Lead utility drops out of Big Stone II

Joshua Van Hoesen

From The Associated Press


MINNEAPOLIS – The utility leading an effort to build a $1.6 billion coal-fired power plant in South Dakota pulled out of the project Friday, citing the economic downturn and uncertainty about climate change legislation to regulate carbon emissions.

The decision by Minnesota-based Otter Tail Power Co. means it could be difficult for the Big Stone II project to continue. It would have to find other participants to move forward — a prospect that could be difficult given that the lead developer is unwilling to accept the financial risk.

“It’s just a very difficult time to go forward with this type of financial obligation,” Otter Tail Power President and CEO Chuck MacFarlane said in an interview. “Anytime there’s uncertainty, there’s more risk. Anytime there’s more risk, ultimately that manifests itself in higher borrowing costs, and we were very concerned about that.”

MacFarlane acknowledged that Otter Tail’s withdrawal reduces the likelihood that the plant will get built. But the other four utilities in the project said they were already in discussions with potential new participants. Big Stone II would generate up to 580 megawatts of power serving more than a million customers in Minnesota, the Dakotas, Montana and Iowa.

“We expect to sign new participants on,” said Dan Sharp, spokesman for the Big Stone II project. Sharp said the utilities would know within the next couple of months whether the project would move forward after gathering participants and figuring out what regulatory permits will have to be altered or refiled.

Otter Tail is the latest utility to scuttle plans to satisfy demand for baseload power by building a coal-fired plant. Other utilities have struggled in recent years to line up investors for coal power plants, both because of the economy and talk of a cap and trade system that could eventually make industries and utilities pay a high price for emissions blamed for global warming.

In the Midwest, plans for two different coal-fired plants were dropped in Iowa within the past year because of the economy and uncertainty about future environmental regulation. And Wisconsin regulators last year rejected plans for a $1.3 billion coal-fired plant, saying it was too expensive and would cause too much pollution.

Just this week, the state of Michigan declared that two proposed coal-fired power plants in that state were not needed.

“There’s clearly a lot of uncertainty in this country about any traditional fossil fuel generation,” said Dusty Johnson, chairman of the South Dakota Public Utilities Commission.

Johnson said he understands Otter Tail’s position but said there’s still a need for power throughout the region. “Wind is going to play a role, and clearly natural gas is going to pick up a lot of the slack. But natural gas is also a carbon emitting fuel, and it can be expensive,” Johnson said.

Even if the other four utilities in the Big Stone II project find someone to fill the $400 million gap that Otter Tail has left, they must go back to many of the same regulators again seeking approval of the change.