Feds point to Minnesota as example of how to cut greenhouse gases

Federal regulators are pointing to Minnesota policies as examples of how to cut greenhouse gases by 30 percent at the nation's power plants under rules the Obama administration proposed Monday.

The U.S. Environmental Protection Agency proposed rules, ultimately to be drafted by states, requiring investments in energy efficiency and renewable and lower-carbon energy such as natural gas — policies that have been in place in Minnesota for years.

"This is very different from anything they have done before — the fact that they are allowing massive amounts of flexibility in how you meet it," said David Thornton, assistant commissioner for air policy at the Minnesota Pollution Control Agency, which will be responsible for the state's plan. "I am rather assured by the fact that we know how to do this."

In its 645-page proposal, the EPA cited Minnesota for collaborating with investor-owned utilities to reduce emissions and using energy efficiency programs to cut demand for electricity by 13 percent. Colorado and California also were mentioned. Across the nation, the EPA said, 38 states have renewable energy requirements and 47 states have conservation programs to cut power demand.

Executives of Minnesota's three largest electric utilities, Xcel Energy, Great River Energy and Minnesota Power, said they're well positioned to comply with rules to achieve a 30 percent reduction of greenhouse gas emissions from 2005 levels nationwide by 2030.

Coal generates about 40 percent of the nation's electricity. In the coal-mining state of North Dakota, the share is 79 percent, according to 2013 U.S. Energy Information Administration data. Minnesota relied on coal for 46 percent of its power last year.

Xcel Energy, the state's largest utility with 1.2 million electric customers, said it has reduced carbon dioxide emissions by nearly 20 percent since 2005, and is on track to reduce them 31 percent by 2020. Over the past decade, the utility has closed some coal plants, shifted generation to natural gas, including units in St. Paul, Minneapolis and Burnsville, and invested in renewable energy, especially wind.

Unlike smog-causing pollutants, carbon dioxide can't be reduced by using standard smokestack controls. Cutting carbon means replacing some coal power plants, making others more efficient or running them less, investing in lower- or no-­carbon power sources like natural gas, wind, hydro and solar and offering utility customers incentives to conserve.

Minnesota utilities already are closing or planning to shutter 12 smaller, older, less-efficient coal-burning generating units. More Midwest plants have been slated for retirement — even before the carbon rules. A late 2013 survey of utilities by the operator of the power grid in 15 states and a Canadian providence found that 76 plants were uneconomical and would be replaced and the fate of 32 plants was uncertain.

Some utilities have re­invested in their larger, newer coal plants expecting they would be around for decades. Two such projects are now underway by Minnesota power companies, and a major decision lies ahead for Xcel's two 1970s-era coal generators at the state's largest power plant in Becker, Minn. Xcel relies on coal for 36 percent of the electricity it delivers in Minnesota, North Dakota and South Dakota.

"I don't know what the future holds with respect to our large coal plants," said Laura McCarten, a regional vice president for Xcel in an interview Monday.

The issue is sure to be addressed in the utility's next business plan submitted to Minnesota regulators, she said.

Great River Energy, the state's second-largest power producer, relies on coal for 67 percent of its energy, mostly generated at power plants in North Dakota and sent to Minnesota via transmission lines. One question is whether the Maple Grove-based utility would need to comply with North Dakota's or Minnesota's greenhouse gas regulations.

Eric Olsen, the utility's vice president and general counsel, said it has been cutting carbon emissions and accelerating depreciation of its coal plants in anticipation they could be retired earlier than planned. He said the utility is prepared to work with states on greenhouse gas reductions, and has proposed a multistate carbon pricing system.

Great River Energy is a member of the National Rural Electric Cooperative Association, a trade association for 900 consumer-owned utilities, which said in a statement that the regulations could "increase electricity prices and force power plant shutdowns, thereby harming the economy and jobs of hardworking Americans."

But Olsen said he didn't agree with those comments. "We are not going to get involved in the inevitable political debate regarding the rule or the inevitable legal fight," Olsen said. "We have been preparing for CO2 rules. … We are going to continue to take a businesslike approach."

Minnesota Power, the state's third-largest power company and the most coal-dependent, said its Energy Forward strategy aims to reduce carbon and other emissions by closing three coal-fired generators, replacing two of them with natural gas units and acquiring more renewable energy, especially wind and hydropower. The utility also has repeatedly exceeded the state's conservation mandate of 1.5 percent annually and this year will get 25 percent of its power from wind.

Dave McMillan, a Minnesota Power executive vice president, said the utility is pleased that EPA is giving states leeway. "We like a flexible approach," he said in an interview. "We like the fact that it recognizes Minnesota and the utilities in it for acting quickly and aggressively to address this."

Concerns about jobs

EPA Administrator Gina McCarthy cast the new rules as an investment in the environment that will address climate change and smog-causing emissions. At EPA's Washington headquarters, McCarthy stood before a crowd that included asthmatic children and chided critics who say the proposed pollution reduction will increase energy costs and stifle U.S. manufacturing.

"For over four decades EPA has cut air pollution by over 70 percent, and the economy has now more than tripled," said McCarthy, who last week visited the Science Museum of Minnesota and endorsed its investment in energy-saving heating and cooling technology.

The National Association of Manufacturers said the proposed regulations will largely drive coal out of the energy mix, increase energy costs for everyone and threaten U.S. business competitiveness. Ohio, Pennsylvania, Indiana, Michigan and Kentucky face the biggest burden, the group said.

Jay Timmons, the association's president, predicted a shift of manufacturing out of the United States to plants in China and India where pollution controls are less onerous, the result being an actual increase in the amount of greenhouse gases released worldwide.

But McCarthy dismissed such criticism as special interest "scare tactics." The agency estimated the rules would cost up to $8.8 billion to implement, and that energy efficiency programs would shrink electricity bills by 8 percent. The rules must go through a public comment process, potential litigation and development of state implementation plans that could last into 2017.

Minnesota, under a 2007 state law, has required utilities to make investments to reduce customers' electric use by 1.5 percent annually. J. Drake Hamilton, science policy director for Fresh Energy, a St. Paul nonprofit that supports renewable power, said even more conservation can be done.

"What every analysis shows is that we are not near the ceiling of what we can do with energy efficiency," she said.

For Basin Electric, a Bismarck, N.D., wholesale cooperative that relies on coal to deliver 59 percent of the energy used by its 2.8 million customers in nine states, the EPA's push for less carbon and more conservation comes at a time of rising electrical demand thanks to North Dakota's oil boom.

"If you have got to increase generation, you are going to have to increase emissions," said Dale Niezwaag, the co-op's senior legislative representative.

Niezwaag said Basin has invested in wind power and natural gas generation, and once experimented with carbon-capturing technology until the price ballooned. But he said that if coal plants can't run, it could raise customers' costs as other, more expensive generation is turned on.

david.shaffer@startribune.com 612-673-7090 jim.spencer@startribune.com 202-383-6123