Big Stone II

Ward Uggerud, Senior Vice President for Energy Supply for Otter Tail Power Company

 

Testimony before the Minnesota House Energy Finance and Policy Committee

March 14, 2007

Introduction

Mr. Chairman and members of the committee, I am Ward Uggerud, Senior Vice President for Energy Supply for Otter Tail Power Company. I am here today to speak for Otter Tail, and on behalf of the Big Stone II project co-owners. Thank you for this opportunity.

I will speak both to bill HF 375 and also to the relationship to the Big Stone II project.

Background

I've spent my entire career, 36 years, in the area of interconnected electric system operations.

I've been chairman of the MAPP Operating committee.

I've been chairman of the North American Electric Reliability Council Operating Committee.

My job has always been to produce electricity as reliably and economically as possible.

In all of that, I would point out that the operation of an interconnected electric system requires coordination over the entire interconnection.

Both the economic operation and the reliable operation are factors that know no physical geographical boundaries. What happens in North Dakota , South Dakota and Wisconsin affects the performance of the electrical system in Minnesota . Similarly, what happens in Minnesota affects the reliability and economics of the systems in North Dakota , South Dakota and Wisconsin .

About HF 375

The issues before us today are far too complex for me to address in 5 to 10 minutes, so let me summarize, only briefly, some major issues.

• First, the region's electrical interconnection has been operated for the last 2 ½ decades with a surplus of resources as compared to load. That has allowed for the operation of the system in both a reliable and an economic manner.
• A system with surpluses of generation resources is quite forgiving. And, consumers have been the beneficiaries of the basic laws of supply and demand. Resources have been low in cost and reliability has been high.
• The surpluses that we have taken for granted for 25 years are going away. I must emphasize that we are forecasting significant deficits in the near future. Deficits that will occur for the first time for an entire generation of electric utility industry and public policy makers and will drop below the reserve levels that have long allowed for reliable and economic operation.
• What I tell you about generation reserve margins is a fact. But, you don't have to take my word for it. This is coming from each of the independent organizations whose job it is to monitor such situations. The Midwest Reliability Organization, The North American Electric Reliability Council, The Department of Energy, and the Energy Information Administration, an independent agency of the federal government all point this out.
• Further, reliability is now an enforceable requirement of the Federal government as mandated by the National Energy Policy Act of 2005.
• The impacts of the new Minnesota RES and the proposed increase in Minnesota CIP goals, taken alone, will be insufficient to materially affect the regional generation capacity deficits we see on the horizon. I have handed out a chart that shows the impact of the RES and CIP goals on our capacity needs We will, without question, need additional fossil-fueled resources, including baseload resources, to meet our basic requirements and my comments here today are made expressly for the purpose of emphasizing to you that planning the resource expansion we need to maintain the reliable and economic operation of our electric system will need to be carefully and thoughtfully considered.

Relationship to renewables

• I'm not here today to suggest we are opposed to the development of renewable resources. To the contrary, our company was founded for the purpose of developing electricity from renewable generation made possible by the Otter Tail River and we continue to be supportive of renewable resource energy development.
• I am here to say, however, that renewable resource expansion must be done within the context of integrated resource planning using a wide variety of resources including renewables, conservation and traditional generation.
• We will need a balanced portfolio of generation resources and transmission system expansion in order to accommodate renewable resource expansion such that our interconnected system performs well.
• HF 375, however, neither provides nor even permits the integration of new renewable resources within the interconnected system in a reliable and economic manner.

Relationship to carbon

• HF 375 is very specific about carbon.
• Let me be specific in response.
• The prohibition of new fossil fueled generation in HF 375 will not allow the reliable or economic integration of the renewable resources that the MN legislature has just enacted.
• Part of the underpinning of the 25% Renewable Energy Standard included the 2006 Minnesota Wind Integration Study, which included as part of its underlying assumptions a balanced portfolio of generation resource expansion and transmission system development--including 4,000 MW of new coal plants, hundreds of MW of new natural gas-fired generation, and the Big Stone Unit II transmission lines now before the PUC, among many other needed transmission facilities.
• HF 375, if enacted, would prevent the addition of resources assumed by the Wind Integration Study as needed to integrate the renewable resources now required by Minnesota statute.
• But, let me be even more specific with regard to another concern I have about HF 375.
• HF 375 concludes that any new carbon emitting resource must be prohibited.
• Such a conclusion is unnecessary.
• New technology allows for the combustion of coal in a far more efficient manner than older technologies.
• In fact, if all current coal generation were replaced by new technologies as proposed by Big Stone II, we would likely meet the goals of the Kyoto protocol simply by modernizing our current fleet of generation.
• Given that our newest coal fired power plants are more than 20 years old, and that the average age is over 30 years old, there are significant opportunities ahead to modernize our generation fleet.
• Modernizing our generation fleet should be encouraged as a part of public policy, not discouraged.
• The debate on carbon errors fatally because it is posited as a black and white issue, and that, I would suggest to you, just isn't so nor is it a healthy way to approach the development of public policy.
• For example, electricity generated from coal can actually reduce the overall carbon footprint of the planet.
• This can be so if the electric energy displaces energy used from less efficient means. We would not want electricity prices to become so high that people reverted to heating their homes with wood. Electricity generated from coal can have a 40% carbon savings if that electricity is used in plug in hybrid electric vehicles.
• And, the proposed system of carbon offsets in the bill using a so-called cap and trade system is really an outright prohibition on new coal as well. Sufficient carbon offsets or allowances are not available, and market structures necessary to trade them are immature or non-existent. Without further thoughtful planning of a national or regional system, this portion of the bill is really all cap, and no trade.
• We will need new baseload resources to integrate our renewable resources.
• New coal fired generation resources will be far superior to existing ones.
• Base load, coal fired generation resources are necessary for voltage control and to maintain electric dynamic stability which is a key factor in transfer of generation from one place to another.
• Base load, coal fired generation resources are providing the economic justification for the addition of significant amounts of new transmission resources without which no other factor has so inhibited the development of renewable resources.

