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New federal pollution standards weigh on utility rate increases

BILLINGS, Mont. -- The electric bills of customers could rise $178 a year to improve Montana Dakota Utilities' coal-fired power plants. But, MDU is being asked whether the plan makes sense with new pollution regulations coming.

BILLINGS, Mont. -- The electric bills of customers could rise $178 a year to improve Montana Dakota Utilities’ coal-fired power plants. But, MDU is being asked whether the plan makes sense with new pollution regulations coming.

At issue is whether customers of MDU should pay for upgrades to coal-fired power plants that could be shut down in a few years under the Environmental Protection Agency’s Clean Power Plan.

MDU provides  natural gas and electric service to parts of Montana, North Dakota, South Dakota and Wyoming. The service area covers more than 168,000 square miles with 384,000 customers.

The service area in question includes the Bakken oil field, and there are also doubts, given the economic slump in the oil business, about whether the future demand for MDU electricity will grow as the utility estimated it will. And critics argue that if the power isn’t needed, consumers shouldn’t have to pay to expand  MDU’s production.

The Clean Power Plan is the EPA’s 15-year road map for cutting carbon dioxide, a greenhouse gas that contributes to climate change. Beginning in 2020, the nation’s existing power plants will have to begin cutting carbon dioxide pollution. Some power plants will be upgraded with new pollution controls, while others beyond affordable improvement will be shuttered.

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States are required to submit compliance plans to the EPA by September. Extensions may be granted, but federal plans could also be issued in states were plans aren’t submitted.

Montana’s Public Service Commission will meet in Glendive on Feb. 9 to decide whether to approve the increase, which would be a 21 percent rate hike for MDU’s 26,000 electricity customers in Montana. None of the MDU’s natural gas customers would be affected.

“You shouldn’t want to make large capital investments in power plants that are then subject to other regulations that could shut them down,” said Travis Kavulla, PSC commissioner for most of the Montana customers in the MDU case.

MDU is arguing that it isn’t clear that its power plants won’t survive the Clean Power Plan regulations expected to kick in in 2022. The upgrades for which MDU wants its customers to pay is for have already been done.

Kavulla said this is the first time the Clean Power Plan has been an issue with rate increases tied to coal-fired power plants, but it probably won't be the last.

NorthWestern Energy, Montana's other regulated gas and electric utility, would have to explain how the Clean Power Plan would affect Colstrip Power Plant Units 3 and 4, if it asked consumers to pay for pollution upgrades there.

MDU spent millions adding pollution controls to its power plants to comply with existing rules. When the work was began, the Clean Power Plan wasn’t even around to consider, the company argues. What made sense was complying with the pollution laws on the books.

The construction costs were substantial. At Big Stone coal-fired power plant in South Dakota, upgrades meet pollution haze and mercury regulations cost $348 million. MDU has a 22.7 percent share in Big Stone and is passing its share of the bill onto consumers with rate increases. There were also $16 million in mercury pollution controls planned for the Lewis and Clark Power Plant in Sidney.

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The Lewis and Clark plant was built in 1950 and is within the age group of power plants that are struggling to remain operational under the Clean Power Plan, as are Colstrip Units 1 and 2, built in the 1970s.

Sidney, Glendive and Miles City make up the bulk of MDU’s electric customers in Montana, which is why the Feb. 9 hearing on the rate increase will take place in the Dawson County Courthouse basement in Glendive.

MDU filed its rate increase request last summer, but public comment on the issue has been minimal. A few Eastern Montanans early in the process balked at a net metering arrangement written into the plan, which would have made it difficult for people with solar panels. The actual rate increase has drawn little response.

The PSC will have to decide if the likelihood of the Clean Power Plan driving up costs for the MDU customers in the future means that Montanans would be better served by MDU finding another source for its power, most likely on the open market.

There are two appointed consumer advocates, one for small customers and the other for large commercial customers, arguing against the size of MDU rate increase. Both are asking the PSC to limit the rate increase to roughly a fourth of what MDU wants.

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