics Standards and the companion Minnesota Mercury Emissions Reduction Act.

Minnesota Power is a subsidiary of Allete Inc., whose other holdings include North Dakota mining firm BNI Coal Ltd. and ALLETE Clean Energy, a wind energy development company with holdings in four states. Minnesota Power has promoted what it calls its “Energy Forward” strategy that seeks a long-term generation mix of one-third coal, a third natural gas and a third renewable energy.

That’s a significant shift from a decade ago, when more than 95 percent of the utility’s power came from coal.

Amy Rutledge, a spokeswoman for the utility, said Minnesota Power believes that a balanced fuel portfolio, along with deployment of new efforts around energy efficiency and conservation, will meet customers’ needs for “affordable and reliable electric service.”

She also stressed that Minnesota’s utilities “have long been in a leadership role in responding to climate change concerns” and that those efforts will continue even if the Clean Power Plan is scuttled by the courts.

And that may well be the endgame for Minnesota, a state that has pushed a clean energy agenda for a decade. The debate here is less about whether to reduce the state’s energy-sector carbon emissions, but how and where to make the deepest cuts.

Beth Soholt, executive director of the St. Paul-based nonprofit Wind on the Wires, which promotes grid access for renewable energy projects across the Midwest, said Minnesota is just like other states where “you have to walk a fine line between what everyone can agree is the best path forward.”

But she added: “What makes Minnesota unique is this state already knows what it means to deploy more clean energy. The economic benefits are abundantly clear, and so are the benefits to the environment. So now we just have to get more creative about how all of this fits together. That work doesn’t stop — with or without a Clean Power Plan.”