About Big Stone II

Big Stone Unit II project has been subjected to extensive regulatory review processes in both South Dakota and Minnesota . In Minnesota alone, this process has involved more than 50,000 pages of data request responses, more than 100 direct and rebuttal testimonies by more than 50 individual witnesses, extensive rebuttal and cross-examination of witnesses over nine days of hearings, and 14 volumes of hearings transcript.

The Administrative Law Judges' report to the Minnesota Public Utilities Commission regarding the certificate of need for the Big Stone II transmission facilities is due later this month. Then, the Public Utilities Commission will decide on the matter, based on the extensive record. The Department of Commerce has been a participant in this proceeding. However, they are not the decision-maker.

We believe this extensive and detailed process, provided for in existing Minnesota law, which is far more extensive than I can do in only five to ten minutes of testimony here, should be allowed to run its course. However, because HF375 as currently written would profoundly affect the Big Stone II project, some facts about the project are appropriate for discussion today:

• Big Stone II is a 630 MW, supercritical pulverized coal unit that would be built next to the existing Unit I, a 450 MW generation plant in operation since 1975.
  • The term "supercritical" is a technical term that refers to the fact the plant is designed to use very high temperatures and operating pressures, allowing it to be 20% more fuel efficient (and thus have lower emissions) than the current fleet.
• The plant would be owned by seven utilities. They include Otter Tail Power, Great River Energy, Southern Minnesota Municipal Power Agency, Missouri River Energy Services, Montana-Dakota Utilities, Central Minnesota Municipal Power Agency and Heartland Consumer Power District.
• Otter Tail is lead developer of the project.
• Altogether, Big Stone II will serve a population of more than 2.3 million people in five states.
• About half of the plant's output would serve Minnesota . The balance would serve other states.
• One of the Big Stone II Co-Owners, Heartland Consumer Power District, has few customers in Minnesota .
• Another, Montana-Dakota Utilities, has no customers in Minnesota at all.
• While I am not a lawyer, I understand that provisions of this bill that would affect interstate commerce by prohibiting import into Minnesota of energy produced in other states are likely to be unconstitutional. But, that is a topic for attorneys.

The future

• And, let me also add, that I believe that the industry, lead by efforts of the Electric Power Research Institute and the Department of Energy will find ways to capture carbon from coal fired power plants.
• Scientists and engineers have already shown that we can capture and remove SO2, NOx and Hg from combustion gasses. It would be far to pessimistic to think that the ability to do so with carbon is an impossibility when there has been no public policy enacted anywhere prior to now to incent people to do so.
• I have no doubt that improvements in our carbon emissions footprint occur when we foster the development and deployment of the newest and most modern technologies. I believe that although those technologies are infant now, they will improve swiftly.
• My father farmed with horses and his first tractor was a 27 horsepower International without power steering, hydraulics or a cab. I pulled a trip rope and squinted through the blowing dust to keep the rows straight. Today my father, my brother and my nephew farm with John Deere and Caterpillar equipment that have air conditioned cabs and global positioning system equipment, some of which is designed by my son.
• Progress is possible, but most progress is incremental. Further, the penetration of progress requires integration, not prohibition. HF 375, while well-intended, does not provide for the balance of generation resources that are needed to maintain a reliable and economic electric system.
• HF 375 does not allow for the balance of resources necessary to integrate the renewable energy resources required by the recently passed Renewable Energy Standard.

Motivation

• Let me comment about the motivation for BSP II.
• I have heard testimony given that has directly accused me, my company and the Big Stone II participants, of trying to proceed with the development of a coal fired generation resource as being a matter of corporate greed.
• It has been suggested directly that I and my company are more concerned about our company's profits that we are about the environment.
• It has been said that we are rushing to get BSP II built and protected by grandfathering from any future carbon legislation.
• Let me tell you how wrong they are.
• If I were only concerned about profits, I would simply agree to build whatever amount of renewable energy you asked me to and I would earn my allowed rate of return on that investment.
• The world would be good for our company.
• However, that course of action would not provide for either the reliable or the economic operation of the integrated electric system. And it would not be good for our customers.
• It is my responsibility to my customers, not to my company, that makes me say so to you.

Conclusion

Climate change is a global issue, but we in Minnesota should do our part. All the pieces (renewables, energy conservation and other climate change measures) need to fit together in a thoughtful, coordinated plan. With all due respect, development of such a useful plan is beyond the capability of a few legislative committee meetings. The legislation needs to recognize that.

Technology can be part of the answer. I have handed out a chart which shows recent work by EPRI on this topic. Their efforts show we need a combination of renewables, conservation, carbon capture and other actions over time to reduce carbon emissions. There is no single sliver bullet. In fact, their work shows electricity can be part of the solution too, in the form of plug-in hybrid electric cars to reduce carbon emissions in the transportation sector. But, that would require more baseload electric generation.

This is only one example of a national view that would be important to the stakeholder process. EPRI would be happy to present their information to the legislature if that would be helpful to you.

Money is a finite resource. Any community that has tried to pass a school bond referendum knows full well that in voting our priorities, that the cost of any initiative is a concern. The allocation of our financial resources is a matter of stewardship and requires balance. Providing electricity to customers requires a consideration of reliability, economics, environmental issues, energy independence, economic development and public policy goals. We believe that Big Stone II provides the best possible balance that can be achieved.

Thank you for your attention. I would be happy to answer your questions at this time.

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