Minnesota Increases Carbon Emission Component of Generation Costs

In recognition that advances in technology, science, and computer modeling had rendered now 20-year-old generation-related environmental cost factors outdated, the Minnesota Public Utilities Commission has adopted a new schedule of such costs for use when reviewing and selecting electric generation resource options.

The commission’s decision builds on an early 1997 order in which the commission, in compliance with a recent state law, had for the first time established a range of environmental cost values for certain pollutants produced in the power production process. The subject law, passed in 1993, directed the commission to quantify, to the extent practicable, a matrix of environmental costs associated with each method of electricity generation. Among the emissions so addressed in the prior order were carbon dioxide (CO₂), sulfur dioxide (SO₂), nitrogen oxide (NOx), and particulate matter (PM).

In the earlier decision, the commission had instructed jurisdictional electric utilities to estimate their generation costs under three different scenarios: (1) the base cost of resources without regard to any environmental externalities associated with the source; (2) the base cost of the generation resource plus the minimum environmental cost value associated with the source; and (3) the base cost of the generation resource plus the maximum environmental cost value established in the range.

The utilities were further advised that different cost ranges could be applicable in urban versus “metropolitan fringe” versus rural areas.

For example, although the commission set a uniform CO₂ cost range of 30 cents per ton to $3.10 per ton in each of the three geographical divisions, it differentiated between the three areas for SO₂, identifying a range of $112 to $189 per ton in urban areas but just $46 to $110 per ton in metropolitan fringe sectors and an even lower value of $10 to $25 per ton in rural regions. A similar spread was listed for NOx, with $371 to $978 per ton in urban communities but only $140 to $266 per ton in metropolitan fringe areas and $18 to $102 in rural areas.

In taking a fresh look at the environmental values assigned back in 1997, the commission concurred with those parties favoring a significant increase in such values. Those parties had pointed to more recent studies that had documented the considerable health and environmental damage that can result from the pollutants released into the air and waterways as a byproduct of combustion in fossil fuel-fired generating facilities. The commission stated that in updating its environmental cost schedules, it had attempted to place an economic value on the net damage to the environment caused by power plant operations.

To that end, the commission found that new, much higher values should be recorded for CO₂, SO₂, and NOx, while a value specific to PM2.5 should be instituted. As to the first element, CO₂, the commission ruled that the range should go from a low of $9.05 per ton to a high of $42.46 per ton. That makes the minimum CO₂ value 30 times that established back in 1997, while the maximum CO₂ value shows a hefty increase of more than 13 times the original environmental cost adder.

For SO₂, the new range demonstrated an even greater rise, at $5,753 to $14,382 per ton in urban areas. But interestingly, the differentials between urban SO₂ environmental cost values and those for the other two geographic communities were not nearly as wide as they had been in 1997. The commission set the new SO₂ cost range for the metropolitan fringe at $4,543 to $11,317 per ton, while it employed a range of $3,427 to $8,352 per ton in rural regions. To give those numbers some perspective, the minimum urban SO₂ cost value has risen more than 50 times over, the minimum metropolitan fringe value has climbed almost 100 times over, and the rural region has seen an increase of more than 340-fold.

Tracking the new environmental cost values adopted for NOx, the commission ruled that the lowest urban value will be $2,760 per ton while the highest for that sector will be $7,893. As with SO₂, the differentials between the different geographic communities were not as great as they had been previously. Thus, for the metropolitan fringe, the minimum NOx value was set at $2,467 per ton, not that much lower than the urban value. Similarly, the maximum NOx value for the metropolitan fringe was listed as $7,336 per ton, again not so different from the urban value. The rural NOx cost adders, while lower, still were considerably higher proportionally compared to the urban and metropolitan fringe areas than they had been in 1997. The new value ranges for NOx in rural communities go from $1,985 to $6,370 per ton.

Finally, in establishing a schedule for PM2.5 for the first time, the commission acknowledged the significant risks to public health and safety that such emissions pose. It therefore adopted a PM2.5 schedule reflecting a low of $10,063 per ton and a high of $25,137 per ton for urban areas, in contrast to a minimum value of $6,450 per ton and a maximum value of $16,078 per ton for the metropolitan fringe. The PM2.5 value approved for rural areas varied from $3,437 to $8,441 per ton.

The commission stressed that the emission cost values are never applied directly to customer bills. Rather, the commission said, the point of setting such environmental cost ranges is to help utilities decide from among a broad spectrum of generating resource options.

The commission asserted that the state legislature had envisioned the cost value ranges as an important tool to assist utilities as they deliberate whether and to what extent to rely on natural gas or solar or wind or some other fuel source for their power. The commission expounded that in evaluating such choices, it has become the norm in the industry to include the societal cost of a particular resource along with the direct economic cost of such.

The commission remarked that it anticipates that the new environmental cost values for power plant emissions will provide yet an additional incentive for utilities to look toward utilizing more clean, green, carbon-free generating resources, especially renewables such as wind and solar. Re Environmental and Socioeconomic Costs Under Minnesota Statutes Section 216B.2422, Subdivision 3, Docket No. E-999/ CI-14-643, Jan. 3, 2018 (Minn.P.U.C.).