October,
2004
Clean
Air
Interstate
Rule
Compliance
Costs
Minnesota
Economic
Impact
Concerns
Contact
Mike
Cashin,
Minnesota
Power,
218­
722­
5642
ext.
3339
MP
Pollution
Control
Technology
Installation
Costs:
Approximately
$
400
Million
If
Minnesota
Power
were
to
install
pollution
control
technology
to
achieve
CAIR
compliance,
Minnesota
Power's
customers
would
experience
a
large
rate
shock
in
order
to
recover
an
estimated
$
400
million
in
capital
costs.
This
translates
to
over
a
$
10
per
megawatt
hour
premium,
or
about
a
20%
average
electric
customer
rate
increase.
Minnesota
Power
has
significantly
reduced
the
SO2
and
NOx
emissions
from
its
generating
units
over
the
last
two
decades
by
burning
low
sulfur,
low
mercury
content
western
subbituminous
coal,
by
operating
over
70%
of
its
unit
capacity
with
scrubbers,
and
by
using
low
NOx
burner
equivalent
technology.
The
cost
for
Minnesota
Power
to
retrofit
controls
on
its
Minnesota
units
to
achieve
another
70%
in
reduced
SO2
and
NOx
emissions
as
required
under
the
CAIR
is
estimated
at
over
$
400
million
(
equipment
only,
not
including
overheads).
Annual
control
equipment
operating
and
maintenance
costs
would
add
another
$
26
million.
Adding
in
overhead
costs
we
estimate
nearly
a
half­
billion
dollar
customer
impact.

MP
Pollution
Control
Credit
Costs:
Approximately
$
33
million
annually
If
Minnesota
Power
were
to
purchase
credits
to
achieve
CAIR
compliance,
applying
USEPA's
estimated
cost
of
emission
credits,
the
economic
impact
on
customers
would
be
about
$
33
million
annually.
This
translates
to
a
significant
rate
increase
of
approximately
$
3.50
per
megawatt
hour
or
about
a
7%
average
electric
customer
rate
increase.

Additional
Background
Information
Minnesota
is
in
attainment
with
the
National
Ambient
Air
Quality
Standards
(
NAAQS),
including
the
more
stringent
fine
particulate
(
PM2.5)
and
eight
hour
average
ozone
standards.
The
focus
in
Minnesota
is
on
preserving
attainment
with
the
NAAQS,
as
is
indicated
by
the
voluntary
Clean
Air
Minnesota
program
and
Xcel
Energy's
Metropolitan
Emission
Reduction
Program
(
MERP).
The
USEPA
has
done
air
quality
monitoring
using
the
CMAQ
model
that
suggests
Minnesota
emissions
of
oxides
of
nitrogen
(
NOx)
may
be
impacting
Chicago
area
air
quality
in
excess
of
one
percent
of
the
15
microgram
per
meter
cubed
annual
average
NAAQS
standard
(
e.
g.
0.15
ug/
M3).
Consequently,
USEPA
has
included
Minnesota
in
its
proposed
Clean
Air
Interstate
Rule
with
28
eastern
states
that
must
achieve
a
70%
reduction
on
average
for
both
sulfur
dioxide
(
SO2)
and
nitrogen
oxides
(
NOx)
phased­
in
between
2010
and
2015.

 
The
cost
for
pollution
control
retrofits
of
Minnesota
Power
units
to
achieve
CAIR
targets
is
about
triple
that
of
the
estimated
cost
to
buy
emission
credits
 
but
even
credit
purchases
are
not
without
risk.
Most
of
the
emission
credits
will
be
purchased
from
utilities
in
eastern
states
that
delayed
installing
the
type
of
pollution
control
equipment
Minnesota
Power
installed
long
ago.
This
amounts
to
nothing
more
than
a
transfer
of
wealth.
There
is
also
a
risk
that
market
uncertainty
could
drive
the
cost
of
purchased
credits
higher
over
time.
Page
2
of
2
 
USEPA
modeling
did
not
credit
Clean
Air
Minnesota
and
MERP
reductions.
Emissions
profiles
used
in
EPA
models
appear
to
presume
emissions
allowed
by
permits
rather
than
actual
emissions,
which
overstates
emissions.
EPA
did
not
initially
include
agreed­
to
reductions
approved
by
Minnesota
regulators.
With
these
reductions
considered,
Minnesota
is
"
borderline"
even
using
the
overly
strict
USEPA
proposed
significance
level
of
1
percent
impact.

 
Air
emissions
from
Minnesota
show
impacts
well
below
the
significance
levels
supported
by
the
science.
Fine
particulate
monitor's
upon
which
air
quality
attainment
is
determined
have
greater
variability
than
+/­
0.15
ug/
M3
(
actual
is
typically
+/­
0.25
ug/
M3).
Correlation
of
the
CMAQ
model
predicted
results
with
ground
level
monitors
shows
variability
of
+/­
0.75
to
1.5
ug/
M3
or
more
(
model
variability
plus
monitor
variability).
Consequently,
a
more
appropriate
nonattainment
contribution
significance
level
for
including
a
state
in
CAIR
due
to
emissions
transport
concerns
would
be
5%
to
10%
(
the
low
end
of
what
the
models
can
predict)
of
the
NAAQS
standard,
not
1%
as
USEPA
proposes
for
CAIR.

 
All
Minnesota
emission
sources
are
modeled
by
USEPA,
not
just
electric
utility
emissions
(
e.
g.
includes
mobile
and
other
sources).
Yet,
the
CAIR
rule
only
focuses
on
utility
emission
reductions,
presuming
they
are
more
cost
effective.

 
USEPA
may
be
focusing
on
the
wrong
type
of
fine
particulates
to
achieve
desired
health
benefits.
All
species
of
fine
particulates
do
not
exhibit
the
same
health
impacts
yet
USEPA
is
proposing
a
standard
as
if
all
particles
(
nitrates,
sulfates,
carbonaceous
etc.)
have
equal
health
impacts.
Ongoing
studies
(
e.
g.
ARIES)
suggest
that
carbon
monoxide
and
carbonaceous
particulates
exhibit
statistically
significant
health
impacts
whereas
utility
sulfate
and
nitrate
do
not.
USEPA
is
focusing
only
on
sulfates
and
nitrates
related
to
power
plant
emissions
for
controls
under
CAIR.

 
Wealth
Transfer:
Minnesotan's
will
pay
twice
for
good
air
quality.
Minnesota's
electric
customers
have
already
paid
once
to
achieve
compliance
with
the
NAAQS.
They
will
pay
again
to
buy
credits
that
help
defray
the
cost
for
other
regions
to
achieve
air
quality
attainment.
Minnesota
air
quality
does
not
experience
any
benefits
under
CAIR
unless
the
pollution
control
retrofit
option
(
which
is
triple
the
cost
of
buying
pollution
control
credits)
is
selected.
Even
with
the
triple­
cost
pollution
control
technology
option
Minnesota's
air
quality
would
experience
only
some
small
incremental
improvement.

 
Xcel
Energy
projects
its
costs
for
CAIR
controls
in
Minnesota
are
about
equivalent
to
Minnesota
Power's,
potentially
resulting
in
about
a
billion
dollar
total
impact
on
Minnesota's
electric
customers.
This
economic
impact
is
in
addition
to
the
billion
dollar
expenditure
Xcel
Energy
will
incur
for
coal
unit
emission
control
retrofits
and
conversions
from
coal
to
natural
gas
under
its
recently
approved
Metropolitan
Emission
Reduction
Program
(
MERP).
