The Laskin Energy Center in Hoyt Lakes, Minnesota (Photo by Joel Dinda via Creative Commons)

We’ve long known about the hidden health and environmental costs associated with burning coal, but until very recently, no one questioned that it was a cheap source of electricity for utility customers.

Today, the economics of coal are changing.

The nation’s aging coal-burning power plant fleet faces rising repair and maintenance costs, looming environmental regulations, and increasing competition from cleaner energy sources. For the first time in history, scenarios are emerging in which coal can no longer be assumed the most cost-effective option for utility ratepayers.

In Minnesota, that shift has recently prompted a new reporting requirement for the state’s investor-owned utilities.

Every couple of years, those utilities are required to file something called an integrated resource plan. It’s a document that describes the utility’s forecast for how much electricity it expects to have to generate during the next 15 years, as well as its plan for how it intends to reliably and affordably provide that power to customers. The state’s Public Utility Commission needs to approve the plans.

Minnesota Power, a public utility with 144,000 customers in central and northeastern Minnesota, filed its most recent resource plan in 2009. The company continues to decrease its reliance on coal, which accounted for 95 percent of generation in 2005 and will be reduced to 75 percent in 2013 thanks to recent wind farm investments.

However, during the resource plan’s public comment period, two separate interveners submitted modeling studies showing that Minnesota Power could potentially reduce costs to its ratepayers by shutting down two of its older and smaller coal-burning power plants, the 75-megawatt Taconite Harbor and 110-megawatt Laskin Energy Center.

The studies were filed by the Minnesota Department of Commerce and the Minnesota Center for Environmental Advocacy (MCEA), a member of RE-AMP, which also publishes Midwest Energy News.

“If you took [the small coal-fired power plants] out of the Minnesota Power system and allowed them to disappear, to be retired, the cost to their customers of providing energy over the next 15 years would be lower without these power plants,” said Beth Goodpaster, an attorney who directs MCEA’s clean energy program.

However, the coal-shutdown scenario wasn’t considered in Minnesota Power’s most recent resource plan. The utilities commission asked the utility to follow up with its own analysis of what would happen to rates and reliability if it were to close the power plants. That report, called a baseload diversification study, was completed earlier this month. Its conclusion doesn’t contradict the concerns raised by the state and environmentalists.

Minnesota Power’s report says that under “stringent” environmental regulation scenarios, the added capital investment required to keep its small coal-fired units in compliance would be great enough that replacing them with natural gas generation would be lower cost for customers. Even under a less stringent regulatory scenario, Taconite Harbor may not be cost-effective after 2020.

Among the new and pending rules that are expected to add costs for older coal plants are the Cross State Air Pollution Rule (CSAPR), the National Ambient Air Quality Standards (NAAQS), and the Mercury and Air Toxics Standards (MATS) Rule.

Not a ‘snap decision’

The question now is, what happens next?

A public comment period is open on the baseload diversification study until May, after which the state’s utility commission will decide the next step.

MCEA wants the utilities commission to take action sooner than later to begin phasing out the plants. Minnesota Power, though, says it’s focused on incorporating the information into its next resource plan, due in summer 2013.

“There are certain groups or certain stakeholders that may have expected different things out of this study,” said Minnesota Power spokeswoman Amy Rutledge. “It was never intended that the study would come out and that we would make some kind of snap decision whether or not to keep a coal plant open. There is a lot of information here that we are going to have to look deeper at.”

The key uncertainties lie in how stringent pending pollution regulations will be written, as well as the timing and scope of federal carbon legislation. As those policies and regulations take form, the details will determine whether these smaller, older coal plants can compete economically with newer, cleaner energy sources.

Meanwhile, Minnesota’s utility commission has requested similar baseload diversification studies from Otter Tail Power and Interstate Power & Light.

The studies mark a shift in the way the way regulators and others evaluate utility portfolios. Even a decade ago, no one would have argued coal wasn’t in ratepayers’ best economic interest.

“What we would argue in a case at the public utilities commission in the ’90s or even early ’00s is that you ought to take opportunities to reduce carbon dioxide emissions because it’s better for the planet, but we didn’t try to say that it’s also cheaper if you do this,” Goodpaster said.

Minnesota Power says its study doesn’t consider the socioeconomic impact of shutting down its smaller coal plants, which are located in Schroeder, Minn., and Hoyt Lakes, Minn.

“These decisions are decisions that have great impact,” Rutledge said, “and it’s not a decision that we would make lightly.”