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As state economy booms, electricity shortage looms Tom Meersman and Susan E. Peterson Star Tribune Tuesday, January 2, 2001

The last time a major new electric-power plant was built in Minnesota was in the mid-1980s, when Ronald Reagan was President. The last time a major power line was constructed in the state occurred even earlier -- in the late 1970s.

After two decades of minimal building, Minnesota is facing the prospect of a serious electricity shortage during the next few years. A healthy economy and stronger-than-expected demand for power means the surplus electricity that the region enjoyed a few years ago has evaporated; energy forecasters estimate that the Upper Midwest will need 5,000 more megawatts of electricity -- more than half of it in Minnesota -- by 2006. That's the equivalent of five new nuclear plants the size of Prairie Island, or larger numbers of plants fired by coal or natural gas.

"That [forecast] really got our attention," said Linda Taylor, deputy commissioner for energy at the Minnesota Department of Commerce. "You want to be sure that when you turn that switch the light turns on, but even more important in Minnesota, you want to be sure that your furnace stays on."

The shortage cannot be fixed quickly. New power plants typically take five years for planning, hearings and license approvals -- and that's before actual construction begins.

But the need for new power plants is only half of the problem. Even more serious is a shortage of high-voltage transmission lines. New sources of electricity will do nothing to meet demands unless it can be transported to urban centers; and existing power lines already are nearly overloaded, making them more vulnerable to service interruptions.

Electricity use has increased not only because of business growth in a strong economy, said David Sparby, vice president for regulatory and government affairs at Xcel Energy in Minneapolis, but also because of technology -- additional computers, scanners, printers, Internet service providers and data centers. "The growth in demand with all of this miscellaneous segment of electronics has resulted in much more electric use than anyone thought even a few years ago," he said.

A recent analysis by the Minnesota Department of Commerce found that electricity use per residential customer in the state increased by nearly 20 percent between 1990 and 1998.

State energy plan

The looming shortage does not mean the lights will go out in five years. It will, however, erode the backup "reserve" system that swings into action during periods of unusually high demand.

The regional system, by agreement of its members, needs to have a reserve capacity, or margin, equal to 15 percent of the peak demands for power that normally occur during the hottest days of the year. This also helps assure that there will be enough electricity in case some of the plants that are designed to run constantly have to shut down for short periods.

But the increased use of electricity has caused the reserve margin, once well above 20 percent, to shrink closer to the 15 percent minimum considered necessary for a reliable system. And "it's dangerously close to disappearing," said Commerce Department Commissioner James Bernstein.

Industry forecasters expect the reserves to decrease to 14 percent in 2002 and then to decline steadily to 6 percent by 2009.

To encourage the building of new power plants and power lines, the Commerce Department will propose to the 2001 Legislature several changes, outlined in a report called "Keeping the Lights On." The proposal has four main components:

Establish a state-run centralized planning process that over the next year would identify Minnesota's energy needs and determine where and when new plants and transmission upgrades will be required.

Promote modern energy technologies, particularly smaller "distributed generation" projects such as natural gas or wind-powered turbines and fuel cells, which might take some of the stress off the transmission system by being located closer to where the greatest demand for electric service exists.

Increase energy-conservation efforts by moving conservation programs from individual utilities to independent third-party providers.

Explore ways to encourage competition among wholesalers and to attract independent producers who would build new power plants. Some of the changes could include reducing or abolishing utility property taxes and speeding up the regulatory approval process in Minnesota.

"It should not take six years to propose a plant and get permission to start building," Bernstein said. The Commerce Department's goal is to cut that period in half while retaining adequate environmental review of projects.

To the Capitol

The Commerce Department recommendations are likely to be a starting point for discussions at the Capitol during the next several weeks. Rep. Ken Wolf, R-Burnsville, who will become chairman of the House Regulated Industries Committee, said he's convinced that there's no time to waste. "It's important that we start this debate now, and that we don't put it off for a year or two."

Wolf said he will hear several proposals for change, including one that will be spearheaded by the Minnesota Chamber of Commerce, which doesn't think the state Commerce Department's proposal goes far enough.

The Minnesota Chamber, backed by several utilities and many businesses, wants changes in energy policy to include the first steps toward deregulating the electric-power industry. This would, among other things, break up traditional utility monopolies so that more companies could compete in Minnesota, eventually enabling consumers to choose their power company based on the most attractive service and price.

