Lawsuit likely over Minnesota carbon tax

Minnesota CO2 Cost Adder Dispute pits North Dakota against the PUC over carbon pricing, utilities resource planning, and electricity rates, influencing coal plants, renewables like wind and hydro, and potential litigation under the Commerce Clause.

Attorney General Wayne Stenehjem said North Dakota is likely to file a legal challenge to Minnesota's efforts to make it costlier for utilities to use coal-generated electricity produced in western North Dakota.

North Dakota officials have tried for months to change or soften the rules, which say power sources that generate carbon dioxide should include $9 to $34 in extra costs per ton of gas produced. The rules are intended to encourage utilities to use clean energy sources for supplying electricity to their customers.

"The bottom line is... their energy bill legislation will result in much higher electricity costs in Minnesota, with no appreciable improvement in the amount of carbon dioxide that's emitted," he said.

Stenehjem argued the rules would violate the U.S. Constitution's restrictions on states regulating each other's businesses.

Minnesota's Public Utilities Commission has rejected North Dakota's arguments in rate hearings before the commission. A spokesman for the agency, Burl Haar, declined comment about a possible North Dakota lawsuit.

Stenehjem, Gov. John Hoeven and Agriculture Commissioner Doug Goehring are members of the North Dakota Industrial Commission, which oversees a state coal research fund.

The state Legislature has authorized the commission to spend up to $2 million on possible litigation in the Minnesota dispute. Stenehjem said no decisions have been made on when a lawsuit will be filed, or whether it would be brought in state or federal court.

Western North Dakota's lignite fields supply nearby power plants that provide electricity for Minnesota customers.

Great River Energy, of Maple Grove, Minn., owns power plants near the western North Dakota communities of Underwood and Stanton that are capable of generating almost 1,300 megawatts of power. Great River supplies electricity to 28 rural Minnesota cooperatives.

Otter Tail Power Co., based in Fergus Falls, Minn., supplies communities in western Minnesota and manages the 427-megawatt Coyote station south of Beulah, N.D.

The regulatory dispute dates to the mid-1990s, when the Minnesota PUC considered proposals to assess environmental costs of electricity generated by North Dakota coal plants. The commission ultimately exempted the plants from its proposed rules.

Two years ago, the Minnesota Legislature approved a law that ordered the agency to estimate how regulations will affect energy costs and to use the figures in forecasting customers' electricity costs.

The PUC's initial estimates, published in December 2007, assumed coal-generated electricity would carry an environmental cost of at least $4 per ton of carbon dioxide generated, with a maximum of $30 a ton. Its most recent estimates, published last October, put the range at $9 to $34 per ton.

Industry estimates say an estimated $9- to $34-per-ton charge would add roughly $7.50 to $28 monthly to the electric bill of ratepayers such as a residential customer who used 800 kilowatt hours a month. The increase would be lessened if the utility supplied power from other sources that generate less carbon dioxide.

Coal burning is a major source of carbon dioxide, which can trap heat in the Earth's atmosphere. Along with increasing customer costs for coal-provided electricity, Minnesota's added regulatory fees would make the price of power generated by wind power more attractive, as would electricity from hydroelectric dams or nuclear reactors.

Beth Goodpaster, energy program director for the Minnesota Center for Environmental Advocacy, said the legislation and the PUC rules only require utilities to consider the potential cost of carbon dioxide regulation when deciding how they will meet future electricity demands.

"The wide consensus is that we are going to have to start paying for emissions of carbon dioxide, and consumers at the end of the line are going to have to pay for it," Goodpaster said. "We want to minimize the costs and the risks to Minnesota customers as much as we can."

Stenehjem said he and Ron Rauschenberger, Hoeven's chief of staff, have traveled to St. Paul, Minn., to speak with state officials, including Minnesota Attorney General Lori Swanson, about the issue.

Glenn Wilson, the top administrator at Minnesota's Department of Commerce, and other officials toured the Great Plains Synfuels Plant near Beulah in July 2008 in an effort by North Dakota officials to demonstrate the state's work in carbon storage underground in North Dakota.

The Great Plains plant makes synthetic natural gas from lignite. It retains a portion of the carbon dioxide released through its manufacturing process and pipes it to a huge oilfield in southern Saskatchewan, where it is pumped underground to help force oil to the surface.

"We have done about everything that we can do to attempt to work with officials in Minnesota," Stenehjem said.

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