Midwest utilities look anew for resources with Big Stone II cancellation

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Related Companies Basin Electric Power Coop Black Hills Corp. (BKH) Central Minnesota MPA Heartland Consumers Power Dist MDU Resources Group Inc. (MDU) Missouri Basin Municipal Power Otter Tail Corp. (OTTR)

Related Documents Investor Presentation (IP) MDU Resources Group Inc. 11/3/2009, filed on 11/3/2009

Related Articles 11/2/2009 Midwest utilities cancel $1.6B Big Stone II coal plant, transmission lines 9/16/2009 Big Stone II group weighs options for going forward 9/14/2009 CapX2020 opponents petition Minnesota appeals court to overturn need approvals 6/5/2009 Environmental groups appeal Minnesota OK of Big Stone II transmission 4/13/2009 MDU Resources purchases 25% stake in Wyoming power plant from Black Hills

Related Power Plants Big Stone Big Stone II Laramie River Station Wygen 3

The cancellation of the Big Stone II coal plant and transmission project has the affected utilities looking for more baseload power, officials with MDU Resources Group Inc. and Missouri River Energy Services said Nov. 3.

"Yes, we have baseload needs," MDU President and CEO Terry Hildestad said in response to a question at the Edison Electric Institute's annual financial conference in Hollywood, Fla. MDU and its Montana-Dakota Utilities division prefer to own rather than contract baseload power, he said, adding, "We are looking at other baseload options to do that."

"We are looking at a number of options" like the other Big Stone partners, said Missouri River spokesman Bill Radio, adding that the most logical alternatives now include natural gas and market power purchases.

Missouri River, known legally as the Missouri Basin Municipal Power Agency, would have owned more than 34% of the Big Stone II plant, which was being planned for capacity of between 500 MW and 600 MW. MDU would have owned more than 26%. The other two members of the group, Central Minnesota Municipal Power Agency and Heartland Consumers Power District, would have held less than 7% and 6%, respectively.

The group had hoped to lure one or more utilities into the fold to fill the ownership void left by the September withdrawal of Otter Tail Corp.

While officials said serious talks occurred with prospects, no agreement was reached by the time the four remaining owners had set for a go-no-go decision. Financial and permitting realities made it tough for the remaining partners to either significantly increase their ownership stake or shrink dimensions of the project, Radio said.

Missouri River has already invested $17 million in Big Stone II and will face some additional expenses connected with winding down the project.

MDU officials said in their EEI presentation that the utility had anticipated owning at least 116 MW of the new plant. Had Big Stone II gone ahead, MDU's total investment would have amounted to $350 million. MDU spokesman Mark Hanson said he did not immediately know how much MDU has already spent.

MDU also noted in the presentation that earlier this year, it purchased a 25% stake in Black Hills Corp.'s 100-MW Wygen 3 coal unit under construction in Wyoming. That investment amounts to $64 million.

The cancellation of the transmission lines will hurt Midwest wind energy developers that had hoped for interconnections, said Hanson.

However, the Big Stone II cancellation will not affect the CapX2020 high-voltage transmission endeavor, said spokesman Tim Carlsgaard. That effort would connect Minnesota's Twin Cities area to Wisconsin, North Dakota and South Dakota. Critics of the portion to Brookings County, S.D., had claimed that the line was meant to serve the Big Stone plant, leading Minnesota regulators to condition their approval on interconnection of renewable sources.

"The Brookings line is moving forward," Carlsgaard said Nov. 3. "We're moving through the regulatory process in Minnesota. We will be filing our South Dakota permits in 2010. We are going forward just as we had planned, for the same issues: community reliability, reliability in general, opportunities to open up a generation outlet, including renewable generation, out in that western part of Minnesota and eastern South Dakota."

Likewise, Big Stone II would have had installed environmental controls that would have been shared with the existing Big Stone plant.

Coal plant critics hail cancellation

Two environmental groups estimated Big Stone II would have emitted anywhere between 4 million and 4.5 million tons of carbon dioxide emissions annually. The cancellation should help the development of more wind power in the upper Midwest, they said.

Minnesota Center for Environmental Advocacy staff attorney Beth Goodpaster said her organization would stand with any utility that wants to build transmission access to wind projects in Minnesota. The center has fought approval of the Big Stone II transmission project in the Minnesota Court of Appeals.

Likewise, James Gignac, Midwest director of the Sierra Club's Beyond Coal Campaign, said Big Stone II would have thwarted demand for wind power in South Dakota. Gignac questioned if there would be significant need for new baseload power in the region because of a flatter demand and new energy efficiency programs.

Both MDU and Missouri River say they are expanding their wind power and demand-side efforts while seeking more baseload power.

Radio noted Big Stone II was initially supposed to go online in 2011, but the target date was delayed to 2015-2016. Missouri River gets most of its baseload power from Basin Electric Power Cooperative's Laramie River coal plant along with some gas generation.