Deregulation, also known as restructuring, has been implemented in varying degrees in about two dozen states, with mixed results.

In any case, said Bill Blazar, the Chamber's senior vice president, current and future power companies in Minnesota need greater certainty about the regulatory environment. They need to know, for example, how long it will take to build new power plants and transmission lines, and whether their return on investment can be higher than the current regulated system will allow. Otherwise, they will be loath to commit $1 billion or more to build large plants.

Sparby, from Xcel Energy, agreed that it's time for major changes in Minnesota. "Unless some of these regulatory processes are streamlined," he said, "it's going to be increasingly difficult to build the facilities that our customers are going to require."

Sparby and David McMillan, a vice president of Duluth-based Minnesota Power, are concerned about the proposal for a state energy plan and other measures that would centralize planning functions that they think are better left to the marketplace. If the state wants to attract new entrants to build generation and transmission projects, McMillan said, it must avoid the temptation to abolish one onerous regulatory system, only to replace it with another.

Alternatives

A coalition of environmental, consumer and labor groups also is concerned about Minnesota's energy future, and is developing a plan that it claims would meet the state's electric needs without building large new power plants or power lines.

Matt Schuerger, director of the clean electricity program for Minnesotans for an Energy-Efficient Economy, said that state homeowners and industries have "saved" 2,000 megawatts during the past 15 years by installing energy-efficient lights, appliances, motors and other equipment, and by signing up for programs that allow their power to be interrupted or scaled back during periods of high usage. And he asserted that such programs still have huge untapped potential that would prevent the need for many additional power plants.

Still, Schuerger and others acknowledge that even with more aggressive energy-efficiency programs, more electricity will be needed. But they argue that it should be generated as much as possible by greater development of wind farms in the state, and by small-scale technologies that can produce electricity closer to where it is used: natural gas-fired turbines in industrial parks; individual wind machines for schools, churches and other institutions; and cogeneration projects, in which waste heat from a power plant is used to warm nearby factories or other structures.

Meanwhile, coal advocates say that this fuel should not be overlooked as at least a partial solution to the region's electricity problems, and that new technology allows coal to be burned more cleanly and with fewer emissions than in the past. North Dakota, with huge supplies of lignite coal in its northwestern counties, already is a major exporter of electricity to Minnesota.

The North Dakota Industrial Commission has partnered with the Lignite Energy Council, a trade association, to form "Lignite Vision 21," a project studying the feasibility of constructing a 500- to 600-megawatt coal-fired power plant as early as 2008.

The project has received $10 million from North Dakota's commission in order to do initial research, said John Dwyer, president of the council, and the partners are looking for potential investors, developers and customers. The power plant would cost about $500 million to build, they estimate.

The shortage of electricity in Minnesota also may change the debate about nuclear power's future in the state. The 1994 Legislature gave Xcel, formerly Northern States Power Co., permission to store nuclear wastes in up to 17 outdoor casks, which would allow the utility to continue operating its Prairie Island nuclear plant in Red Wing until 2007.

If Prairie Island were to shut down in six years, and if Xcel's Monticello nuclear plant northwest of the Twin Cities were to be retired when its operating license expires in 2010, the projected electric shortfall could increase significantly.

Those who follow the issue agree that Minnesota is overdue for a serious evaluation of its energy policy, though they disagree on what exactly the state should do. And they suggest that too much delay will increase the risks of power shortages, wild spikes in electric prices, or both.

"It's not only a question of keeping the lights on and the home fires burning," said Stephen Peluso, vice president for trading at Xcel Energy. "The continued economic growth of the country is in large part dependent on low-cost, reliable energy."

"Whatever technology, investment and infrastructure we decide to build is going to be with us for the next 50 years and possibly longer," said Diane Jensen, executive director of the nonprofit Minnesota Project. "This really is our chance to get it right."

Tom Meersman can be contacted at meersman@startribune.com Susan E. Peterson can be contacted at sepeterson@startribune.com

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-- Martin Thompson (mthom1927@aol.com), January 01, 2001

Answers

I remember ocntroversy over transmission lines a few years ago. Farmers complained that energy given off affected their health and the health of their animals and crops. Then there were complaints that the lines would affect the scenic beauty when they crossed rivers. Progress will require heavy concessions from the Greens.

-- John Littmann (littmannj@aol.com), January 02, 2001.